[Federal Register Volume 80, Number 145 (Wednesday, July 29, 2015)]
[Notices]
[Pages 45259-45264]
[FR Doc No: 2015-18540]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75516; File No. SR-C2-2015-021]

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

July 23, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 17, 2015, 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 and II 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 Rules 6.13 and 6.17 relating to
price check parameters on the Exchange. The text of the proposed rule
change is provided in Exhibit 5 and is also 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
    Under Rule 6.17, C2 does not automatically execute eligible orders
that are marketable if (i) the width between the national best bid and
offer (the ``NBBO'') is not within an acceptable price range (as
established by the Exchange on a series by series basis for market
orders and/or marketable limit orders within certain parameters and
announced to Trading Permit Holders (``TPHs'') via Regulatory Circular)
(the ``market width parameter''), or (ii) 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 (``ATD'') from the
initial execution (as determined by the Exchange on a series by series
and premium basis for market order and/or marketable limit orders and
announced to TPHs by Regulatory Circular) (the ``drill through
parameter'').
    The purpose of this proposed rule change is, first, to codify
another price reasonability check within Rule 6.17. The reasonability
check is currently in use but not expressly covered in the rules.
Specifically, under this reasonability check, referred to as the
``limit order price parameter,'' the Exchange will not accept for
execution eligible limit orders if (i) prior to the opening (including
before a series is opened following a halt),\3\ the order is to buy are
at more than an acceptable tick distance above the Exchange's previous
day's close or the order is to sell are at more than an acceptable tick
distance below the Exchange's previous day's close (such ATD will be as
determined by the Exchange on a series by series and premium basis and
announced to TPHs by Regulatory Circular); \4\ or, (ii) once a series
has opened, the order is to buy are at more than an acceptable tick
distance above the disseminated Exchange offer or the order to sell are
at more than an acceptable tick distance below the disseminated
Exchange bid (such ATD will be as determined by the Exchange on a
series by series and premium basis and announced to TPHs by Regulatory
Circular).\5\ The Exchange will not apply pre-opening limit order price
parameters to limit orders of Exchange Market-Makers or away Market-
Makers, or to Intermarket Sweep Orders (``ISOs'') as such cannot be
entered prior to the opening on the System.\6\ Once a series has
opened, limit order price parameters will be applied to ISOs in all
classes in which the limit order price parameter is activated.\7\ The
Exchange may determine on a class by class basis and announce via
Regulatory Circular whether to apply the parameters in (i) and/or (ii)
above to immediate-or-cancel orders if doing so would be necessary or
appropriate in furtherance of the interests of investors and the
promotion of fair and orderly markets.\8\
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    \3\ This includes halts that may occur at any time after the
opening of trading on a particular trading day. The Exchange notes
that this is the manner in which the limit order price parameter
functionality currently operates. The Exchange believes that this
functionality provides an additional safeguard to consider the
reasonableness of limit order pricing prior to a re-opening
following a trading halt.
    \4\ This parameter for limit orders received prior to the
opening (including before a series is opened following a halt) is
not applicable to limit orders of Exchange Market-Makers and away
Market-Makers. The Exchange believes that Market-Makers actively
evaluate the pre-opening market and utilize their own risk
management parameters when entering, maintaining and cancelling
orders prior to the opening, minimizing the likelihood of a Market-
Maker order resulting from an error from being entered and
continuing to rest prior to the opening of trading. In that regard,
while the Exchange believes that the application of its limit order
price parameters serve to promote a fair and orderly market, the
parameters are not a substitute for a broker-dealer's compliance
with Rule 15c3-5 under the Act, 17 CFR 240.15c3-5 (commonly referred
to as the ``Market Access Rule'').
    \5\ The Exchange notes that with respect to simple orders, limit
order price parameters will be applied [sic] a series by series
basis with ATDs to be applied to the series that is the subject of
the simple order execution as only one series is involved in a
simple order execution. With respect to complex orders, limit order
price parameters will be applied on a class by class basis with ATDs
to be applied to both (each) of the individual legs of both (each)
series comprising the complex order as well as the net derived
premium price (``net premium basis'') of the complex order as a
whole. These parameters will be applied on a class by class basis
for complex orders as multiple series in a class are involved in a
complex order execution. The Exchange notes that the ATDs determined
by the Exchange on a series by series and premium basis (i.e. simple
order executions) and class by class and net premium basis (i.e.
complex order executions) under Rules 6.17 and 6.13 will be
announced via Regulatory Circular at least one day in advance.
    \6\ Under Rule 1.1, the term ``System'' means the automated
trading system used by the Exchange for the trading of options
contracts.
    \7\ For all classes where the limit order price parameter is
activated, it is currently applied to ISOs. ISOs are oftentimes used
to capture size on the Exchange that is not available on other
markets. As a result, ISOs tend to be large orders and thus, the
consequences of order entry errors may be great. In an effort to
protect market participants from the consequences of such order
entry errors and prevent market disruptions that may be caused by
erroneously placed orders, the Exchange has determined to apply
limit order price parameters to ISOs on the Exchange. The Exchange
believes that applying limit order price parameters to ISOs serves
to protect investors and is consistent with Section 6(b) of the Act.
The Exchange has in place rules and surveillances to ensure that
ISOs are used in an appropriate manner consistent with the Options
Order Protection and Locked/Crossed Market Plan, C2 Rules, and
Federal Securities laws. See Section E of Chapter 6 (incorporating
by reference CBOE's rules relating to the Options Order Protection
and Locked/Crossed Market Plan), relating to Intermarket Linkage and
corresponding Chicago Board Options Exchange, Incorporated
(``CBOE'') Rule 6.80(8) defining an ISO as a Limit Order for an
options series that, simultaneously with the routing of the ISO, one
or more additional ISOs, as necessary, are routed to execute against
the full displayed size of any Protected Bid, in the case of a limit
order to sell, or any Protected Offer, in the case of a limit order
to buy, for the options series with a price that is superior to the
limit price of the ISO and noting that a Trading Permit Holder may
submit an ISO to the Exchange only if it has simultaneously routed
one or more additional ISOs to execute against the full displayed
size of any Protected Bid, in the case of a limit order to sell, or
Protected Offer, in the case of a limit order to buy, for an options
series with a price that is superior to the limit price of the ISO.
Should the Exchange, in the future, determine that, in the interests
of fair and orderly markets or, in furtherance of the objectives of
the Options Order Protection and Locked/Crossed Market Plan, limit
order price parameters should be applied to ISOs (or another order
type) in a different manner as other order types, the Exchange may
determine to widen or narrow the ATDs with respect to ISOs (or
another order type), which would be announced via Regulatory
Circular. Should the Exchange, in the future, determine that, in the
interests of fair and orderly markets or, in furtherance of the
objectives of the Options Order Protection and Locked/Crossed Market
Plan, limit order price parameters should not apply to ISOs, a
further rule filing would be required.
    \8\ For all classes where the limit order price parameter is
activated, it is not currently applied to immediate-or-cancel
orders. Immediate-or-cancel orders are oftentimes used by Market-
Makers and sophisticated investors to hit existing books as orders
become available. Although the Exchange also believes that there is
less of a need to protect Market-Makers and sophisticated investors
from potential order entry errors, the Exchange is interested in the
protection of all market participants from unintended order entry
errors. As a result, in furtherance of the interests of investors
and the promotion of fair and orderly markets, the Exchange is
considering applying limit order price parameters to immediate-or-
cancel orders in the future. Any such determination would be made
pursuant to proposed Rules 6.13.04(g) and 6.17(b) and announced via
Regulatory Circular [sic].
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    For purposes of this limit order price parameter: An ``acceptable
tick distance'' or ``ATD'' \9\ is to be determined by the Exchange on a
series by series and premium basis and shall be no less than five
minimum increment

ticks.\10\ The senior official in the Help Desk might widen or
inactivate the limit order price parameters on an intra-day basis in
the interest of a fair and orderly market.\11\ The limit order price
parameter takes precedence over another parameter to the extent that
both are applicable to an incoming limit order.\12\
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    \9\ The Exchange notes that, for a given series, the applicable
ATDs for the limit order price parameters (which may not be less
than five minimum increment ticks) may differ from the ATDs for the
drill through parameters (which may not be less than two minimum
increment ticks). For example, the Exchange may determine that the
drill through ATD for all series of a given class trading in $0.01
increments is $0.02 and the limit order price ATD settings for the
same class are as described in note 8, infra [sic]. The settings may
differ because the limit order price parameters and the drill
through parameters are intended to provide reasonability checks that
address various trading scenarios (e.g., marketable orders that
would otherwise drill through multiple price points and limit orders
that are priced significantly through the disseminated Exchange bid/
offer or the prior day's close). The Exchange believes use of
multiple reasonability checks helps to prevent the entry and
execution of orders at potentially erroneous prices, which should
promote a fair and orderly market.
    \10\ For example, currently the Exchange has determined for all
classes where the limit order price parameter is activated that the
Exchange would not accept the following limit orders for execution:
(i) If the market quote is less than or equal to $3, limit orders to
buy priced more than $0.50 above the offer and limit orders to sell
priced more than $0.50 below the bid; (ii) if the market quote is
greater than $3 and less than or equal to $10, limit orders to buy
priced more than $1.00 above the offer and limit orders to sell
priced more than $1.00 below the bid; (iii) if the market quote is
greater than $10 and less than or equal to $30, limit orders to buy
priced more than $1.50 above the offer and limit orders to sell
priced more than $1.50 below the bid; (iv) if the market quote is
greater than $30 and less than or equal to $50, limit orders to buy
priced more than $2.00 above the offer and limit orders to sell
priced more than $2.00 below the bid; or (v) if the market quote is
equal to or greater than $50, limit orders to buy priced more than
$3.00 above the offer and limit order to sell priced more than $3.00
below the bid. See C2 Regulatory Circular RG13-059, which is
available at http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf. For the same classes, the Exchange has determined that
limit orders received before a series is in opened will be checked
against the previous trading day's closing price using the same
parameters noted above. Exchange Market Maker and away Market Maker
orders received pre-open are excluded from this pre-open limit order
price parameter. The foregoing limit order price parameters are in
effect in all classes except options on Apple Inc. (AAPL). There are
no limit order price parameters currently activated for option class
AAPL. See id. According to the Exchange, volume for options class
AAPL is higher and trading is more volatile, while the price of the
underlying stock is higher (e.g., Apple Inc. closed at $125.69 on
July 7, 2015). The Exchange believes that application of the limit
order price parameter in these circumstances may serve as more of a
hindrance to the orderly processing orders (e.g., application of the
parameter may result in an inordinate number of orders being
excepted from automated process and instead routing for manual
handling) and, as a result, has determined to not apply the
parameters to option class AAPL for the time being. However, the
Exchange may evaluate whether to apply the parameters to the option
class and any determination to do so would be announced via
Regulatory Circular.
    \11\ For example, if an underlying stock is high priced or
volatile and is experiencing significant price movement and the
existing parameters would result in an inordinate number of limit
orders not being accepted, the senior official in the Help Desk may
determine to widen the parameters on an intra-day basis in the
overlying or related options series. See C2 Rule 6.17(B); see also
C2 Regulatory Circular RG13-059, which is available at http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf. As another
example, if the overall market is experiencing significant
volatility, the senior official in the Help Desk may determine to
widen the limit order price parameters for a series. In that regard,
the Exchange has determined that on any trading day where the front-
month E-mini S&P 500 Futures (symbol ES/1) are trading more than 20
points above or below the previous day's closing values by 8:00 a.m.
(all times noted are Central Time), the Exchange will widen the
limit order price parameter levels from $0.50, $1.00, $1.50, $2.00
and $3.00 as set out in note 10, supra, to $1.00, $2.00, $3.00,
$4.00 and $6.00, respectively, for the trading day for all series
where the limit order price parameter is activated (referred to
herein as the ``Standing Intraday Relief Condition''). See C2
Regulatory Circular C2 RG13-059. The next trading day, the limit
order price parameter levels would revert back to the normal
setting, unless the E-mini S&P 500 Future is more than 20 points
above or below the previous day's closing values by 8:00 a.m.
    Example of Standing Intraday Relief Condition: If on Monday the
E-mini S&P 500 Futures close at 1700 and by 8:00 a.m. on Tuesday the
E-mini S&P 500 Future is trading at 1730 (30 points above the prior
day's close of 1700), then the Exchange would adjust the limit order
price parameters to the wider levels noted above. If the E-mini S&P
500 Futures close on Tuesday at 1725 and by 8:00 a.m. on Wednesday
are trading at 1720 (only 5 points below the prior day's close of
1725), then the limit order price parameter settings would revert
back to the levels that were in place on Monday. However, if by 8:00
a.m. on Wednesday the E-mini S&P 500 Futures are trading at 1700 (25
points below the prior day's close of 1725), then the limit order
price parameter settings would remain at the levels that were in
place on Tuesday.
    The Exchange notes that these examples are non-exhaustive and
for illustrative purposes only. The Exchange also notes that it may
determine for the parameters to differ among series and between pre-
open and intra-day.
    \12\ For example, assume the Exchange has established drill
through and limit order price ATD settings as prescribed in notes 10
and 11 [sic], supra. If the market quote in a given series is $2.15-
$2.55 and an incoming limit order to buy is priced at $3.50 (more
than $0.50 above the offer), the limit order price ATD will be
triggered and the Exchange will not accept the limit order for
execution. The drill through parameter would not apply (the drill
through ATD parameter would only be considered if the limit order
price ATD parameter is not triggered).
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    The Exchange is also proposing to codify a limit order price
parameter for complex orders within Rule 6.13 under proposed
Interpretation and Policy .04(g). This limit order price parameter,
which is comparable to the limit order price parameters applicable to
simple orders described above, is not currently in use. Under this
complex order limit order price parameter the Exchange will return a
limit priced complex order to the order entry firm where the order is
(i) prior to the opening (including before a series is opened following
a halt), priced at a net debit that is more than an acceptable tick
distance above the derived net market using the Exchange's previous
day's close in the individual series legs comprising the complex order
or priced at a net credit that is more than an acceptable tick distance
below the derived net market using the Exchange's previous day's close
in the individual series legs comprising the complex order (such ATD
will be as determined by the Exchange on a class by class and net
premium basis and announced via Regulatory Circular); or (ii) once a
series has opened, priced at a net debit that is more than an
acceptable tick distance above the opposite side derived net market
using the Exchange's best bid or offer in the individual series legs
comprising the complex order or priced at a net credit that is more
than an acceptable tick distance below the opposite side derived net
market using the Exchange's best bid or offer in the individual series
legs comprising the complex order (such ATD will be as determined by
the Exchange on a class by class and net premium basis and announced
via Regulatory Circular).\13\ Similar to simple orders, this parameter
for limit priced complex orders received prior to the opening would not
be applicable to limit orders of Exchange Market-Makers or away Market-
Makers, or to ISOs as such cannot be entered prior to the opening on
the System. Once a series has opened, limit order price parameters will
be applied to ISOs in all classes in which the limit order price
parameter is activated.\14\ The Exchange may determine on a class by
class basis and announce via Regulatory Circular whether to apply the
parameters in (i) and/or (ii) above to immediate-or-cancel complex
orders (similar to the discussion above for simple orders). The
Exchange also notes that the limit order price parameter will not be
applicable to stock-option orders.\15\ The Exchange also proposes
several non-substantive changes within Interpretation and Policy .04 to
Rule 6.13 to abbreviate the terms ``acceptable price range'' and
``acceptable tick distance'' where appropriate for consistency
purposes.
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    \13\ In accordance with the existing provisions of Rule 6.13.01,
all pronouncements regarding determinations by the Exchange pursuant
to proposed Rule 6.13.04(g) will be announced via Regulatory
Circular.
    \14\ Should the Exchange, in the future, determine that, in the
interests of fair and orderly markets or, in furtherance of the
objectives of the Options Order Protection and Locked/Crossed Market
Plan, limit order price parameters should be applied to ISOs (or
another order type) in a different manner as other order types, the
Exchange may determine to widen or narrow the ATDs with respect to
ISOs (or another order type), which would be announced via
Regulatory Circular. Should the Exchange, in the future, determine
that, in the interests of fair and orderly markets or, in
furtherance of the objectives of the Options Order Protection and
Locked/Crossed Market Plan, limit order price parameters should not
apply to ISOs, a further rule filing would be required.
    \15\ Stock-options orders are excluded from the calculation
because the individual component stock leg is not traded on the
Exchange and, as a result, calculation of a derived net market by
the Exchange's automated system would be a more complicated
function. If in the future the Exchange would decide to enhance the
limit order price parameter functionality to address stock-option
orders, the Exchange would file a rule change to address stock-
option orders.
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    Similar to simple orders, the ATD for the limit order price
parameter for complex orders will be no less than 5

minimum net price increment ticks (where the ``minimum net price
increment'' is the minimum increment for net priced bids and offers for
the given complex order strategy). For example, if the minimum net
price increment for complex orders in a given series in a class is
$0.01, then the ATD would be no less than $0.05 (5 x $0.01). If the
minimum net price increment is $0.05, then the ATD would be no less
than $0.25 (5 x $0.05). Also similar to simple orders, the Exchange
might widen or inactivate limit order price parameter for complex
orders for one or more classes on an intra-day basis in the interest of
a fair and orderly market.\16\ The limit order price parameter will
take precedence over another complex order parameter to the extent that
both are applicable to an incoming limit order.\17\
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    \16\ See also note 11, supra.
    \17\ Rule 6.13.04 sets forth various price check parameters
applicable to complex orders. For each price check parameter that
may be applicable to incoming limit orders--except the market width
parameter--the system will not accept or will return the order back
to the order entry firm if the parameter is triggered. If the market
width parameter is triggered, an incoming (or resting) marketable
limit order will be held in the system, displayed in the complex
order book if applicable, and not be eligible for automatic
execution until the market width condition is resolved. See Rule
6.13.04. In the instance where both the limit order price parameter
and another parameter are applicable, the limit order price
parameter takes precedence (i.e., is applied first) before the other
parameter is applied.
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    The Exchange is also proposing a miscellaneous change to Rule
6.13.04 to specifically identify the price check parameters that are
not applicable to stock-option orders in the introductory text to this
provision. The particular parameters to which stock-option orders may
be subjected are already identified within the rule text. This proposed
change is simply to include a list of those parameters which are not
applicable to stock-option orders in the introductory paragraph for
ease of reference.\18\
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    \18\ Specifically, paragraphs (b) (credit-to-debit parameters),
(c) (same expiration strategy parameters), (e) (percentage distance
parameters) and proposed paragraph (g) (limit order price
parameters) of Rule 6.13.04 are not applicable to stock-option
orders.
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    The Exchange notes that the limit order price parameter for simple
and complex is intended to protect market participants from executions
of limit orders at prices that are significantly through the Exchange's
market (i.e., no less than five minimum increment ticks for simple
orders and no less than five minimum net price increment ticks for
complex orders). The Exchange believes that TPHs that submit orders on
C2 generally intend to receive executions of their orders at or near
the Exchange's market. A limit order that is priced significantly
through the Exchange's market could be indicative of an error (e.g.,
mistake in intended price, series, put/call) and could result in
executions occurring at prices that have little or no relation to the
theoretical price of the option. Accordingly, the Exchange believes the
limit order price parameter is a mechanism that will help prevent the
entry of erroneous orders, dramatic price swings and, potentially,
executions qualifying as obvious errors \19\ on C2. The Exchange also
believes that orders that are significantly priced through the market
have the potential to create market volatility by trading at different
price levels until executed in their entirety. As such, the Exchange
believes the limit order price parameter may also help limit
volatility.
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    \19\ See C2 Rule 6.15.
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    Second, the Exchange is proposing various miscellaneous changes to
the existing text in Rule 6.17. In particular, the Exchange is
proposing to include a title for each type of price check parameter
within the rule text (i.e., for the existing market width parameters,
the existing drill through parameters, and the proposed limit order
price parameters). The addition of these titles is non-substantive and
is intended for ease of reference only. In addition, the Exchange is
proposing to replace the ``class-by-class basis'' reference in proposed
Rule 6.17(c) with ``series by series and premium basis'' to provide
consistency within the Rules and reflect the fact that the APR for a
simple order will apply on a series by series basis to the single
series involved in the order and be determined on a premium basis in
relation to the bid-ask differential in that series. For the same
reasons, the Exchange proposes to add the term ``and premium'' to
proposed Rule 6.17(a)(1) regarding market width parameters. The
Exchange is also renumbering Rule 6.17 and clarifying existing
references to APR and ATD as references to the existing market width
APR and drill through ATD for ease of reference.
    The existing text of Rule 6.17 also provides that the senior
official in the Help Desk may grant intra-day relief by widening the
APR or ATD settings for one or more option series and that notification
of intraday relief will be announced via message to Trading Permit
Holders that request to receive such messages. The Exchange is
proposing to amend this provision to add that such intra-day relief may
be granted in the interest of a fair and orderly market. The Exchange
is also proposing to amend this provision to make clear that the senior
official in the Help Desk can grant relief by widening or inactivating
the applicable APR and/or ATD setting. The Exchange believes including
the reference to inactivating the applicable settings is not
substantive because an applicable APR or ATD parameter could be widened
to such a level that it would be in effect inactive. The Exchange is
also proposing to provide within the rule text that the intra-day
relief granted by the senior official in the Help Desk will not extend
beyond the trade day on which it is granted, unless a determination to
extend such relief if announced to TPHs via Regulatory Circular.\20\
The Exchange is also proposing to provide within the rule text that the
Exchange will make and keep records to document all determinations to
grant intra-day relief under Rule 6.17, and shall maintain those
records in accordance with Rule 17a-1 under the Act.\21\ The rule text
will also provide that the Exchange will periodically review
determinations to grant intra-day relief for consistency with the
interest of a fair and orderly market. Finally, the Exchange notes that
the same intra-day relief provisions are proposed to apply to the limit
order price parameter provisions for complex orders in proposed Rule
6.13.04(g).
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    \20\ The Exchange notes that conditions when the Standing
Intraday Relief will be instituted and the particular form of relief
have been announced via Regulatory Circular. See note 11, supra. The
announcement of the pre-established conditions and relief is
intended to serve the circular notification requirement and, as
such, a separate circular would not be issued if this relief is
instituted over multiple days. However, if the Exchange would
determine to modify the conditions for Standing Intraday Relief,
then the Exchange would announce those changes by issuing another
Regulatory Circular.
    \21\ 17 CFR 240.17a-1. The Exchange notes that determinations to
grant intra-day relief under Rule 6.17 will be made in compliance
with the provisions of the Act and the rules thereunder, including,
but not limited to, the requirements in Section 6(b)(5) of the Act,
15 U.S.C. 78f(b), that the rules of a national securities exchange
not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act
\22\ in general and furthers the objectives of Section 6(b)(5) of the
Act \23\ in particular, which requires that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, to remove impediments to and to
perfect the mechanism 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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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change furthers the
objective of Section 6(b)(5) of the Act in that it permits the Exchange
to address the entry of simple and complex limit orders that are priced
significantly away from the market that are likely to have resulted
from human or operational error.\24\ By being able to quickly and
efficiently reject orders that likely resulted from such error, the
proposed use of the limit order price parameter would promote a fair
and orderly market. Additionally, by having the flexibility to
determine the series or classes where the limit order price parameter
would be applied (or not applied) and the levels at which the ATD
settings would be applied, and to grant relief on an intra-day basis,
the Exchange is able to effectively structure and efficiently react to
particular option characteristics and market conditions--including
(without limitation) price, volatility, and significant price
movements--which contributes to its ability to maintain a fair and
orderly market. Accordingly, the Exchange believes that this proposal
is designed to promote just and equity principles of trade, remove
impediments to, and perfect the mechanism of, a free and open
market.\25\
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    \24\ The Exchange believes that these principles are equally
applicable to ISOs. In an effort to protect market participants from
the consequences of such order entry errors and prevent market
disruptions that may be caused by erroneously placed orders, the
Exchange has determined to apply limit order price parameters to
ISOs on the Exchange. The Exchange believes that applying limit
order price parameters to ISOs serves to protect investors and is
consistent with Section 6(b) of the Act.
    \25\ The Exchange notes that limit order price parameters are in
effect in all classes except options on Apple Inc. (AAPL). There are
no limit order price parameters currently activated for option class
AAPL. See C2 Regulatory Circular RG13-059, which is available at
http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf.
According to the Exchange, volume for options class AAPL is higher
and trading is more volatile, while the price of the underlying
stock is higher (e.g., Apple Inc. closed at $125.69 on July 7,
2015). The Exchange believes that application of the limit order
price parameters in these circumstances may serve as more of a
hindrance to the orderly processing orders (e.g., application of the
parameter may result in an inordinate number of orders being
excepted from automated process and instead routing for manual
handling) and, as a result, has determined to not apply the
parameters to option class AAPL for the time being. The Exchange
believes that because of these factors different treatment of the
AAPL class is warranted. However, the Exchange may evaluate whether
to apply the parameters to the option class and any determination to
do so would be announced via Regulatory Circular.
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    The Exchange also believes that the other proposed changes to Rule
6.17 (e.g., to include titles for the various price check parameters;
to change a reference from class by class to series by series; to make
clear that intra-day relief may be granted in the interest of a fair
and orderly market and may include widening or inactivating the
applicable APR and/or ATD; and to include provisions indicating that
intra-day relief may not extend beyond the trade day on which it is
granted, unless a determination to extend such relief is announced to
Trading Permit Holders via Regulatory Circular, and that the Exchange
will make and keep records to document determinations to grant intra-
day relief under Rule 6.17) should also serve to further these
objectives by more clearly and fully describing certain aspects of the
operation of these price check parameters and addressing determinations
to modify the operation of the price check parameters on an intra-day
basis as provided within Rule 6.17. For the same reason, Exchange
believes the substantially similar intra-day relief provisions for
complex orders in proposed Rule 6.13.04(g) should also serve to further
these objectives. The Exchange also believes that the proposed change
to the introductory paragraph to Rule 6.13.04 to specifically identify
the price check parameters that are not applicable to stock-option
orders should also serve to further these objectives by making the rule
easier to read and navigate.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 Exchange believes that
the proposed rule change will promote competition in that the limit
order price parameters provide market participants with additional
protection from anomalous trading. Thus, the Exchange does not believe
the proposal creates any significant impact on competition.
    The price check parameter features are intended to prevent
executions at potentially erroneously prices, which should serve to
promote a fair and orderly market and promote trading activity on the
Exchange to the benefit of the Exchange, its TPHs, and market
participants. The Exchange notes that the limit order price parameters
are applied equally to all eligible limit orders, with the limited
exception that the parameters do not apply to limit orders for Exchange
Market-Makers and away Market-Makers entered prior to the opening. The
Exchange believes this does not place an undue burden on competition as
the Exchange believes that Market-Makers actively evaluate the pre-
opening market and utilize their own risk management parameters when
entering, maintaining (and cancelling) orders prior to the opening,
minimizing the likelihood of a Market-Maker order resulting an error
from being entered and continuing to rest prior to the opening of
trading.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\
Because the 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, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \28\ and Rule 19b-
4(f)(6) thereunder.\29\
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    \26\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately. According to the
Exchange, the proposed rule change will provide additional protections
against the execution of limit orders that are priced significantly
away from the market as a result of human or

operational error. In addition, C2's proposed changes to allow
flexibility in setting the ATD for a particular option class or series
and to grant intra-day relief in the interest of a fair and orderly
market should provide the Exchange with the ability to address
particular option characteristics and markets conditions. Accordingly,
the Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest and
hereby designates the proposal operative upon filing.\32\
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    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    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 shall institute proceedings to
determine whether the proposed rule change should be approved or
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<EMAIL_ADDRESS>Please include
File Number SR-C2-2015-021 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-C2-2015-021. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal offices 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-C2-2015-021, and should be
submitted on or before August 19, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12), (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-18540 Filed 7-28-15; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: July 13, 2010 (Volume 75, Number 133)]
[Notices]
[Page 40000-40001]
[DOCID:fr13jy10-122]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62441; File No. SR-FINRA-2010-027]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to the
Restated Certificate of Incorporation of Financial Industry Regulatory
Authority, Inc.

July 2, 2010.
    On May 21, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the Restated Certificate of Incorporation
of FINRA (``Certificate of Incorporation'') to specify its quorum
requirements. The proposed rule change was published for comment in the
Federal Register on June 1, 2010.\3\ The Commission received no comment
letters on the proposed rule change. This order approves the proposed
rule change.
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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. 62160 (May 24,
2010), 75 FR 30457.
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    The proposed rule change would amend FINRA's Certificate of
Incorporation to specify the quorum required for a meeting of FINRA
members and the quorum required to take action on a matter where a
separate vote by a class or group is required.\4\ FINRA has represented
that it has proposed this rule change in order to preserve FINRA's
current quorum requirements in anticipation of amendments to the
General Corporation Law of the State of Delaware (the ``General
Corporation Law'') that will take effect on August 1, 2010.
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    \4\ Pursuant to FINRA's Certificate of Incorporation and By-
Laws, FINRA members vote as three distinct classes, based upon firm
size, for the election of members to the Board of Governors, i.e.,
Small Firm Governors, Mid-Size Firm Governor, and Large Firm
Governors.
---------------------------------------------------------------------------

    Section 215(c) of the General Corporation Law, as currently in
effect, provides that the certificate of incorporation or bylaws of a
nonstock corporation may specify the number of members having voting
power who shall be present or represented by proxy at any meeting in
order to constitute a quorum for the transaction of any business and,
that in the absence of such specification, one-third of the members of
such corporation shall constitute a quorum at a meeting of such
members.\5\ FINRA is a nonstock corporation and neither FINRA's
Certificate of Incorporation nor its By-Laws specify the quorum
required at a meeting of its members. Accordingly, pursuant to Section
215(c) of the General Corporation Law, attendance in person or by proxy
of one-third of FINRA's members currently constitutes a quorum at a
meeting of such members.\6\
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    \5\ Del. Code Ann. tit. 8 Sec.  215(c) and (c)(1) (2010).
    \6\ See id.
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    On August 1, 2010, the General Corporation Law will be amended to,
among other things, add new Section 215(c)(4), which section will add a
new default quorum requirement for instances where a separate vote by a
class or group of members is required. Specifically, effective August
1, 2010, unless the certificate of incorporation or bylaws of a
nonstock corporation provides otherwise, where a separate vote by a
class or group of members is required, a majority of the members of
such class or group shall constitute a quorum entitled to take action
with respect to the vote on such matter.\7\
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    \7\ Del. H.B. 341, 145th Gen. Assem. Sec.  19 (2010).
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    In anticipation of the foregoing amendment to the General
Corporation Law, FINRA has proposed to amend its Certificate of
Incorporation to set forth quorum requirements for its meetings of
members, including in instances where a separate vote by a class or
group is required. Specifically, FINRA has proposed that, at all
meetings of its members, the presence in person or by proxy of one-
third of the members entitled to vote at the meeting shall constitute a
quorum; provided, however, where a separate vote by a class or group of
members is required, the presence in person or by proxy of one-third of
the members of such class or group shall constitute a quorum with
respect to the vote on that matter. By incorporating these quorum
requirements into the Certification of Incorporation, FINRA has
represented that the proposed rule change would maintain FINRA's
current one-third quorum requirement where a separate vote of classes
or groups of members is required instead of resorting to the default
requirement in the General Corporation Law.
    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
association.\8\ In particular, the

Commission finds that the proposed rule change is consistent with
Section 15A(b)(2) of the Act,\9\ which requires, among other things,
that FINRA be so organized and have the capacity to be able to carry
out the purposes of the Act, to comply with the Act, and to enforce
compliance by FINRA members and persons associated with members with
the Act, the rules and regulations thereunder, and FINRA rules.
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    \8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(2).
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    The Commission notes that the proposed rule change would codify
FINRA's current quorum requirements. By clearly specifying FINRA's
quorum requirements in its Certificate of Incorporation, the Commission
believes that the proposed rule change would provide greater
transparency about FINRA's deliberative and voting processes, which
should facilitate the ability of FINRA's members to conduct business at
meetings and exercise their voting rights. Therefore, the Commission
believes that the proposed rule change is consistent with the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-FINRA-2010-027), be, and
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16988 Filed 7-12-10; 8:45 am]
BILLING CODE 8010-01-P