Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to a Complex Order Auction Feature, 78706-78708 [2011-32343]
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78706
Federal Register / Vol. 76, No. 243 / Monday, December 19, 2011 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65944; File No. SR–FINRA–
2011–062]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Repeal
Incorporated NYSE Rule 2A
(Jurisdiction)
December 13, 2011.
emcdonald on DSK5VPTVN1PROD with NOTICES
I. Introduction
On October 20, 2011, the 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 repeal
incorporated NYSE Rule 2A. The
proposed rule change was published for
comment in the Federal Register on
November 3, 2011.3 The Commission
received no comments on the proposal.
This order approves the proposed rule
change.
II. Description of the Proposal and
Discussion
FINRA proposed to repeal
incorporated NYSE Rule 2A
(Jurisdiction) as part of the process of
developing a consolidated rulebook
(‘‘Consolidated FINRA Rulebook’’).
NYSE Rule 2A generally addresses
jurisdictional authority with respect to,
among other things, rulemaking,
examinations, disciplinary actions, and
listing applications. NYSE Rule 2A was
adopted in 2006 as part of the merger
between the New York Stock Exchange
LLC (‘‘NYSE’’) and Archipelago
Holdings, Inc. since the NYSE
Constitution, which contained
provisions detailing the NYSE’s
jurisdiction, was eliminated in the
merger.4
FINRA, in its filing with the
Commission, stated that the FINRA ByLaws address the powers and authority
of the FINRA Board of Governors and,
together with the Act, set forth FINRA’s
authority and responsibilities as a
registered securities association. FINRA
further stated that its authority to
regulate those matters that are addressed
in NYSE Rule 2A and that are relevant
to FINRA’s role as a registered securities
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65656
(November 3, 2011), 76 FR 68240 (‘‘Notice’’).
4 See Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251 (March 6, 2006)
(Order Approving File No. SR–NYSE–2005–77).
association, such as its jurisdictional
authority with respect to: (i)
Rulemaking; (ii) general supervisory
powers over members, member
organizations and their offices,
partnership and corporate arrangements,
their principal executives, employees
and approved persons in connection
with their conduct of the business of
member organizations; (iii) ability to
discipline members, member
organizations, principal executives,
employees and approved persons in
connection with their conduct of the
business of member organizations; and
(iv) any and all other functions of
members, member organizations,
principal executives, employees and
approved persons in connection with
the conduct of the business of member
organizations, are contained in the
FINRA By-Laws.
FINRA further noted that other
matters addressed by NYSE Rule 2A
either are not applicable to the
operations of a registered securities
association that does not operate a
listing market or are otherwise unique to
the NYSE. FINRA stated that the
transfer of NYSE Rule 2A to the
Consolidated FINRA Rulebook was
unnecessary and proposed that it be
eliminated. FINRA advised that it
would announce the implementation
date of the proposed rule change in a
Regulatory Notice to be published no
later than 90 days following
Commission approval of the proposed
rule change and that the operative date
of the proposal would be no later than
150 days following Commission
approval.
III. Commission’s Findings
After carefully considering the
proposed rule change, the Commission
finds that the proposal is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
association. In particular, the
Commission finds that the proposal is
consistent with Section 15A(b)(6) of the
Act,5 which requires, among other
things, that FINRA rules be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade and, in
general, to protect investors and the
public interest.6
The Commission believes that the
proposal will streamline FINRA’s
rulebook by eliminating a rule that is
duplicative of provisions of FINRA’s By-
2 17
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Jkt 226001
5 15
U.S.C. 78o–3(b)(6).
6 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
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Laws that already are in place for
FINRA members and govern
jurisdictional matters. The Commission
notes that NYSE Rule 2A remains in
NYSE’s own rulebook and will continue
to apply to NYSE-only members.
IV. Conclusion
It Is Therefore Ordered, pursuant to
Section 19(b)(2) of the Act,7 that the
proposed rule change (SR–FINRA–
2011–062), be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–32356 Filed 12–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65938; File No. SR–C2–
2011–039]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Related to a Complex Order
Auction Feature
December 12, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
6, 2011, the C2 Options Exchange,
Incorporated (‘‘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
Exchange has designated the proposal as
a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
its electronic complex order rules. The
text of the proposed rule change is
available on the Exchange’s Web site
7 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
8 17
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Federal Register / Vol. 76, No. 243 / Monday, December 19, 2011 / Notices
(https://www.c2exchange.com/Legal/
RuleFilings.aspx), at the Exchange’s
Office of the Secretary and at the
Commission.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of those
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
emcdonald on DSK5VPTVN1PROD with NOTICES
1. Purpose
On a class-by-class basis, the
Exchange may determine to activate the
electronic complex order RFR auction
(‘‘COA’’), which is a process by which
eligible complex orders 5 are given an
opportunity for price improvement
before being booked in the electronic
complex order book (‘‘COB’’). Paragraph
(c) of Rule 6.13 describes the COA
process. Interpretation and Policy .02 of
the Rule also provides that, with respect
to the initiation of a COA, Participants
routing complex orders directly to COB
may request that the complex orders be
processed by COA on a class-by-class
basis.
The Exchange is proposing to amend
the rule to describe a COA feature for
complex orders resting in COB (referred
to herein as the ‘‘re-COA’’ feature),
which is currently in use but not
expressly covered in the rules. In
particular, the Exchange is proposing to
provide that, for each class where COA
is activated, the Exchange may also
determine to activate the re-COA feature
for complex orders resting in COB. For
such classes, any order resting in COB
5 An eligible complex order, referred to in Rule
6.13 as a ‘‘COA-eligible order,’’ means a complex
order that, as determined by the Exchange on a
class-by-class basis, is eligible for a COA
considering the order’s marketability (defined as a
number of ticks away from the current market), size,
complex order type and complex order origin type
(i.e., non-broker-dealer public customer, brokerdealers that are not Market-Makers or specialists on
an options exchange, and/or Market-Makers or
specialists on an options exchange). All
determinations by the Exchange on COA-eligible
orders parameters are announced to via Regulatory
Circular. See Rule 6.13(c)(1)(B) and Interpretation
and Policy .01 to Rule 6.13.
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(regardless of whether it was subject to
COA before it was booked in COB) 6 will
be automatically subject to the re-COA
feature if the order is within a number
of ticks away from the current market
(calculated based on the derived net
price of the individual series legs). The
Exchange notes that this re-COA feature
for resting orders is only applicable to
resting non-marketable orders that move
close to the current market price
calculated based on the individual
series legs. This feature is not applicable
to resting orders that become
marketable. The Exchange may also
determine on a class-by-class and
strategy basis to limit the frequency of
re-COA auctions initiated for complex
orders resting in COB. For example, the
Exchange might determine to limit the
frequency of re-COA auctions to once
every ‘‘X’’ seconds (the ‘‘interval timer’’)
for a total of ‘‘Y’’ intervals. Once this
cycle is complete, the Exchange may
determine to wait for a period of time
‘‘Z’’ (the ‘‘sleep timer’’) and then
reactivate the re-COA feature.7 All
timers will be reset if a new complex
order improves the top of the COB (i.e.,
improves the best net price bid or offer
of the complex orders resting in COB).
These limitations on the frequency of
COA auctions due to the re-COA feature
are intended to address system
efficiency and effectiveness
considerations, such as limiting
repeated initiations of COA auctions
(and related messaging) when there are
flickering quotes. Once the re-COA
feature is initiated for a resting order, all
other aspects of the COA process
described in Rule 6.13 will apply
unchanged. The Exchange believes this
re-COA feature facilitates the orderly
execution of complex orders by
providing an automated opportunity for
price improvement to (and execution of)
resting orders priced near the current
market, similar to what a broker-dealer
might seek to do if the broker-dealer
were representing a complex order in
6 In this regard, the Exchange notes that,
currently, all of its Trading Permit Holders have
elected to have their COA-eligible orders processed
by COA. In addition, the Exchange notes that other
markets have programs in place that provide for the
automatic auctioning of complex orders. See, e.g.,
NASDAQ OMX PHLX LLC (‘‘Phlx’’) Rule
1080(e)(i)(A) which, among other things, provides
that a complex order live auction (‘‘COLA’’) will
initiate if the Phlx system receives a complex order
that improves the Phlx complex order best debit or
credit price respecting the specific complex order
strategy that is the subject of the complex order.
During a COLA, Phlx market participants may bid
and offer against the COLA-eligible order pursuant
to the Phlx Rule.
7 Determinations by the Exchange regarding the
classes where the re-COA feature is activated and
related tick distance and frequency parameters will
be announced to Trading Permit Holders via
Regulatory Circular.
PO 00000
Frm 00098
Fmt 4703
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78707
open outcry on an exchange floor (or
just entering an order initially into
COB).
The following example illustrates the
operation of this re-COA feature:
Assume the feature is activated for
complex orders resting in COB that are
within 2 ticks of the current market
($0.02 in a class where complex orders
trade in $0.01 net price increments).
Assume the frequency is limited to once
every 15 seconds (the interval timer) for
1 interval. Under this setting, a total of
2 re-COA auctions could be triggered—
the original re-COA auction and a
second re-COA auction after the
expiration of the 15-second interval
timer. Assume the sleep timer is set at
60 minutes. Assume the current market
calculated based on the derived net
price of the individual series legs in the
C2 electronic book for a given strategy
is at a net price of $0.80–$1.01. If a
complex order resting in the COB to buy
the strategy is priced at a net debit price
of $0.98, the complex order is not
marketable (as the order is away from
the current market by $0.03 (or 3 ticks)).
If subsequently the individual series
legs prices are updated such that the
current market for the strategy moves to
a net price of $0.80–$1.00, the resting
complex order to buy at $0.98 would
trigger the re-COA feature and initiate
the re-COA auction process (as the order
is within $0.02 (or 2 ticks) of the current
market). If there are no responses, the
order would be placed back in COB. The
resting order would not initiate the reCOA feature again until the 15-second
interval timer has expired. When the 15second interval timer expires, the order
would be eligible to initiate the re-COA
feature again if the current market
moves after the expiration of the timer
and the order meets the tick distance
parameter (the order would not
automatically initiate the re-COA
feature at the end of the interval timer;
instead, there must be an update to the
current market after the expiration of
the interval timer and the order must
meet the tick distance parameter for the
system to re-COA again). For example,
if after the end of the 15-second interval
timer the current market moves to
$0.80–$0.99 (or, for example, if the
current market moves back to $0.80–
$1.01 and then, after the end of the 15second interval timer, moves back again
to $0.80–$1.00), then the resting
complex order would again initiate the
re-COA feature. If there are no
responses, the order would be placed
back in COB. The cycle is complete.
Now that the resting order has been
subject to COA 2 times since it was
booked in COB, the 60 minute sleep
E:\FR\FM\19DEN1.SGM
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Federal Register / Vol. 76, No. 243 / Monday, December 19, 2011 / Notices
timer will begin and the resting order
will not be eligible for the re-COA
feature again until the sleep timer
expires and there is a quote update after
that timer expires that is within the tick
distance parameter. All timers would be
reset anytime there is a price change at
the top of the COB. For example, if five
minutes into the sleep interval a second
complex order is entered to rest in COB
at a price of $0.99 ($0.01 better than the
original resting order priced at $0.98),
the original resting order would no
longer be at the top of the COB and
subject to the re-COA feature. The
timers would reset and the second
complex order (which now represents
the top of the COB) would be subject to
the re-COA process. If, for example, the
second order subsequently trades
(constituting a price change at the top of
the COB), the original order would be at
the top of the COB again and could
become subject to the re-COA feature
again.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the Act 8
in general and furthers the objectives of
Section 6(b)(5) of the Act 9 in particular
in that it should promote just and
equitable principles of trade, serve to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
The Exchange believes that the
proposed rule change facilitates the
orderly execution of complex orders by
providing an automated opportunity for
price improvement to (and execution of)
resting orders priced near the current
market.
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.
emcdonald on DSK5VPTVN1PROD with NOTICES
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 proposal.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i)
Significantly affect the protection of
investors or the public interest; (ii)
8 15
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Mar<15>2010
19:31 Dec 16, 2011
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, provided that the selfregulatory organization has given the
Commission written notice of its intent
to file 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 proposed rule change
has become effective pursuant to
Section 19(b)(3)(A) of the Act 10 and
Rule 19b–4(f)(6) thereunder.11 At any
time within 60 days of the filing of such
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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–C2–2011–039 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–C2–2011–039. 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 (https://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
10 15
11 17
Jkt 226001
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00099
Fmt 4703
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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 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–C2–2011–039 and should
be submitted on or before January 9,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–32343 Filed 12–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65939; File No. SR–CBOE–
2011–119]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Related to a Complex
Order Auction Feature
December 12, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b-4 thereunder,2
notice is hereby given that on December
6, 2011, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) 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 Exchange has
designated the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder.4
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
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]]>Agencies
[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Notices]
[Pages 78706-78708]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32343]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65938; File No. SR-C2-2011-039]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Related to a Complex Order Auction Feature
December 12, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 6, 2011, the C2 Options Exchange, Incorporated
(``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 Exchange has designated the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend its electronic complex order
rules. The text of the proposed rule change is available on the
Exchange's Web site
[[Page 78707]]
(https://www.c2exchange.com/Legal/RuleFilings.aspx), at the Exchange's
Office of the Secretary and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of those 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On a class-by-class basis, the Exchange may determine to activate
the electronic complex order RFR auction (``COA''), which is a process
by which eligible complex orders \5\ are given an opportunity for price
improvement before being booked in the electronic complex order book
(``COB''). Paragraph (c) of Rule 6.13 describes the COA process.
Interpretation and Policy .02 of the Rule also provides that, with
respect to the initiation of a COA, Participants routing complex orders
directly to COB may request that the complex orders be processed by COA
on a class-by-class basis.
---------------------------------------------------------------------------
\5\ An eligible complex order, referred to in Rule 6.13 as a
``COA-eligible order,'' means a complex order that, as determined by
the Exchange on a class-by-class basis, is eligible for a COA
considering the order's marketability (defined as a number of ticks
away from the current market), size, complex order type and complex
order origin type (i.e., non-broker-dealer public customer, broker-
dealers that are not Market-Makers or specialists on an options
exchange, and/or Market-Makers or specialists on an options
exchange). All determinations by the Exchange on COA-eligible orders
parameters are announced to via Regulatory Circular. See Rule
6.13(c)(1)(B) and Interpretation and Policy .01 to Rule 6.13.
---------------------------------------------------------------------------
The Exchange is proposing to amend the rule to describe a COA
feature for complex orders resting in COB (referred to herein as the
``re-COA'' feature), which is currently in use but not expressly
covered in the rules. In particular, the Exchange is proposing to
provide that, for each class where COA is activated, the Exchange may
also determine to activate the re-COA feature for complex orders
resting in COB. For such classes, any order resting in COB (regardless
of whether it was subject to COA before it was booked in COB) \6\ will
be automatically subject to the re-COA feature if the order is within a
number of ticks away from the current market (calculated based on the
derived net price of the individual series legs). The Exchange notes
that this re-COA feature for resting orders is only applicable to
resting non-marketable orders that move close to the current market
price calculated based on the individual series legs. This feature is
not applicable to resting orders that become marketable. The Exchange
may also determine on a class-by-class and strategy basis to limit the
frequency of re-COA auctions initiated for complex orders resting in
COB. For example, the Exchange might determine to limit the frequency
of re-COA auctions to once every ``X'' seconds (the ``interval timer'')
for a total of ``Y'' intervals. Once this cycle is complete, the
Exchange may determine to wait for a period of time ``Z'' (the ``sleep
timer'') and then reactivate the re-COA feature.\7\ All timers will be
reset if a new complex order improves the top of the COB (i.e.,
improves the best net price bid or offer of the complex orders resting
in COB). These limitations on the frequency of COA auctions due to the
re-COA feature are intended to address system efficiency and
effectiveness considerations, such as limiting repeated initiations of
COA auctions (and related messaging) when there are flickering quotes.
Once the re-COA feature is initiated for a resting order, all other
aspects of the COA process described in Rule 6.13 will apply unchanged.
The Exchange believes this re-COA feature facilitates the orderly
execution of complex orders by providing an automated opportunity for
price improvement to (and execution of) resting orders priced near the
current market, similar to what a broker-dealer might seek to do if the
broker-dealer were representing a complex order in open outcry on an
exchange floor (or just entering an order initially into COB).
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\6\ In this regard, the Exchange notes that, currently, all of
its Trading Permit Holders have elected to have their COA-eligible
orders processed by COA. In addition, the Exchange notes that other
markets have programs in place that provide for the automatic
auctioning of complex orders. See, e.g., NASDAQ OMX PHLX LLC
(``Phlx'') Rule 1080(e)(i)(A) which, among other things, provides
that a complex order live auction (``COLA'') will initiate if the
Phlx system receives a complex order that improves the Phlx complex
order best debit or credit price respecting the specific complex
order strategy that is the subject of the complex order. During a
COLA, Phlx market participants may bid and offer against the COLA-
eligible order pursuant to the Phlx Rule.
\7\ Determinations by the Exchange regarding the classes where
the re-COA feature is activated and related tick distance and
frequency parameters will be announced to Trading Permit Holders via
Regulatory Circular.
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The following example illustrates the operation of this re-COA
feature: Assume the feature is activated for complex orders resting in
COB that are within 2 ticks of the current market ($0.02 in a class
where complex orders trade in $0.01 net price increments). Assume the
frequency is limited to once every 15 seconds (the interval timer) for
1 interval. Under this setting, a total of 2 re-COA auctions could be
triggered--the original re-COA auction and a second re-COA auction
after the expiration of the 15-second interval timer. Assume the sleep
timer is set at 60 minutes. Assume the current market calculated based
on the derived net price of the individual series legs in the C2
electronic book for a given strategy is at a net price of $0.80-$1.01.
If a complex order resting in the COB to buy the strategy is priced at
a net debit price of $0.98, the complex order is not marketable (as the
order is away from the current market by $0.03 (or 3 ticks)). If
subsequently the individual series legs prices are updated such that
the current market for the strategy moves to a net price of $0.80-
$1.00, the resting complex order to buy at $0.98 would trigger the re-
COA feature and initiate the re-COA auction process (as the order is
within $0.02 (or 2 ticks) of the current market). If there are no
responses, the order would be placed back in COB. The resting order
would not initiate the re-COA feature again until the 15-second
interval timer has expired. When the 15-second interval timer expires,
the order would be eligible to initiate the re-COA feature again if the
current market moves after the expiration of the timer and the order
meets the tick distance parameter (the order would not automatically
initiate the re-COA feature at the end of the interval timer; instead,
there must be an update to the current market after the expiration of
the interval timer and the order must meet the tick distance parameter
for the system to re-COA again). For example, if after the end of the
15-second interval timer the current market moves to $0.80-$0.99 (or,
for example, if the current market moves back to $0.80-$1.01 and then,
after the end of the 15-second interval timer, moves back again to
$0.80-$1.00), then the resting complex order would again initiate the
re-COA feature. If there are no responses, the order would be placed
back in COB. The cycle is complete. Now that the resting order has been
subject to COA 2 times since it was booked in COB, the 60 minute sleep
[[Page 78708]]
timer will begin and the resting order will not be eligible for the re-
COA feature again until the sleep timer expires and there is a quote
update after that timer expires that is within the tick distance
parameter. All timers would be reset anytime there is a price change at
the top of the COB. For example, if five minutes into the sleep
interval a second complex order is entered to rest in COB at a price of
$0.99 ($0.01 better than the original resting order priced at $0.98),
the original resting order would no longer be at the top of the COB and
subject to the re-COA feature. The timers would reset and the second
complex order (which now represents the top of the COB) would be
subject to the re-COA process. If, for example, the second order
subsequently trades (constituting a price change at the top of the
COB), the original order would be at the top of the COB again and could
become subject to the re-COA feature again.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\8\ in general and furthers the objectives of Section 6(b)(5) of the
Act \9\ in particular in that it should promote just and equitable
principles of trade, serve to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest. The Exchange believes that
the proposed rule change facilitates the orderly execution of complex
orders by providing an automated opportunity for price improvement to
(and execution of) resting orders priced near the current market.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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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.
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
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule 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, provided that the self-regulatory organization
has given the Commission written notice of its intent to file 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 proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6)
thereunder.\11\ At any time within 60 days of the filing of such
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-C2-2011-039 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2011-039. 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 (https://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 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-C2-2011-039 and
should be submitted on or before January 9, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32343 Filed 12-16-11; 8:45 am]
BILLING CODE 8011-01-P
