Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Exchange's Quote Risk Monitor Mechanism, 38345-38349 [2014-15720]
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Federal Register / Vol. 79, No. 129 / Monday, July 7, 2014 / Notices
2. Statutory Basis
OneChicago believes that the
proposed rule change is consistent with
Section 6(b) of the Act,3 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,4 in particular in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and 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.
NTM 2012–26 promotes just and
equitable principles of trade and fosters
cooperation and coordination with
persons engaged in facilitating
transactions in securities by explaining
the method by which these market
participants may engage in two distinct
trading practices that are permitted by
the Exchange. The NTM sets forth
requirements for market participants
effecting pre-execution discussions and
cross trades. The Exchange also believes
that the rule change benefits investors
and market participants because it
enhances customer protection and helps
preserve the integrity of OCX’s market.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
OneChicago does not believe that the
rule change will impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange
believes that the proposed rule change
is equitable and promotes the principles
of trade because it is designed to
prevent manipulative acts and protect
investors. Additionally, all of the
conditions to engage in pre-execution
discussions and cross trades apply
equally to all market participants and
are not enforced in a discriminatory
manner.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Comments on the OneChicago
proposed rule change have not been
solicited and none have been received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
OneChicago filed the proposed rule
change with the CFTC on September 12,
2012. OneChicago did not file the
3 15
U.S.C. 78f(b).
4 15 U.S.C. 78(f)(b)(5).
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proposed rule change concurrently with
the SEC. Instead, OneChicago filed the
proposed rule change on June 17, 2014.5
At any time within 60 days of the date
of effectiveness 6 of the proposed rule
change, the Commission, after
consultation with the CFTC, may
summarily abrogate the proposed rule
change and require that the proposed
rule change be refiled in accordance
with the provisions of Section 19(b)(1)
of the Act.7
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–
OC–2014–03 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–OC–2014–03. 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
5 Section 19(b)(7)(B) of the Act provides that a
proposed rule change filed with the SEC pursuant
to section 19(b)(7)(A) of the Act shall be filed
concurrently with the CFTC.
6 Section 19(b)(7)(C) of the Act provides, inter
alia, that ‘‘[a]ny proposed rule change of a selfregulatory organization that has taken effect
pursuant to [Section 19(b)(7)(B) of the Act] may be
enforced by such self-regulatory organization to the
extent such rule is not inconsistent with the
provisions of this title, the rules and regulations
thereunder, and applicable Federal law.’’
7 15 U.S.C. 78s(b)(1).
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38345
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 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–OC–
2014–03, and should be submitted on or
before July 28, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014–15718 Filed 7–3–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72499; File No. SR–C2–
2014–012]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to the Exchange’s
Quote Risk Monitor Mechanism
June 30, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 20,
2014, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Quote Risk Monitor Mechanism rule.
The text of the proposed rule change is
provided below.
(additions are italicized; deletions are
[bracketed])
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8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Options Exchange, Incorporated
Rules
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Rule 8.12. Quote Risk Monitor Mechanism
Each Market-Maker who is obligated to
provide and maintain continuous electronic
quotes pursuant to Rule 8.5, or the
Participant organization with which the
Market-Maker is associated, may establish
parameters by which the Exchange will
activate the Quote Risk Monitor (‘‘QRM’’)
Mechanism. The functionality of the QRM
Mechanism that is available to MarketMakers [that use the QRM Mechanism shall
specify] includes, for each such option class
in which the Market-Maker is engaged in
trading[,]: (i) A maximum number of
contracts for such option class (the ‘‘Contract
Limit’’) and a rolling time period in
milliseconds within which such Contract
Limit is to be measured (the ‘‘Measurement
Interval’’)[.]; (ii) a maximum cumulative
percentage that the Market-Maker is willing
to trade (the ‘‘Cumulative Percentage Limit’’),
where the cumulative percentage is the sum
of the percentages of the original quoted size
of each size of each series that traded, and
a Measurement Interval; and (iii) the
maximum number of series for which either
side of the quote is fully traded (the ‘‘Number
of Series Fully Traded’’) and a Measurement
Interval. This functionality is optional and
Market-Makers are not required to set
parameters for the aforementioned QRM
Mechanism functions.
When the Exchange determines that the
Market-Maker has traded [more than] at least
the Contract Limit or Cumulative Percentage
Limit for such option class during any rolling
Measurement Interval, or has traded at least
the Number of Series Fully Traded on an
option class during any rolling Measurement
Interval, the QRM Mechanism shall cancel all
electronic quotes [that are] being
disseminated with respect to that MarketMaker in that option class and any other
classes with the same underlying security
until the Market-Maker refreshes those
electronic quotes. Such action by the
Exchange is referred to herein as a QRM
Incident. Once the QRM Mechanism is
triggered, all counters that determine whether
the QRM Mechanism is triggered and a QRM
Incident occurs will be reset for all classes for
which quotes were canceled for all parties for
whom such quotes were canceled.
A Market-Maker or a Participant
organization may also specify a maximum
number of QRM Incidents on an Exchangewide basis. When the Exchange determines
that such Market-Maker or Participant
organization has reached its QRM Incident
limit during any rolling Measurement
Interval, the QRM Mechanism shall cancel all
of the Market-Maker’s or Participant
organization’s electronic quotes and MarketMaker orders resting in the Book in all option
classes on the Exchange and prevent the
Market-Maker or Participant organization
from sending additional quotes or orders to
the Exchange until the Market-Maker or
Participant organization reactivates its ability
to send quotes or orders in a manner
prescribed by the Exchange. Once the QRM
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Mechanism is triggered and quotes and
orders are cancelled, all counters that
determine whether the QRM Mechanism is
triggered and a QRM Incident occurs will be
reset for all parties for whom the QRM
Mechanism was triggered and for all classes
for which quotes and orders were canceled.
If the Exchange cancels all of the MarketMaker’s or Participant organization’s
electronic quotes and Market-Maker orders
resting in the Book, and the Market-Maker or
Participant organization does not reactivate
its ability to send quotes or orders, the block
will be in effect only for the organization
does not reactivate its ability to send quotes
or orders, the block will be in effect only for
the trading day that the Market-Maker or
Participant organization reached its QRM
Incident limit. Market-Makers and
Participant organizations are not required to
set parameters for the Exchange-wide QRM.
*
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*
*
*
The text of the proposed rule change
is also available on the Exchange’s Web
site (https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The operation of the Exchange’s
Quote Risk Monitor (‘‘QRM’’)
Mechanism is codified in Rule 8.12. The
purpose of this proposed rule change is
to add three new functions to the QRM
Mechanism to help Market-Makers and
Participant organizations control the
risk of multiple, nearly simultaneous
executions across related option series.
The use of the new functions is
voluntary. The proposed rule change
also makes clear that the Participant
organization with which a MarketMaker is associated (as well as the
individual Market-Maker) may establish
parameters by which the Exchange will
activate the QRM Mechanism for the
Market-Maker (the current rule text only
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explicitly permits Market-Makers to
establish such parameters). The
Exchange also proposes to make some
changes to the Rule 8.12 text to make
such rule more readable in conjunction
with the other changes proposed
herein.3
The first new function available to
Market-Makers allows each MarketMaker the ability to specify a maximum
cumulative percentage that the MarketMaker is willing to trade (the
‘‘Cumulative Percentage Limit’’). Under
the proposal, the cumulative percentage
is the sum of the percentages of the
original quoted size of each side of each
series within a class that traded, and a
rolling time period in milliseconds
within which such Cumulative
Percentage Limit is to be measured (the
‘‘Measurement Interval’’). When the
QRM Mechanism determines that the
Market-Maker has traded at least the
Cumulative Percentage Limit for any
option class during any rolling
Measurement Interval, the QRM
Mechanism will automatically cancel all
of the electronic quotes being
disseminated with respect to that
Market-Maker in that option class and
any other classes with the same
underlying security until the MarketMaker refreshes those electronic
quotes.4
3 Specifically, the Exchange proposes to amend
the beginning of the second sentence of Rule 8.12,
which reads ‘‘Market-Makers that use the QRM
Mechanism shall specify, for each such option class
in which the Market-Maker is engaged in trading,
a maximum number of contracts for such option
class (the ‘‘Contract Limit’’) and a rolling time
period in seconds within which such Contract
Limit is to be measured (the ‘‘Measurement
Interval’’)’’ to read: ‘‘The functionality of the QRM
Mechanism that is available to Market-Makers
includes, for each such option class in which the
Market-Maker is engaged in trading: (i) A maximum
number of contracts for such option class (the
‘‘Contract Limit’’) and a rolling time period in
milliseconds within which such Contract Limit is
to be measured (the ‘‘Measurement Interval’’).’’ The
Exchange’s systems will allow Market-Makers to set
the Measurement Interval in milliseconds (as
opposed to seconds), so the Exchange proposes to
provide this more precise option to Market-Makers.
4 The Exchange also proposes to delete the words
‘‘more than’’ from the specification that ‘‘When the
Exchange determines that the Market-Maker has
traded more than the Contract Limit or Cumulative
Percentage Limit for such option class during any
rolling Measurement Interval, or has traded at least
the Number of Series Fully Traded during any
rolling Measurement Interval, the QRM Mechanism
shall cancel all electronic quotes that are being
disseminated with respect to that Market-Maker in
that option class and any other classes with the
same underlying security until the Market-Maker
refreshes those electronic quotes’’ and replace
‘‘more than’’ with the words ‘‘at least.’’ This is
because the QRM Mechanism is triggered (and
quotes are canceled) at the moment when the
Market-Maker trades the Contract Limit or
Cumulative Percentage Limit (as opposed to when
the Market-Maker has traded more than Contract
Limit or Cumulative Percentage Limit). The
Exchange also proposes to delete the words ‘‘that
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By way of example, assume a MarketMaker is quoting the following series in
a class:
• Series A Quote: 1.00 ¥ 1.20 50 × 50
• Series B Quote: 2.00 ¥ 2.20 75 × 75
• Series C Quote: 3.00 ¥ 3.20 100 × 100
If the Cumulative Percentage Limit is
set at 150% for the Market-Maker and
an order to buy 40 contracts of Series A
is received, the series percentage would
be 80% (i.e., 40/50). The cumulative
percentage would also be 80%. If a
second order to sell 25 contracts of
Series B is received, the series
percentage would be 33% (i.e., 25/75).
The cumulative percentage would now
be 113% (i.e., 80 + 33 = 113). If a third
order to buy 70 contracts of Series C is
received, the series percentage would be
70% (i.e., 70/100). The cumulative
percentage would now be 183% (i.e.,
113 + 70 = 183). Since 183% exceeds
the Cumulative Percentage Limit of
150%, the Market-Maker’s quotes in the
class, and any class with the same
underlying security, would be
cancelled. This cancellation, however,
would not occur until after execution of
the third order. Due to firm quote
obligations rules, the QRM Mechanism
will not cancel quotes (and in the case
of an Exchange-wide QRM Incident,
orders) until after the execution of the
order that caused the triggering of the
QRM Mechanism. Note that percentages
are added to one another, regardless of
the denominator.
Percentages are also calculated based
on the original quote size, not the
remaining quote size. Using the quotes
set forth above as an example, if an
order to buy 40 contracts of Series A is
received, the series percentage would be
80% (i.e., 40/50). The cumulative
percentage would also be 80%. If a
second order to sell 25 contracts of
Series B is received, the series
percentage would be 33% (i.e., 25/75).
The cumulative percentage would then
be 113% (i.e., 80 + 33 = 113). If a third
order to buy 10 contracts of Series A is
received, the series percentage would be
20% (i.e., 10/50). The cumulative
percentage would then be 133% (i.e.,
113 + 20 = 133). If a fourth order to buy
70 contracts of Series C is received, the
series percentage would be 70% (i.e.,
70/100). The cumulative percentage
would then be 203% (i.e., 133 + 70 =
203).
The proposed rule change adds a
second new function to the QRM
Mechanism that would allow each
Market-Maker to specify the maximum
number of series for which either side
of the quote is fully traded (the
are’’ from the above statement for reasons of
grammatical simplicity.
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‘‘Number of Series Fully Traded’’) and
a Measurement Interval. When the QRM
Mechanism determines that the MarketMaker has traded at least the Number of
Series Fully Traded for any option class
during any rolling Measurement
Interval, the QRM Mechanism will
automatically cancel all of the MarketMaker’s electronic quotes being
disseminated in that option class and
any other classes with the same
underlying security until the MarketMaker refreshes those electronic quotes.
To illustrate this functionality,
assume that a Market-Maker is quoting
the following series in a class:
• Series A Quote: 1.00 ¥ 1.20 50 × 50
• Series B Quote: 2.00 ¥ 2.20 75 × 75
• Series C Quote: 3.00 ¥ 3.20 100 × 100
If the Number of Series Fully Traded is
set at two, and an order to buy 50
contracts of Series A is received, the
number of series traded in full will be
one. If a second order to sell 25
contracts of Series B is received, the
number of series traded in full will still
be one because Series B did not trade in
full. If a third order to buy 100 contracts
of Series C is received, the number of
series traded in full will then be two.
Since two meets the parameter set for
Number of Series Fully Traded, the
Market-Maker’s quotes in that class (and
any other classes with the same
underlying security) would be
cancelled.
Whenever one of the QRM functions
(i.e., Contract Limit, Cumulative
Percentage Limit or Number of Series
Fully Traded) has been triggered and the
QRM Mechanism automatically cancels
all of the Market-Maker’s electronic
quotes in all series of that option class
(and any other classes with the same
underlying security), such action by the
Exchange shall be termed a ‘‘QRM
Incident’’. Both of the new
functionalities described above (along
with the already-existing Contract Limit
QRM functionality) are optional and
Market-Makers are not required to set
parameters for the aforementioned QRM
Mechanism functions.
The Exchange has above proposed
that, when the QRM Mechanism
automatically cancels all of a MarketMaker’s electronic quotes in an option
class, the Exchange will also cancel all
of the Market-Maker’s electronic quotes
in any other classes with the same
underlying security. The purpose of this
is because the risk involved in trading
beyond a Market-Maker’s risk profile
extends to classes that have the same
underlying security (since often the only
difference between such classes is the
multiplier of number of units of the
underlying security).
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Finally, the proposed amendment
adds a third function that allows the
Exchange to cancel all quotes and orders
of a Market-Maker or Participant
Organization once a specified number of
QRM Incidents has been reached. Under
this proposed functionality, a MarketMaker or a Participant organization may
specify a maximum number of QRM
Incidents with respect to all QRM
Functions (i.e., Contract Limit,
Cumulative Percentage Limit and
Number of Series Fully Traded) and a
Measurement Interval on an Exchangewide basis. When the Exchange
determines that such Market-Maker or
Participant organization has reached its
QRM Incident limit during any rolling
Measurement Interval, the QRM
Mechanism shall cancel all of the
Market-Maker’s or Participant
organization’s electronic quotes and
Market-Maker orders resting in the Book
in all option classes on the Exchange
and prevent a Market-Maker or
Participant organization from sending
additional quotes or orders to the
Exchange until the Market-Maker or
Participant organization reactivates its
ability to send quotes or orders in a
manner prescribed by the Exchange.5
Once the QRM Mechanism is
triggered and quotes (and in the case of
an Exchange-wide cancellation, orders)
are cancelled, all counters that
determine whether the QRM
Mechanism is triggered and a QRM
Incident occurs will be reset for all
classes for which quotes (and in the case
of an Exchange-wide cancellation,
orders) were canceled for all parties for
whom such quotes (and in the case of
an Exchange-wide cancellation, orders)
were canceled. This means that, if the
QRM Mechanism is triggered due to a
party’s reaching the Contract Limit,
Cumulative Percentage Limit, or
Number of Series Fully Traded for a
class, and quotes (and in the case of an
Exchange-wide cancellation, orders) are
canceled, the number of contracts
traded in all classes for which quotes
and orders were canceled would be
reset to zero, the cumulative percentage
for all classes for which quotes and
orders were canceled would be reset to
zero, and the number of series that are
fully traded for all classes for which
quotes and orders were canceled would
be reset to zero. If the Exchange cancels
all of the Market-Maker’s or Participant
5 The Exchange will announce such manner to
Trading Permit Holders via Regulatory Circular.
The current plan for such reactivation is for the
Market-Maker or TPH Organization to contact the
Exchange’s Help Desk to request reactivation,
though the Exchange is examining the possibility of
creating a systematized manner for Market-Makers
or TPH organizations to reactivate.
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organization’s electronic quotes and
Market-Maker orders resting in the
Book, and the Market-Maker or
Participant organization does not
reactivate its ability to send quotes or
orders, the block will be in effect only
for the trading day that the MarketMaker or Participant organization
reached its QRM Incident limit.
As with the Contract Limit,
Cumulative Percentage Limit or Number
of Series Fully Traded QRM functions,
Market-Makers and Participant
organizations are not required to set
parameters for the Exchange-wide QRM.
All QRM Mechanism functionalities are
currently optional.
The Exchange represents that it has
the systems capacity to permit the
operation of these enhanced QRM
Mechanism functions. The Exchange
does note that, in a situation in which
the QRM Mechanism is triggered, and
quotes (and in the case of an Exchangewide cancellation, orders) must be
canceled for multiple classes related to
the same underlying security or across
multiple business clusters,6 it may take
a brief period for such cancellation to
occur (during which period orders may
execute against such quotes and orders;
this functionality will not violate the
Exchange’s firm quote rules). The
Exchange will use best efforts to cancel
such quotes and orders as rapidly as
possible.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.7 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 9 requirement that
6 The Exchange’s systems group various classes
into different business clusters for systems
purposes.
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
9 Id.
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the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that investors and market participants
will benefit from the proposed new
functionality of the QRM Mechanism.
Market-Makers are vulnerable to the risk
that, through an error in pricing or due
to market events, they will receive
multiple, automatic executions at
disadvantageous or erroneous prices
before they can adjust their quotes.
Without adequate risk management
tools such as the QRM, Market-Makers
could widen their quotes, quote less
aggressively or limit their quote size.
Such actions may undermine the quality
of the markets available to customers
and other market participants.
Accordingly, with the enhancements
proposed by the Exchange to QRM, the
use of the QRM Mechanism will
encourage more aggressive and narrower
quoting, thereby removing impediments
to and perfecting the mechanism of a
free and open market and a national
market system, and, in general, more
effectively protecting investors and the
public interest. In addition, providing
Market-Makers with more tools for
managing risk will facilitate transactions
in securities because, as noted above,
the quotes of market makers will be
more reliable and could help prevent
erroneous orders and transactions. As a
result, the new functionality for the
QRM Mechanism has the potential to
promote just and equitable principles of
trade. Also, the proposed changes do
not change to whom any aspects of the
QRM Mechanism applies, as the
proposed changes apply to all market
participants to whom the QRM
Mechanism previously applied.
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. Rather, the
Exchange believes that the functions of
the QRM Mechanism promote fair and
orderly markets.
C2 does not believe that the proposed
rule change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
use of the QRM Mechanism including
the new enhancements is voluntary.
Further, the proposed changes do not
change to whom any aspects of the QRM
Mechanism applies, as the proposed
changes apply to all market participants
to whom the QRM Mechanism
previously applied. Similarly, the
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Exchange does not believe that the
proposed rule change will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because, again, the use of the QRM
Mechanism including the new
enhancements is voluntary. Moreover,
the proposed enhancements to the QRM
Mechanism apply only to trading on C2.
To the extent that the proposed changes
may make C2 a more attractive trading
venue for market participants on other
exchanges, such market participants
may elect to become C2 market
participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 10 and Rule 19b–4(f)(6) 11
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
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:
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
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 Exchange has satisfied this
requirement.
11 17
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07JYN1
Federal Register / Vol. 79, No. 129 / Monday, July 7, 2014 / Notices
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–
C2–2014–012 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.
mstockstill on DSK4VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–C2–2014–012. 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–C2–
2014–012 and should be submitted on
or before July 28, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014–15720 Filed 7–3–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72498; File No. SR–NFA–
2014–04]
Self-Regulatory Organizations;
National Futures Association; Notice
of Filing of Proposed Rule Change to
the Interpretive Notice to NFA
Compliance Rules 2–4 and 2–36:
Prohibition on the Use of Certain
Electronic Funding Mechanisms
June 30, 2014.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’),1 and Rule 19b–7
under the Exchange Act,2 notice is
hereby given that on June 18, 2014,
National Futures Association (‘‘NFA’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change described in
Items I and II below, which Items have
been substantially prepared by the NFA.
The Commission is publishing this
notice to solicit comments on the
proposed rule from interested persons.
On June 18, 2014, NFA submitted the
proposed rule change to the CFTC for
approval. The CFTC has not yet
approved the proposed rule change.
I. Self-Regulatory Organization’s
Description and Text of the Proposed
Rule Change
Under the proposed Interpretive
Notice to NFA Compliance Rules 2–4
and 2–36: Prohibition on the Use of
Certain Electronic Funding Mechanisms
(‘‘Interpretive Notice’’), NFA Members
(‘‘Members’’) are prohibited from
allowing customers to fund futures or
forex accounts with a credit card or
other electronic funding methods tied to
a credit card. The proposed Interpretive
Notice does not prohibit Members from
allowing customers to fund futures or
forex accounts with electronic funding
mechanisms that are tied to a customer’s
bank account at a financial institution
provided the funds deposited are drawn
directly from the customer’s bank
account. The Interpretive Notice
requires, however, that the Member be
able to distinguish, prior to accepting
funds, between an electronic funding
method that draws money from the
customer’s account at a financial
institution and a traditional credit card,
and be able to reject the credit card
transaction before accepting funds. The
Interpretive Notice also requires
Members offering this type of electronic
funding mechanism to provide adequate
1 15
12 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
15:59 Jul 03, 2014
2 17
Jkt 232001
PO 00000
U.S.C. 78s(b)(7).
CFR 240.19b–7.
Frm 00074
Fmt 4703
risk disclosure in light of the customer’s
financial circumstances.
The text of the Interpretive Notice is
available on NFA’s Web site at
www.nfa.futures.org, the Commission’s
Web site at www.sec.gov, NFA’s office,
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,
NFA 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. NFA 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
Section 15A(k) of the Exchange Act 3
makes NFA a national securities
association for the limited purpose of
regulating the activities of NFA
Members who are registered as brokers
or dealers under Section 15(b)(11) of the
Exchange Act.4 The proposed
Interpretive Notice applies to all NFA
Members, including those that are
registered as security futures brokers or
dealers under Section 15(b)(11) of the
Exchange Act.
NFA adopted the Interpretive Notice
to NFA Compliance Rules 2–4 and 2–36
prohibiting Members from allowing
customers to fund futures or forex
accounts with a credit card or other
electronic payment methods tied to a
credit card after an extensive study and
analysis done at the direction of NFA’s
Compliance and Risk Committee
(‘‘CRC’’). The CRC’s study and analysis
found significant customer protection
concerns with credit card funding in the
retail forex area, and therefore NFA’s
Board of Directors, upon the
recommendation of the CRC,
determined the only appropriate action
was to adopt this prohibition. The
prohibition is entirely consistent with
NFA’s longstanding position that it is a
violation of NFA Compliance Rule 2–4,
and inconsistent with just and equitable
principles of trade, for Members to
3 15
4 15
Sfmt 4703
38349
E:\FR\FM\07JYN1.SGM
U.S.C. 78o–3(k).
U.S.C. 78o(b)(11).
07JYN1
]]>Agencies
[Federal Register Volume 79, Number 129 (Monday, July 7, 2014)]
[Notices]
[Pages 38345-38349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15720]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72499; File No. SR-C2-2014-012]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to the Exchange's Quote Risk Monitor Mechanism
June 30, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 20, 2014, C2 Options Exchange, Incorporated (the
``Exchange'' or ``C2'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Quote Risk Monitor Mechanism
rule. The text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
[[Page 38346]]
C2 Options Exchange, Incorporated
Rules
* * * * *
Rule 8.12. Quote Risk Monitor Mechanism
Each Market-Maker who is obligated to provide and maintain
continuous electronic quotes pursuant to Rule 8.5, or the
Participant organization with which the Market-Maker is associated,
may establish parameters by which the Exchange will activate the
Quote Risk Monitor (``QRM'') Mechanism. The functionality of the QRM
Mechanism that is available to Market-Makers [that use the QRM
Mechanism shall specify] includes, for each such option class in
which the Market-Maker is engaged in trading[,]: (i) A maximum
number of contracts for such option class (the ``Contract Limit'')
and a rolling time period in milliseconds within which such Contract
Limit is to be measured (the ``Measurement Interval'')[.]; (ii) a
maximum cumulative percentage that the Market-Maker is willing to
trade (the ``Cumulative Percentage Limit''), where the cumulative
percentage is the sum of the percentages of the original quoted size
of each size of each series that traded, and a Measurement Interval;
and (iii) the maximum number of series for which either side of the
quote is fully traded (the ``Number of Series Fully Traded'') and a
Measurement Interval. This functionality is optional and Market-
Makers are not required to set parameters for the aforementioned QRM
Mechanism functions.
When the Exchange determines that the Market-Maker has traded
[more than] at least the Contract Limit or Cumulative Percentage
Limit for such option class during any rolling Measurement Interval,
or has traded at least the Number of Series Fully Traded on an
option class during any rolling Measurement Interval, the QRM
Mechanism shall cancel all electronic quotes [that are] being
disseminated with respect to that Market-Maker in that option class
and any other classes with the same underlying security until the
Market-Maker refreshes those electronic quotes. Such action by the
Exchange is referred to herein as a QRM Incident. Once the QRM
Mechanism is triggered, all counters that determine whether the QRM
Mechanism is triggered and a QRM Incident occurs will be reset for
all classes for which quotes were canceled for all parties for whom
such quotes were canceled.
A Market-Maker or a Participant organization may also specify a
maximum number of QRM Incidents on an Exchange-wide basis. When the
Exchange determines that such Market-Maker or Participant
organization has reached its QRM Incident limit during any rolling
Measurement Interval, the QRM Mechanism shall cancel all of the
Market-Maker's or Participant organization's electronic quotes and
Market-Maker orders resting in the Book in all option classes on the
Exchange and prevent the Market-Maker or Participant organization
from sending additional quotes or orders to the Exchange until the
Market-Maker or Participant organization reactivates its ability to
send quotes or orders in a manner prescribed by the Exchange. Once
the QRM Mechanism is triggered and quotes and orders are cancelled,
all counters that determine whether the QRM Mechanism is triggered
and a QRM Incident occurs will be reset for all parties for whom the
QRM Mechanism was triggered and for all classes for which quotes and
orders were canceled. If the Exchange cancels all of the Market-
Maker's or Participant organization's electronic quotes and Market-
Maker orders resting in the Book, and the Market-Maker or
Participant organization does not reactivate its ability to send
quotes or orders, the block will be in effect only for the
organization does not reactivate its ability to send quotes or
orders, the block will be in effect only for the trading day that
the Market-Maker or Participant organization reached its QRM
Incident limit. Market-Makers and Participant organizations are not
required to set parameters for the Exchange-wide QRM.
* * * * *
The text of the proposed rule change is also available on the
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The operation of the Exchange's Quote Risk Monitor (``QRM'')
Mechanism is codified in Rule 8.12. The purpose of this proposed rule
change is to add three new functions to the QRM Mechanism to help
Market-Makers and Participant organizations control the risk of
multiple, nearly simultaneous executions across related option series.
The use of the new functions is voluntary. The proposed rule change
also makes clear that the Participant organization with which a Market-
Maker is associated (as well as the individual Market-Maker) may
establish parameters by which the Exchange will activate the QRM
Mechanism for the Market-Maker (the current rule text only explicitly
permits Market-Makers to establish such parameters). The Exchange also
proposes to make some changes to the Rule 8.12 text to make such rule
more readable in conjunction with the other changes proposed herein.\3\
---------------------------------------------------------------------------
\3\ Specifically, the Exchange proposes to amend the beginning
of the second sentence of Rule 8.12, which reads ``Market-Makers
that use the QRM Mechanism shall specify, for each such option class
in which the Market-Maker is engaged in trading, a maximum number of
contracts for such option class (the ``Contract Limit'') and a
rolling time period in seconds within which such Contract Limit is
to be measured (the ``Measurement Interval'')'' to read: ``The
functionality of the QRM Mechanism that is available to Market-
Makers includes, for each such option class in which the Market-
Maker is engaged in trading: (i) A maximum number of contracts for
such option class (the ``Contract Limit'') and a rolling time period
in milliseconds within which such Contract Limit is to be measured
(the ``Measurement Interval'').'' The Exchange's systems will allow
Market-Makers to set the Measurement Interval in milliseconds (as
opposed to seconds), so the Exchange proposes to provide this more
precise option to Market-Makers.
---------------------------------------------------------------------------
The first new function available to Market-Makers allows each
Market-Maker the ability to specify a maximum cumulative percentage
that the Market-Maker is willing to trade (the ``Cumulative Percentage
Limit''). Under the proposal, the cumulative percentage is the sum of
the percentages of the original quoted size of each side of each series
within a class that traded, and a rolling time period in milliseconds
within which such Cumulative Percentage Limit is to be measured (the
``Measurement Interval''). When the QRM Mechanism determines that the
Market-Maker has traded at least the Cumulative Percentage Limit for
any option class during any rolling Measurement Interval, the QRM
Mechanism will automatically cancel all of the electronic quotes being
disseminated with respect to that Market-Maker in that option class and
any other classes with the same underlying security until the Market-
Maker refreshes those electronic quotes.\4\
---------------------------------------------------------------------------
\4\ The Exchange also proposes to delete the words ``more than''
from the specification that ``When the Exchange determines that the
Market-Maker has traded more than the Contract Limit or Cumulative
Percentage Limit for such option class during any rolling
Measurement Interval, or has traded at least the Number of Series
Fully Traded during any rolling Measurement Interval, the QRM
Mechanism shall cancel all electronic quotes that are being
disseminated with respect to that Market-Maker in that option class
and any other classes with the same underlying security until the
Market-Maker refreshes those electronic quotes'' and replace ``more
than'' with the words ``at least.'' This is because the QRM
Mechanism is triggered (and quotes are canceled) at the moment when
the Market-Maker trades the Contract Limit or Cumulative Percentage
Limit (as opposed to when the Market-Maker has traded more than
Contract Limit or Cumulative Percentage Limit). The Exchange also
proposes to delete the words ``that are'' from the above statement
for reasons of grammatical simplicity.
---------------------------------------------------------------------------
[[Page 38347]]
By way of example, assume a Market-Maker is quoting the following
---------------------------------------------------------------------------
series in a class:
Series A Quote: 1.00 - 1.20 50 x 50
Series B Quote: 2.00 - 2.20 75 x 75
Series C Quote: 3.00 - 3.20 100 x 100
If the Cumulative Percentage Limit is set at 150% for the Market-
Maker and an order to buy 40 contracts of Series A is received, the
series percentage would be 80% (i.e., 40/50). The cumulative percentage
would also be 80%. If a second order to sell 25 contracts of Series B
is received, the series percentage would be 33% (i.e., 25/75). The
cumulative percentage would now be 113% (i.e., 80 + 33 = 113). If a
third order to buy 70 contracts of Series C is received, the series
percentage would be 70% (i.e., 70/100). The cumulative percentage would
now be 183% (i.e., 113 + 70 = 183). Since 183% exceeds the Cumulative
Percentage Limit of 150%, the Market-Maker's quotes in the class, and
any class with the same underlying security, would be cancelled. This
cancellation, however, would not occur until after execution of the
third order. Due to firm quote obligations rules, the QRM Mechanism
will not cancel quotes (and in the case of an Exchange-wide QRM
Incident, orders) until after the execution of the order that caused
the triggering of the QRM Mechanism. Note that percentages are added to
one another, regardless of the denominator.
Percentages are also calculated based on the original quote size,
not the remaining quote size. Using the quotes set forth above as an
example, if an order to buy 40 contracts of Series A is received, the
series percentage would be 80% (i.e., 40/50). The cumulative percentage
would also be 80%. If a second order to sell 25 contracts of Series B
is received, the series percentage would be 33% (i.e., 25/75). The
cumulative percentage would then be 113% (i.e., 80 + 33 = 113). If a
third order to buy 10 contracts of Series A is received, the series
percentage would be 20% (i.e., 10/50). The cumulative percentage would
then be 133% (i.e., 113 + 20 = 133). If a fourth order to buy 70
contracts of Series C is received, the series percentage would be 70%
(i.e., 70/100). The cumulative percentage would then be 203% (i.e., 133
+ 70 = 203).
The proposed rule change adds a second new function to the QRM
Mechanism that would allow each Market-Maker to specify the maximum
number of series for which either side of the quote is fully traded
(the ``Number of Series Fully Traded'') and a Measurement Interval.
When the QRM Mechanism determines that the Market-Maker has traded at
least the Number of Series Fully Traded for any option class during any
rolling Measurement Interval, the QRM Mechanism will automatically
cancel all of the Market-Maker's electronic quotes being disseminated
in that option class and any other classes with the same underlying
security until the Market-Maker refreshes those electronic quotes.
To illustrate this functionality, assume that a Market-Maker is
quoting the following series in a class:
Series A Quote: 1.00 - 1.20 50 x 50
Series B Quote: 2.00 - 2.20 75 x 75
Series C Quote: 3.00 - 3.20 100 x 100
If the Number of Series Fully Traded is set at two, and an order to buy
50 contracts of Series A is received, the number of series traded in
full will be one. If a second order to sell 25 contracts of Series B is
received, the number of series traded in full will still be one because
Series B did not trade in full. If a third order to buy 100 contracts
of Series C is received, the number of series traded in full will then
be two. Since two meets the parameter set for Number of Series Fully
Traded, the Market-Maker's quotes in that class (and any other classes
with the same underlying security) would be cancelled.
Whenever one of the QRM functions (i.e., Contract Limit, Cumulative
Percentage Limit or Number of Series Fully Traded) has been triggered
and the QRM Mechanism automatically cancels all of the Market-Maker's
electronic quotes in all series of that option class (and any other
classes with the same underlying security), such action by the Exchange
shall be termed a ``QRM Incident''. Both of the new functionalities
described above (along with the already-existing Contract Limit QRM
functionality) are optional and Market-Makers are not required to set
parameters for the aforementioned QRM Mechanism functions.
The Exchange has above proposed that, when the QRM Mechanism
automatically cancels all of a Market-Maker's electronic quotes in an
option class, the Exchange will also cancel all of the Market-Maker's
electronic quotes in any other classes with the same underlying
security. The purpose of this is because the risk involved in trading
beyond a Market-Maker's risk profile extends to classes that have the
same underlying security (since often the only difference between such
classes is the multiplier of number of units of the underlying
security).
Finally, the proposed amendment adds a third function that allows
the Exchange to cancel all quotes and orders of a Market-Maker or
Participant Organization once a specified number of QRM Incidents has
been reached. Under this proposed functionality, a Market-Maker or a
Participant organization may specify a maximum number of QRM Incidents
with respect to all QRM Functions (i.e., Contract Limit, Cumulative
Percentage Limit and Number of Series Fully Traded) and a Measurement
Interval on an Exchange-wide basis. When the Exchange determines that
such Market-Maker or Participant organization has reached its QRM
Incident limit during any rolling Measurement Interval, the QRM
Mechanism shall cancel all of the Market-Maker's or Participant
organization's electronic quotes and Market-Maker orders resting in the
Book in all option classes on the Exchange and prevent a Market-Maker
or Participant organization from sending additional quotes or orders to
the Exchange until the Market-Maker or Participant organization
reactivates its ability to send quotes or orders in a manner prescribed
by the Exchange.\5\
---------------------------------------------------------------------------
\5\ The Exchange will announce such manner to Trading Permit
Holders via Regulatory Circular. The current plan for such
reactivation is for the Market-Maker or TPH Organization to contact
the Exchange's Help Desk to request reactivation, though the
Exchange is examining the possibility of creating a systematized
manner for Market-Makers or TPH organizations to reactivate.
---------------------------------------------------------------------------
Once the QRM Mechanism is triggered and quotes (and in the case of
an Exchange-wide cancellation, orders) are cancelled, all counters that
determine whether the QRM Mechanism is triggered and a QRM Incident
occurs will be reset for all classes for which quotes (and in the case
of an Exchange-wide cancellation, orders) were canceled for all parties
for whom such quotes (and in the case of an Exchange-wide cancellation,
orders) were canceled. This means that, if the QRM Mechanism is
triggered due to a party's reaching the Contract Limit, Cumulative
Percentage Limit, or Number of Series Fully Traded for a class, and
quotes (and in the case of an Exchange-wide cancellation, orders) are
canceled, the number of contracts traded in all classes for which
quotes and orders were canceled would be reset to zero, the cumulative
percentage for all classes for which quotes and orders were canceled
would be reset to zero, and the number of series that are fully traded
for all classes for which quotes and orders were canceled would be
reset to zero. If the Exchange cancels all of the Market-Maker's or
Participant
[[Page 38348]]
organization's electronic quotes and Market-Maker orders resting in the
Book, and the Market-Maker or Participant organization does not
reactivate its ability to send quotes or orders, the block will be in
effect only for the trading day that the Market-Maker or Participant
organization reached its QRM Incident limit.
As with the Contract Limit, Cumulative Percentage Limit or Number
of Series Fully Traded QRM functions, Market-Makers and Participant
organizations are not required to set parameters for the Exchange-wide
QRM. All QRM Mechanism functionalities are currently optional.
The Exchange represents that it has the systems capacity to permit
the operation of these enhanced QRM Mechanism functions. The Exchange
does note that, in a situation in which the QRM Mechanism is triggered,
and quotes (and in the case of an Exchange-wide cancellation, orders)
must be canceled for multiple classes related to the same underlying
security or across multiple business clusters,\6\ it may take a brief
period for such cancellation to occur (during which period orders may
execute against such quotes and orders; this functionality will not
violate the Exchange's firm quote rules). The Exchange will use best
efforts to cancel such quotes and orders as rapidly as possible.
---------------------------------------------------------------------------
\6\ The Exchange's systems group various classes into different
business clusters for systems purposes.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\7\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \8\ requirements that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \9\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that investors and market
participants will benefit from the proposed new functionality of the
QRM Mechanism. Market-Makers are vulnerable to the risk that, through
an error in pricing or due to market events, they will receive
multiple, automatic executions at disadvantageous or erroneous prices
before they can adjust their quotes. Without adequate risk management
tools such as the QRM, Market-Makers could widen their quotes, quote
less aggressively or limit their quote size. Such actions may undermine
the quality of the markets available to customers and other market
participants.
Accordingly, with the enhancements proposed by the Exchange to QRM,
the use of the QRM Mechanism will encourage more aggressive and
narrower quoting, thereby removing impediments to and perfecting the
mechanism of a free and open market and a national market system, and,
in general, more effectively protecting investors and the public
interest. In addition, providing Market-Makers with more tools for
managing risk will facilitate transactions in securities because, as
noted above, the quotes of market makers will be more reliable and
could help prevent erroneous orders and transactions. As a result, the
new functionality for the QRM Mechanism has the potential to promote
just and equitable principles of trade. Also, the proposed changes do
not change to whom any aspects of the QRM Mechanism applies, as the
proposed changes apply to all market participants to whom the QRM
Mechanism previously applied.
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. Rather, the Exchange
believes that the functions of the QRM Mechanism promote fair and
orderly markets.
C2 does not believe that the proposed rule change will impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the use of the QRM
Mechanism including the new enhancements is voluntary. Further, the
proposed changes do not change to whom any aspects of the QRM Mechanism
applies, as the proposed changes apply to all market participants to
whom the QRM Mechanism previously applied. Similarly, the Exchange does
not believe that the proposed rule change will impose any burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because, again, the use of the
QRM Mechanism including the new enhancements is voluntary. Moreover,
the proposed enhancements to the QRM Mechanism apply only to trading on
C2. To the extent that the proposed changes may make C2 a more
attractive trading venue for market participants on other exchanges,
such market participants may elect to become C2 market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\
thereunder.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give 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 Exchange has satisfied this requirement.
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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 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:
[[Page 38349]]
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-C2-2014-012 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2014-012. 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-C2-2014-012 and should be
submitted on or before July 28, 2014.
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-15720 Filed 7-3-14; 8:45 am]
BILLING CODE 8011-01-P
