Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Exchange Rule 6.15, 66089-66092 [2015-27342]

Download as PDF Federal Register / Vol. 80, No. 208 / Wednesday, October 28, 2015 / Notices 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 has 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 proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act8 and Rule 19b–4(f)(6)(iii) thereunder.9 The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the obvious error pilot program to continue uninterrupted while the industry gains further experience operating under the Plan, and avoid any investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.10 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 mstockstill on DSK4VPTVN1PROD with NOTICES 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b–4(f)(6)(iii). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 10 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 19:16 Oct 27, 2015 Jkt 238001 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: 66089 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Brent J. Fields, Secretary. [FR Doc. 2015–27353 Filed 10–27–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76221; File No. SR–C2– 2015–029] 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– BOX–2015–34 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–BOX–2015–34. 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 such 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–BOX– 2015–34, and should be submitted on or before November 18, 2015. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Exchange Rule 6.15 October 22, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 21, 2015, C2 Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to extend a pilot program related to Rule 6.15 (Nullification and Adjustment of Options Transactions including Obvious Errors) and to clarify that the pilot program does not prevent the nullification or adjustment of electronic transactions arising from a ‘‘verifiable disruption or malfunction.’’ The text of the proposed rule change is 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 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\28OCN1.SGM 28OCN1 66090 Federal Register / Vol. 80, No. 208 / Wednesday, October 28, 2015 / Notices 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 mstockstill on DSK4VPTVN1PROD with NOTICES Pilot Extension The purpose of this filing is to extend the effectiveness of the Exchange’s current rule applicable to obvious errors Interpretation and Policy .01 to Rule 6.15, explained in further detail below, is currently operating on a pilot program set to expire on October 23, 2015. The Exchange proposes to extend the pilot program so that it coincides with the pilot period for the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (‘‘Limit Up-Limit Down Plan’’ or ‘‘Plan’’), including any extensions to the pilot period for the Plan. Currently the Plan Participants have proposed the 9th amendment to the Plan which, if approved, would extend the pilot period of the Plan to April 22, 2016.3 On April 8, 2013, the Commission approved, on a pilot basis, amendments to Exchange Rule 6.15 that stated that options executions will not be adjusted or nullified if the execution occurs while the underlying security is in a limit or straddle state as defined by the Plan.4 Under the terms of this current pilot program, though options executions will generally not be subject to review as an Obvious Error or Catastrophic Error while the underlying security is in a limit or straddle state, such executions may be reviewed by the Exchange should the Exchange decide to do so under its own motion pursuant to sub-paragraph (c)(3) of Rule 6.15, or a bust or adjust pursuant to paragraphs (e) through (j) of Rule 6.15.5 Pursuant to a comment letter filed in connection with the order approving the establishment of the pilot, the Exchange committed to submit monthly data regarding the program.6 In addition, the 3 See Securities Exchange Act Release No. 75917 (September 14, 2015), 80 FR 56515 (September 18, 2015) (File No. 4–631). 4 Securities Exchange Act Release No. 69345 (April 8, 2013), 78 FR 21985 (April 12, 2013) (SR– C2–2013–013). See also Exchange Rule 6.15.01. 5 Id. 6 See letter from Angelo Evangelou, Associate General Counsel, Chicago Board Options Exchange, Incorporated, date April 4, 2013. VerDate Sep<11>2014 19:16 Oct 27, 2015 Jkt 238001 Exchange agreed to submit an overall analysis of the pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission.7 Pursuant to a rule filing, approved on April 3, 2014, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.8 The Exchange will continue to provide the Commission with this data on a monthly basis from October 2015 through the end of the pilot. For each trade on the Exchange, the Exchange will provide (a) the stock symbol, option symbol, time at the start of the straddle or limit state, an indicator for whether it is a straddle or limit state, and (b) for the trades on the Exchange, the executed volume, time-weighted quoted bid-ask spread, time-weighted average quoted depth at the bid, time-weighted average quoted depth at the offer, high execution price, low execution price, number of trades for which a request for review for error was received during straddle and limit states, an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock’s limit or straddle state compared to the last available option price as reported by OPRA before the start of the limit or straddle state (1 if observe 30% and 0 otherwise), and another indicator variable for whether the option price within five minutes of the underlying stock leaving the limit or straddle state (or halt if applicable) is 30% away from the price before the start of the limit or straddle state. In addition, the Exchange will provide to the Commission, and the public, assessments relating to the impact of the operation of the obvious error rules during limit and straddle states including: (1) An evaluation of the statistical and economic impact of limit and straddle states on liquidity and market quality in the options markets, and (2) an assessment of whether the lack of obvious error rules in effect during the straddle and limit states are problematic. The Exchange agrees to provide the analysis and data, to the commission, to help evaluate the impact of the pilot program no later than five months prior to the expiration of the pilot program, including any extensions. If the Plan extension is approved, the next data assessment will 7 Id. 8 Securities Exchange Act Release No. 71856 (April 3, 2014), 79 FR 19676 (April 9, 2014) (SR– C2–2014–008). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 be submitted no later than December 18, 2015. The Exchange is now proposing to extend the pilot period so that it coincides with the pilot period for the Plan, including any extensions to the pilot period for the Plan. The pilot will no longer have a fixed expiration date. The Exchange believes the benefits to market participants from this provision should continue on a pilot basis to coincide with the Plan. The Exchange continues to believe that adding certainty to the execution of orders in limit or straddle states will encourage market participants to continue to provide liquidity to the Exchange, and, thus, promote a fair and orderly market during these periods. Barring this provision, the provisions of Rule 6.15 would likely apply in many instances during limit and straddle states. The Exchange believes that continuing the pilot will protect against any unanticipated consequences in the options markets during a limit or straddle state. Thus, the Exchange believes that the protections of current Rule should continue while the industry gains further experience operating the Plan. Verifiable Disruptions or Malfunctions The Exchange is also proposing to clarify that the pilot program outlined in Interpretation and Policy .01 to Rule 6.15 does not prevent the nullification or adjustment of electronic transactions arising from a verifiable disruption or malfunction. Interpretation and Policy .06 to Rule 6.15 specifies that electronic transactions arising out of a verifiable disruption or malfunction in the use or operation of any Exchange automated quotation, dissemination, execution or communication system will either be nullified or adjusted by an Official. The Exchange believes the provisions of Interpretation and Policy .06 would apply regardless of whether an underlying security to a transaction was in a limit state or straddle state. However, because Interpretation and Policy .01 specifies the other instances in which executions may be reviewed and nullified or adjusted (regardless of the pilot program), the Exchange believes adding a reference to Interpretation and Policy .06 will promote clarity in the Rule. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of E:\FR\FM\28OCN1.SGM 28OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 208 / Wednesday, October 28, 2015 / Notices Section 6(b) of the Act.9 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 10 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) 11 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange further believes that it is necessary and appropriate in the interest of promoting fair and orderly markets to exclude transactions executed during a limit or straddle state from certain aspects of the Exchange Rule 6.15. The Exchange believes the application of the current rule will be impracticable given the lack of a reliable NBBO in the options market during limit and straddle states, and that the resulting actions (i.e., nullified trades or adjusted prices) may not be appropriate given market conditions. The Exchange now proposes to extend the pilot program so that it coincides with the pilot period for the Plan, including any extensions to the pilot period for the Plan. Extension of this pilot would ensure that limit orders that are filled during a limit or straddle state would have certainty of execution in a manner that promotes just and equitable principles of trade, removes impediments to, and perfects the mechanism of a free and open market and a national market system. Thus, the Exchange believes that the protections of the pilot should continue while the industry gains further experience operating the Plan. The proposed rule change relating to verifiable disruptions or malfunctions is consistent with these provisions as it will more accurately reflect the intentions of the Exchange regarding adjustments and nullifications while an underlying security is in a limit or straddle state. The purpose of the proposed change is to add clarity to the rule text, however, the current practices of the Exchange will remain the same. 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 11 Id. 10 15 VerDate Sep<11>2014 19:16 Oct 27, 2015 Jkt 238001 The Exchange believes the proposed rule change will help avoid confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and national market system. B. Self-Regulatory Organization’s Statement on Burden on Competition C2 does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the Exchange believes that, by extending the expiration of the pilot, the proposed rule change will allow for further analysis of the pilot and a determination of how the pilot shall be structured in the future. In doing so, the proposed rule change will also serve to promote regulatory clarity and consistency, thereby reducing burdens on the marketplace and facilitating investor protection. 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 proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6)(iii) thereunder.13 The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the obvious error pilot program to continue uninterrupted 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6)(iii). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 13 17 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 66091 while the industry gains further experience operating under the Plan, and avoid any investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.14 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: 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– C2–2015–029 on the subject line. Paper comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–C2–2015–029. 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 14 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\28OCN1.SGM 28OCN1 66092 Federal Register / Vol. 80, No. 208 / Wednesday, October 28, 2015 / Notices 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 such 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– 2015–029, and should be submitted on or before November 18, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Brent J. Fields, Secretary. [FR Doc. 2015–27342 Filed 10–27–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76226; File No. SR– NASDAQ–2015–125] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding the Obvious Error Pilot Program October 22, 2015. mstockstill on DSK4VPTVN1PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’), 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on October 20, 2015, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 the Substance of the Proposed Rule Change The Exchange is filing a proposal by The NASDAQ Options Market LLC (‘‘NOM’’) to amend Chapter V, Regulation of Trading on NOM, to extend the pilot program under Section 3(d)(iv), which provides for 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 19:16 Oct 27, 2015 Jkt 238001 how the Exchange treats obvious and catastrophic options errors in response to the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the ‘‘Limit UpLimit Down Plan’’ or the ‘‘Plan’’).3 The Exchange proposes to extend the pilot period to coincide with the pilot period for the Limit Up-Limit Down Plan, including any extensions to the pilot period for the Plan. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaq.cchwallstreet.com, at the principal office of the Exchange, 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 In April 2013, the Commission approved a proposal, on a one year pilot basis, to adopt Chapter V, Section 3(d)(iv) to provide for how the Exchange will treat obvious and catastrophic options errors in response to the Plan, which is applicable to all NMS stocks, as defined in Regulation NMS Rule 600(b)(47).4 The Plan is designed to prevent trades in individual NMS stocks from occurring outside of specified Price Bands.5 The requirements of the Plan are coupled with Trading Pauses to accommodate more fundamental price moves (as opposed to erroneous trades or momentary gaps in liquidity). 3 Securities Exchange Act Release No. 69341 (April 8, 2013), 78 FR 21996 (April 12, 2013) (SR– NASDAQ–2013–048). 4 The Plan was extended until February 20, 2015. The Plan was initially approved for a one-year pilot period, which began on April 8, 2013. Securities Exchange Act Release No. 71649 (March 5, 2014), 79 FR 13696 (March 11, 2014). 5 Unless otherwise specified, capitalized terms used in this rule filing are based on the defined terms of the Plan. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 The Exchange extended the operation of Chapter V, Section 3(d)(iv), which provides that trades are not subject to an obvious error or catastrophic error review pursuant to Chapter V, Sections 6(c) or 6(d) during a Limit State or Straddle State in 2014,6 and again in 2015.7 The current pilot period expires October 23, 2015. Currently, the pilot period for the Plan is proposed to be extended until April 22, 2016.8 The Exchange now proposes to extend the pilot program for an additional pilot period to coincide with the pilot period for the Limit Up-Limit Down Plan, including any extensions to the pilot period for the Plan. The Exchange believes conducting an obvious error or catastrophic error review is impracticable given the lack of a reliable National Best Bid/Offer (‘‘NBBO’’) in the options market during Limit States and Straddle States, and that the resulting actions (i.e., nullified trades or adjusted prices) may not be appropriate given market conditions. Under the pilot, limit orders that are filled during a Limit State or Straddle State have certainty of execution in a manner that promotes just and equitable principles of trade, and removes impediments to, and perfects the mechanism of a free and open market and a national market system. Moreover, given that options prices during brief Limit States or Straddle States may deviate substantially from those available shortly following the Limit State or Straddle State, the Exchange believes giving market participants time to reevaluate a transaction would create an unreasonable adverse selection opportunity that would discourage participants from providing liquidity during Limit States or Straddle States. On balance, the Exchange believes that removing the potential inequity of nullifying or adjusting executions occurring during Limit States or Straddle States outweighs any potential benefits from applying those provisions during such unusual market conditions. The Exchange believes the benefits to market participants from the pilot program should continue on a pilot basis to coincide with the operation of the Limit Up-Limit Down Plan. The Exchange believes that continuing the pilot will protect against any unanticipated consequences and permit 6 Securities Exchange Act Release No. 71902 (April 8, 2014), 79 FR 20946 (April 14, 2014) (SR– NASDAQ–2014–033). 7 Securities Exchange Act Release No. 74336 (February 20, 2015), 80 FR 10551 (February 26, 2015) (SR–NASDAQ–2015–016). 8 Securities Exchange Act Release No. 75917 (September 14, 2015), 80 FR 56515 (September 18, 2015). E:\FR\FM\28OCN1.SGM 28OCN1

Agencies

[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66089-66092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27342]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76221; File No. SR-C2-2015-029]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Exchange Rule 6.15

October 22, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 21, 2015, C2 Options Exchange, Incorporated (the 
``Exchange'' or ``C2'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to extend a pilot program related to Rule 
6.15 (Nullification and Adjustment of Options Transactions including 
Obvious Errors) and to clarify that the pilot program does not prevent 
the nullification or adjustment of electronic transactions arising from 
a ``verifiable disruption or malfunction.'' The text of the proposed 
rule change is 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

[[Page 66090]]

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
Pilot Extension
    The purpose of this filing is to extend the effectiveness of the 
Exchange's current rule applicable to obvious errors Interpretation and 
Policy .01 to Rule 6.15, explained in further detail below, is 
currently operating on a pilot program set to expire on October 23, 
2015. The Exchange proposes to extend the pilot program so that it 
coincides with the pilot period for the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act 
(``Limit Up-Limit Down Plan'' or ``Plan''), including any extensions to 
the pilot period for the Plan. Currently the Plan Participants have 
proposed the 9th amendment to the Plan which, if approved, would extend 
the pilot period of the Plan to April 22, 2016.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 75917 (September 14, 
2015), 80 FR 56515 (September 18, 2015) (File No. 4-631).
---------------------------------------------------------------------------

    On April 8, 2013, the Commission approved, on a pilot basis, 
amendments to Exchange Rule 6.15 that stated that options executions 
will not be adjusted or nullified if the execution occurs while the 
underlying security is in a limit or straddle state as defined by the 
Plan.\4\ Under the terms of this current pilot program, though options 
executions will generally not be subject to review as an Obvious Error 
or Catastrophic Error while the underlying security is in a limit or 
straddle state, such executions may be reviewed by the Exchange should 
the Exchange decide to do so under its own motion pursuant to sub-
paragraph (c)(3) of Rule 6.15, or a bust or adjust pursuant to 
paragraphs (e) through (j) of Rule 6.15.\5\
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 69345 (April 8, 2013), 
78 FR 21985 (April 12, 2013) (SR-C2-2013-013). See also Exchange 
Rule 6.15.01.
    \5\ Id.
---------------------------------------------------------------------------

    Pursuant to a comment letter filed in connection with the order 
approving the establishment of the pilot, the Exchange committed to 
submit monthly data regarding the program.\6\ In addition, the Exchange 
agreed to submit an overall analysis of the pilot in conjunction with 
the data submitted under the Plan and any other data as requested by 
the Commission.\7\ Pursuant to a rule filing, approved on April 3, 
2014, each month, the Exchange committed to provide the Commission, and 
the public, a dataset containing the data for each straddle and limit 
state in optionable stocks that had at least one trade on the 
Exchange.\8\ The Exchange will continue to provide the Commission with 
this data on a monthly basis from October 2015 through the end of the 
pilot. For each trade on the Exchange, the Exchange will provide (a) 
the stock symbol, option symbol, time at the start of the straddle or 
limit state, an indicator for whether it is a straddle or limit state, 
and (b) for the trades on the Exchange, the executed volume, time-
weighted quoted bid-ask spread, time-weighted average quoted depth at 
the bid, time-weighted average quoted depth at the offer, high 
execution price, low execution price, number of trades for which a 
request for review for error was received during straddle and limit 
states, an indicator variable for whether those options outlined above 
have a price change exceeding 30% during the underlying stock's limit 
or straddle state compared to the last available option price as 
reported by OPRA before the start of the limit or straddle state (1 if 
observe 30% and 0 otherwise), and another indicator variable for 
whether the option price within five minutes of the underlying stock 
leaving the limit or straddle state (or halt if applicable) is 30% away 
from the price before the start of the limit or straddle state.
---------------------------------------------------------------------------

    \6\ See letter from Angelo Evangelou, Associate General Counsel, 
Chicago Board Options Exchange, Incorporated, date April 4, 2013.
    \7\ Id.
    \8\ Securities Exchange Act Release No. 71856 (April 3, 2014), 
79 FR 19676 (April 9, 2014) (SR-C2-2014-008).
---------------------------------------------------------------------------

    In addition, the Exchange will provide to the Commission, and the 
public, assessments relating to the impact of the operation of the 
obvious error rules during limit and straddle states including: (1) An 
evaluation of the statistical and economic impact of limit and straddle 
states on liquidity and market quality in the options markets, and (2) 
an assessment of whether the lack of obvious error rules in effect 
during the straddle and limit states are problematic. The Exchange 
agrees to provide the analysis and data, to the commission, to help 
evaluate the impact of the pilot program no later than five months 
prior to the expiration of the pilot program, including any extensions. 
If the Plan extension is approved, the next data assessment will be 
submitted no later than December 18, 2015.
    The Exchange is now proposing to extend the pilot period so that it 
coincides with the pilot period for the Plan, including any extensions 
to the pilot period for the Plan. The pilot will no longer have a fixed 
expiration date. The Exchange believes the benefits to market 
participants from this provision should continue on a pilot basis to 
coincide with the Plan. The Exchange continues to believe that adding 
certainty to the execution of orders in limit or straddle states will 
encourage market participants to continue to provide liquidity to the 
Exchange, and, thus, promote a fair and orderly market during these 
periods. Barring this provision, the provisions of Rule 6.15 would 
likely apply in many instances during limit and straddle states. The 
Exchange believes that continuing the pilot will protect against any 
unanticipated consequences in the options markets during a limit or 
straddle state. Thus, the Exchange believes that the protections of 
current Rule should continue while the industry gains further 
experience operating the Plan.
Verifiable Disruptions or Malfunctions
    The Exchange is also proposing to clarify that the pilot program 
outlined in Interpretation and Policy .01 to Rule 6.15 does not prevent 
the nullification or adjustment of electronic transactions arising from 
a verifiable disruption or malfunction. Interpretation and Policy .06 
to Rule 6.15 specifies that electronic transactions arising out of a 
verifiable disruption or malfunction in the use or operation of any 
Exchange automated quotation, dissemination, execution or communication 
system will either be nullified or adjusted by an Official. The 
Exchange believes the provisions of Interpretation and Policy .06 would 
apply regardless of whether an underlying security to a transaction was 
in a limit state or straddle state. However, because Interpretation and 
Policy .01 specifies the other instances in which executions may be 
reviewed and nullified or adjusted (regardless of the pilot program), 
the Exchange believes adding a reference to Interpretation and Policy 
.06 will promote clarity in the Rule.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of

[[Page 66091]]

Section 6(b) of the Act.\9\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \10\ 
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) \11\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange further believes that it is necessary 
and appropriate in the interest of promoting fair and orderly markets 
to exclude transactions executed during a limit or straddle state from 
certain aspects of the Exchange Rule 6.15. The Exchange believes the 
application of the current rule will be impracticable given the lack of 
a reliable NBBO in the options market during limit and straddle states, 
and that the resulting actions (i.e., nullified trades or adjusted 
prices) may not be appropriate given market conditions. The Exchange 
now proposes to extend the pilot program so that it coincides with the 
pilot period for the Plan, including any extensions to the pilot period 
for the Plan. Extension of this pilot would ensure that limit orders 
that are filled during a limit or straddle state would have certainty 
of execution in a manner that promotes just and equitable principles of 
trade, removes impediments to, and perfects the mechanism of a free and 
open market and a national market system. Thus, the Exchange believes 
that the protections of the pilot should continue while the industry 
gains further experience operating the Plan.
    The proposed rule change relating to verifiable disruptions or 
malfunctions is consistent with these provisions as it will more 
accurately reflect the intentions of the Exchange regarding adjustments 
and nullifications while an underlying security is in a limit or 
straddle state. The purpose of the proposed change is to add clarity to 
the rule text, however, the current practices of the Exchange will 
remain the same. The Exchange believes the proposed rule change will 
help avoid confusion, thereby removing impediments to and perfecting 
the mechanism of a free and open market and national market system.

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

    C2 does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange 
believes that, by extending the expiration of the pilot, the proposed 
rule change will allow for further analysis of the pilot and a 
determination of how the pilot shall be structured in the future. In 
doing so, the proposed rule change will also serve to promote 
regulatory clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection.

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 proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will allow the obvious error pilot program to continue 
uninterrupted while the industry gains further experience operating 
under the Plan, and avoid any investor confusion that could result from 
a temporary interruption in the pilot program. For this reason, the 
Commission designates the proposed rule change to be operative upon 
filing.\14\
---------------------------------------------------------------------------

    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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:

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-C2-2015-029 on the subject line.

Paper comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2015-029. 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

[[Page 66092]]

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 such 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-C2-2015-029, and should be 
submitted on or before November 18, 2015.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Brent J. Fields,
Secretary.
[FR Doc. 2015-27342 Filed 10-27-15; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.