Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Complex Orders, as Modified by Amendment No. 1, 67446-67450 [2015-27794]

Download as PDF 67446 Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2015–48 and should be submitted on or before November 23, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Robert W. Errett, Deputy Secretary. 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. [FR Doc. 2015–27796 Filed 10–30–15; 8:45 am] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76274; File No. SR–C2– 2015–025] Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Complex Orders, as Modified by Amendment No. 1 October 27, 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 13, 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, II, and III below, which Items have been prepared by the Exchange. On October 26, 2015, the Exchange submitted Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. asabaliauskas on DSK5VPTVN1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposed to amend Rule 6.13. The text of the proposed rule change is available on the Exchange’s Web site (https://www.c2exchange.com/ Legal/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these 26 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 18:55 Oct 30, 2015 Jkt 238001 The Exchange proposes to amend Rule 6.13 regarding complex orders. The proposed rule change (1) amends the rule provisions regarding the initiation of a complex order auction (‘‘COA’’), (2) adds rule provisions regarding the impact of certain incoming orders and changes in the leg markets on an ongoing COA, and (3) amends the rule provision related to the size of COA responses. The proposed rule change also makes technical and other nonsubstantive changes. First, the Exchange proposes to amend Rule 6.13 and Interpretation and Policy .02 regarding the initiation of a COA. Currently, C2 Rule 6.13(c)(2) provides that on receipt of a COAeligible order 3 and request from the Participant representing the order that it be processed through COA, the Exchange will send request for response (‘‘RFR’’) message to all Participants who have elected to receive RFR messages.4 Interpretation and Policy .02(a) states that with respect to the initiation of a COA, Participants routing complex orders directly to the complex order book (‘‘COB’’) may request that the complex orders be processed by COA on a class-by-class basis. Currently, all Participants have requested that all of their COA-eligible orders process through COA upon entry into the System. Therefore, rather than have Participants affirmatively request that their COA-eligible orders COA, the Exchange proposes to amend Rule 6.13(c)(2) to provide that incoming 3 A ‘‘COA-eligible order’’ means a complex order that, as determined by the Exchange on class-byclass basis, is eligible for a COA considering the order’s marketability (defined as a number of tickets away from the current market), size, complex order type and complex order origin types. Currently, in all classes, (a) only complex orders with origin codes for public and professional customers, (b) all complex order types except for immediate-or-cancel (‘‘IOC’’) orders, and (c) marketable orders and ‘‘tweeners’’ limit orders bettering the same side of the derived net market are eligible for COA. 4 ‘‘RFR’’ stands for a ‘‘request for responses’’ that occurs in the COA process. The RFR message will identify the component series, the size and side of the market of the COA-eligible order and any contingencies if applicable. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 COA-eligible orders will COA by default.5 The Exchange believes Participants should still maintain flexibility to have their COA-eligible orders not COA. In order to provide Participants with this flexibility, the proposed rule change adds that, notwithstanding the foregoing, Participants may request on an order-by-order basis that a COAeligible order not COA (referred to as a ‘‘do-not-COA’’ request). Because of this proposed rule change, the Exchange deletes the language in Interpretation and Policy .02(a) that indicates Participants may request that complex orders be processed by COA on a classby-class basis, as it is no longer necessary.6 While the proposed rule change will not permit Participants to not COA orders on a class-by-class basis, the Exchange believes that it will not burden Participants because they have not requested this in the past. Additionally, allowing Participants to make a do-not-COA request on an orderby-order basis will better allow them to make decisions regarding the handling of their orders based on market conditions at the time they submit their orders. While the proposed rule change provides that Participants may include a do-not-COA request on complex orders, the proposed rule change indicates that an order with a do-notCOA request may still COA after it has rested on the COB pursuant to Interpretation and Policy .02.7 The Exchange believes that Participants that include a do-not-COA request for an order upon entry into the System do so to receive automatic execution with the leg market or the COB, as applicable, without the delay of the COA.8 5 This proposed rule change applies to all COAeligible orders in all classes. Stock-option orders are currently not permitted on C2. The proposed rule change does not change the allocation or priority provisions of complex orders. The proposed rule change also makes a nonsubstantive change to move language regarding the System sending RFR messages to the beginning of the provision. 6 The proposed rule change deletes Interpretation and Policy .02(a) in order to include all information regarding the initiation of a COA in subparagraph (c)(2) in the same place within the rule. As a result, the proposed rule change deletes the lettering for paragraph (b), which will be the only remaining provision in Interpretation and Policy .02. The proposed rule change makes nonsubstantive changes to Rule 6.13(c) as well, including a change to conform heading punctuation to that used in other headings and deletion of an extra space. 7 Interpretation and Policy .02(b) (which the proposed rule change amends to become Interpretation and Policy .02) provides that the Exchange may determine on a class-by-class basis to automatically COA nonmarketable orders resting at the top of the COB if they are within a number of ticks away from the current derived net market. 8 The current COA response time interval is 75 milliseconds. E:\FR\FM\02NON1.SGM 02NON1 Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES However, if that does not occur and the order enters the COB to rest, the Exchange believes it is appropriate to COA the order after resting on the COB (if that functionality has been activated for the class) to try and obtain an execution even though the Participant initially did not want the order to COA, as the COA will not delay execution at that point. The Exchange notes that an order with a do-not-COA request will still have execution opportunities. For example, such an order may execute automatically upon entry into the System against the leg markets or complex orders on the COB to the extent marketable (in accordance with allocation rules set forth in Rule 6.13). Additionally, pursuant to Rule 6.13(c)(8)(A), such an order on the opposite side of and marketable against a COA-eligible order may trade against the COA-eligible order if the System receives the order while a COA is ongoing. A do-not-COA request merely provides the order with the opportunity to execute upon entry into the System rather than after going through an auction; the order will be subject to the same priority and allocation rules.9 Second, the proposed rule change adds subparagraphs Rule 6.13(c)(8)(D) and (E) to describe additional circumstances that will cause a COA to end early.10 Proposed subparagraph (8)(D) describes how an incoming order with a do-not-COA request or that is not COA-eligible may impact an ongoing COA. Rule 6.13(c)(8) currently describes the handling of unrelated complex orders that are received prior to the expiration of the COA Response Time Interval.11 The proposed rule change 9 A complex order that COAs upon entry into the System or after resting in the COB will not miss any execution opportunities. Pursuant to current Interpretation and Policy .02(b), an order that COAs after resting on the COB will be nonmarketable and at the top of the COB (and thus is the best-priced complex order at the time). Rule 6.13(c)(8) (including as amended by this rule filing, as further discussed below) describes how incoming complex orders received during a COA impact the COA, including providing that the COA’d order (which may be an order that COAs upon entry into the System or after resting in the COB) will have time priority over the incoming order, and ultimately provides that a COA’d order will not lose execution opportunities to complex orders submitted during the COA. 10 The proposed rule change makes corresponding changes to the heading and introductory paragraph of subparagraph (c)(8). 11 Rule 6.13(c)(8) states that incoming complex orders that are received prior to the expiration of the response time interval for a COA-eligible order (the ‘‘original COA’’) will impact the original COA as follows: (a) Incoming complex orders that are received prior to the expiration of the response time interval for the original COA that are on the opposite side of the market and are marketable against the starting price of the original COA- VerDate Sep<11>2014 18:55 Oct 30, 2015 Jkt 238001 states that if an order with a do-not-COA request or an order that is not COAeligible is received prior to the expiration of the Response Time Interval for the original COA and is on the same side of the market and at a price better than or equal to the starting price, then the original COA will end. Similar to the current provisions regarding incoming unrelated COAeligible orders on the same side of the COA-eligible order (and at a price better than or equal to the starting price), the processing of the original COA pursuant to subparagraphs (c)(4) through (c)(6) remains the same 12 with the addition that the priority of the original COAeligible order and the order with the donot-COA request or the order that is not COA-eligible, as applicable, will be eligible order will cause the original COA to end. The processing of the original COA pursuant to subparagraphs (c)(4) through (c)(6) remains the same. (The ‘‘starting price’’ means the better of the original COA-eligible order’s limit price or the best price, on a net debit or credit basis, that existed in the Book or COB at the beginning of the response time interval.) (b) Incoming COA-eligible orders that are received prior to the expiration of the response time interval for the original COA that are on the same side of the market, at the same price or worse than the original COA-eligible order and better than or equal to the starting price will join the original COA. The processing of the original COA pursuant to subparagraphs (c)(4) through (c)(6) remains the same with the addition that the priority of the original COA-eligible order and incoming COA-eligible order(s) will be according to time priority. (c) Incoming COA-eligible orders that are received prior to the expiration of the response time interval for the original COA that are on the same side of the market and at a better price than the original COA-eligible order will join the original COA, cause the original COA to end, and a new COA to begin for any remaining balance on the incoming COA-eligible order. The processing of the original COA pursuant to subparagraphs (c)(4) through (c)(6) remains the same with the addition that the priority of the original COA-eligible order and incoming COA-eligible order will be according to time priority. 12 Rule 6.13(c)(4) through (c)(6) provides that at the expiration of the response time interval, the COA-eligible order will trade with orders and quotes in the following order: (a) Individual orders and quotes residing in the book (with allocation consistent with the trading priority applicable to incoming orders in the individual leg components), (b) public customer complex orders resting in the COB before, or that are received during, the response time interval and public customer RFR responses (with allocation according to time priority), (c) nonpublic customer orders resting in the COB before the response time interval (with allocation consistent with the trading priority applicable to incoming orders in the individual leg components), and (d) nonpublic customer orders resting in the COB that are received during the response time interval and nonpublic customer responses (with allocation consistent with the trading priority applicable to incoming orders in the individual leg components). If a COA-eligible order cannot be filled in whole or in a permissible ratio, the order (or any remaining balance) will route to the COB. Thus, the unrelated no-COA order or the order that is not COA-eligible will have execution opportunities against the leg markets, complex orders in the COB and COA responses, with priority after the original COA-eligible order. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 67447 according to time priority. In other words, the COA-eligible order would trade before the order with the do-notCOA request or order that is not COAeligible, regardless of the price of each order.13 The purpose of this proposed provision (as it is for the current provisions related to unrelated complex orders) is to prevent the order with the do-not-COA request or the order that is not COA-eligible,14 as applicable, from executing prior to the original COAeligible order, which, if it did not COA, may have executed or entered the COB (because it would have entered the COB first, it potentially would have priority over the incoming order to the extent the algorithm applicable to the class considered time as a factor for allocation). For example, assume that a COAeligible order to buy with a net limit price of $1.20 is received when the book or COB price (and thus the starting price) is a net price bid of $1.10. The System will initiate a COA at a net price of $1.10. An incoming order with a donot-COA request to buy at a net price of $1.10 or higher causes the original COA to end. To the extent possible, the original COA-eligible order will be filled first, and then the order with the do-notCOA request will be filled (subject to the COA allocation provisions describe above).15 Any remaining balance on the original COA-eligible order or the incoming no-COA order will route to COB. The Exchange believes this result to be appropriate, even if the incoming order with the do-not-COA request had a higher buy price than the COA-eligible order (e.g. $1.21), because if the COAeligible order had not initiated a COA and was marketable at the time it was entered (for example, if the offer in the book was $1.15), it could have executed against the book before the order was entered. Providing the COA-eligible order with time priority is intended to ensure it does not miss an execution opportunity it would have otherwise received if it had not initiated a COA. Proposed subparagraph (8)(E) provides that if the leg markets were not marketable against a COA-eligible order when the order entered the System (and thus prior to the initiation of a COA) but 13 This time priority is the same provided to COAeligible orders over incoming orders in subparagraphs (c)(8)(B) and (C). 14 Current paragraph (c)(8) currently addresses the impact of incoming COA-eligible orders on the same side of the original COA-eligible order. The proposed rule change adds detail regarding the impact of orders that are not COA-eligible and orders with a do-not-COA request. The Exchange believes this provides a more complete description in its rules regarding the impact of unrelated complex orders received during a COA. 15 See id. E:\FR\FM\02NON1.SGM 02NON1 67448 Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices became marketable with the COAeligible order prior to the expiration of the Response Time Interval, it will cause the COA to end.16 The processing of the original COA pursuant to subparagraphs (c)(4) through (c)(6) remains the same. For example, assume that the derived net leg market is $1.00 to $1.05. A COAeligible order to buy at a net price of $1.02 is entered and initiates a COA. During the COA (prior to the end of the Response Time Interval), the derived net leg market offer changes to $1.01. Because this is marketable against the COA-eligible order, this change in the derived net leg markets will cause the COA to end. Assuming the derived net leg market offer price of $1.01 is the best net price at the end of the COA,17 the COA-eligible order will execute against the leg markets at that net price, and any remainder will then trade against complex orders in the COB and auction responses. If a complex order to buy was resting on the COB (for example, at a net price of $1.01) at the initiation of the COA (for example, a do-not-COA order or an order that is not COA-eligible),18 that order and the COA-eligible order would be allocated against the leg markets in the same manner as any other two complex orders pursuant to Rule 6.53C(c)(ii) regarding COB executions, which is by price and then pursuant to the rules of trading priority otherwise applicable to incoming orders in the individual component legs. The COA-eligible order would always have priority over the resting order, as it would always have a higher (if a buy order) or lower (if a sell order) net price than the resting order. In the example above, if a complex order to buy at a net price of $1.01 was resting in the COB at the time the COAeligible order to buy at a net price of $1.02 entered the System and initiated the COA, and the same change in the derived net leg markets occurs, assuming the derived net leg market asabaliauskas on DSK5VPTVN1PROD with NOTICES 16 This is similar to the result described in subparagraph (8)(A), which provides that an incoming complex order on the opposite side of the market as and marketable against the COA-eligible order will cause the COA to end. 17 The leg market offer would be the best price at the end of the COA if no auction response, order resting in the COB, or order that entered the System during the COA had a better price. 18 As previously indicated, only orders that are marketable or that improve the price on the same side of the market initiate a COA. See supra note 1. Thus, for there to be a situation where a complex order was already resting on the COB at the initiation of a COA, the order resting on the COB would be at a worse price than the COA-eligible order that initiated the COA. If there is a complex order resting on the COB when that is on the same side and at the same or better price than an incoming complex order, then the incoming order will not COA and will also enter on the COB. VerDate Sep<11>2014 18:55 Oct 30, 2015 Jkt 238001 offer price of $1.01 is the best net price at the end of the COA, the COA-eligible order will trade against the derived net leg offer at $1.01 first, because it was entered at (and thus willing to pay) a better net price than the resting complex order (to the extent there was insufficient size in the leg markets to fill the COA-eligible order, the remainder would then execute against complex orders in the COB and auction responses). If there is sufficient size left in the leg markets to trade against the resting complex order, then the resting order will also trade (in full or in a permissible ratio). Third, the proposed rule amends Rule 6.13(c)(3)(A) to delete the language that RFR responses are limited to the size of the COA-eligible order for allocation purposes. If the allocation algorithm for complex orders in a class is pro-rata, the System is unable to block RFR responses that are larger than the size of the COA-eligible order. This proposed rule change will result in the rule regarding RFR responses more accurately reflecting current System functionality. The Exchange notes that RFR responses must continue to be on the opposite side of the market of the COA-eligible order and be expressed in the applicable minimum increment. RFR responses will be subject to the same allocation and priority rules. Pursuant to Rule 6.13(c)(7), RFR responses are firm with respect to the COA-eligible order for which the responses are submitted, provided that responses that exceed the size of a COAeligible order are also eligible to trade with other incoming COA-eligible orders that are received during the Response Time Interval.19 Finally, the proposed rule change makes technical and other nonsubstantive changes. Currently, Interpretation and Policy .05 provides that the Exchange may determine on a class-by-class basis (and announce via 19 Please note that the System currently accepts RFR responses that exceed the size of COA-eligible order. The intent of the provision proposed to be deleted was to consider the size of any response that did exceed the size of the COA-eligible order to the size of that order for allocation purposes (for example, if a COA-eligible order is for 200, and a response is for 500, the System considers the size to be 500 when allocating orders and responses against the COA-eligible order, rather than considering the size to be 200). However, the System is unable to do this, and thus excess-sized responses are considered at that size for allocation purposes. However, the excess size of responses is still eligible to trade as set forth in Rule 6.13(c)(7). Additionally, Participants continue to be subject to all rules related to business conduct, including Rule 4.1 related to just and equitable principles of trade and Rule 4.7 related to manipulation (which rules are incorporated into C2’s rules by reference to Chicago Board Options Exchange, Incorporated Rules 4.1 and 4.7). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 Regulatory Circular) which electronic allocation algorithm from Rule 6.12 will apply to complex orders in lieu of Rule 6.13(b)(1)(B) for COB executions and/or (Rule 6.13(c)(5)(B) through (D) for COA. The proposed rule change moves that language from Interpretation and Policy .05 to those paragraphs.20 The Exchange believes it is simpler and more convenient to have the information regarding how COB and COA executions may allocate in one place within the rules.21 The Exchange also amends Rule 6.13(c)(5)(B) and (D) to add responses in the second sentence of each subparagraph. Those subparagraphs address the allocation of COA-eligible orders against certain orders and responses (as indicated in the initial sentence of each subparagraph), and the proposed rule change is consistent with that purpose. Additional nonsubstantive changes to Rule 6.13 are discussed above. 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 Section 6(b) of the Act.22 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 23 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and 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 20 The proposed rule change makes a corresponding change to Interpretation and Policy .06(c), which relates to executions of stock-options orders (types of complex orders) in the COB. The proposed rule change also deletes the rule text that states that in such classes, the orders and quotes in the individual leg series legs will continue to have the same priority as set forth in Rule 6.13(b)(1)(A) for COB and Rule 6.13(c)(5)(A) for COA, as the Exchange believes this language is duplicative. Those paragraphs continue to state that complex orders that trade with orders and quotes in the Book (whether through COB or COA) will be allocated in accordance with the trading priority applicable in the individual component legs, with no discretion for the Exchange to change the allocation algorithm for those executions. 21 The proposed rule change also deletes the language that the Exchange may announce this determination by Regulatory Circular, as Rule 6.13, Interpretation and Policy .01 indicates that the Exchange will announce by Regulatory Circular all determinations it makes under Rule 6.13, which includes the determination of allocation algorithms for COB and COA. 22 15 U.S.C. 78f(b). 23 15 U.S.C. 78f(b)(5). E:\FR\FM\02NON1.SGM 02NON1 asabaliauskas on DSK5VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 24 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the proposed rule change removes impediments to a free and open market and protects investors by providing Participants with more flexibility regarding when complex orders will not COA. The proposed rule change removes the affirmative obligation currently imposed on Participants to request that their COAeligible orders COA on a class-by-class basis, as Participants currently request that all of their COA-eligible orders COA upon entry into the System. Therefore, the proposed rule change to have COA as the default setting for COA-eligible orders will have no impact on COA-eligible orders submitted to the Exchange. The proposed rule change will allow Participants to evaluate thencurrent market conditions and determine if they do not want to COA orders based on those conditions and instead want those orders to route to the COB for potential immediate execution. These orders with do-not COA requests will continue to have execution opportunities and be subject to the same priority and allocation rules. In addition, the proposed rule change promotes just and equitable principles of trade and promotes competition because another options exchange has a substantially similar rule, as further described below, which similarly allows members to designate that orders not initiate a complex order auction on that exchange.25 The current rules describe how COAeligible orders received while a COA is ongoing would impact the COA. The proposed rule change also adds detail regarding how incoming orders with donot-COA requests or that are not COAeligible, as well as how changes in the leg markets, may impact ongoing COAs, which protects investors by enhancing the description in C2 Rules of current COA functionality and circumstances that may cause a COA to end early. Because the proposed rule change adds a provision regarding no-COA orders to the C2 Rules, the Exchange believes it is appropriate to add the provision regarding how no-COA orders would 24 Id. 25 See NASDAQ OMX PHLX LLC (‘‘PHLX’’) Rule 1080, Commentary .07(a)(viii) and (e) (describing the complex order live auction (‘‘COLA’’) process and ‘‘do not auction’’ orders). VerDate Sep<11>2014 18:55 Oct 30, 2015 Jkt 238001 impact a COA to the C2 Rules as well to ensure investors understand how these orders may impact a COA. The Exchange believes the proposed rule change promotes just and equitable principles of trade because, if these orders cause a COA to end, any executions that occur following the COA occur in accordance with allocation principles in place, subject to an exception that the original COAeligible order receive time priority. This exception prevents an order that was entered after the initiation of a COA from trading ahead of an order with the same price that may have executed or entered the COB if it did not COA. Similarly, the Exchange believe it is fair for a COA-eligible order that was entered at a better price than an order that was resting in the COB prior to initiation of the COA to execute against leg markets that become marketable against the COA-eligible order and resting order during the COA, because the Participant who entered the COAeligible order was willing to pay a better price than that of the resting order. Incoming orders that do not COA and leg market changes impact a COA in a substantially similar manner as incoming COA-eligible orders; the proposed rule change just applies to different order types not covered by the current Rules. This proposed change does not substantively change the COA or allocation process. The proposed rule change to delete the provision limiting the size of RFR responses to the size of the COA-eligible order further perfects the mechanism of a free and open market and protects investors because it more accurately describes current System functionality. RFR responses will be subject to the same allocation and priority rules, and COA will continue to function in the same manner. The Exchange notes that the rule related to the complex order auctions of another exchange does not limit responses size to the size of the auctioned order.26 The proposed rule change to reorganize certain provisions eliminates potential confusion regarding the processing of complex orders, which further benefits and protects investors. B. Self-Regulatory Organization’s Statement on Burden on Competition C2 does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change, including the ability to designate orders to not COA, is available to all Participants. The Exchange 26 See PO 00000 id. Frm 00068 Fmt 4703 Sfmt 4703 67449 believes the proposed rule change provides Participants with more flexibility with respect to the submission of their complex orders. The proposed rule change also eliminates the affirmative obligation imposed on Participants to request that COA-eligible orders COA, which they all do for all classes. While Participants may need to undertake system work to allow them to include a do-not-COA request on orders, use of this designation is voluntary. C2 believes this flexibility may promote competition by encouraging submission of complex orders to the Exchange. To the extent that proposed rule change makes C2 a more attractive marketplace to market participants on other exchanges, such market participants may elect to send orders to C2 to take advantage of the additional functionality. Additionally, other exchanges may determine to provide similar functionality and further enhance competition. The Exchange also notes that another options exchange has substantially similar provisions as the proposed rule change, as described above. The proposed rule change to add detail to the rules regarding the impact of changes in the leg markets on a COA describes current functionality and is merely intended to enhance the description of this functionality in the Rules, and thus has no impact on competition. The nonsubstantive and technical changes have no impact on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and E:\FR\FM\02NON1.SGM 02NON1 67450 Federal Register / Vol. 80, No. 211 / Monday, November 2, 2015 / Notices 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: SECURITIES AND EXCHANGE COMMISSION Electronic Comments Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide Additional Details Regarding the Requirement That Members Participate in Annual Testing of Business Continuity and Disaster Recovery Plans • 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– C2–2015–025 on the subject line. Paper Comments asabaliauskas on DSK5VPTVN1PROD with NOTICES • 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–C2–2015–025. 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– 2015–025 and should be submitted on or before November 23, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–27794 Filed 10–30–15; 8:45 am] BILLING CODE 8011–01–P 27 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:55 Oct 30, 2015 Jkt 238001 [Release No. 34–76278; File No. SR–FICC– 2015–004] October 27, 2015. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) and Rule 19b–4 2 thereunder, notice is hereby given that on October 26, 2015, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FICC. FICC filed the proposed rule change pursuant to Section 19(b)(3)(A) 3 of the Act and Rule 19b–4(f)(6) 4 thereunder. The proposed rule change was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of a change to Rule 3 of the Clearing Rules of the Mortgage-Backed Securities Division (‘‘MBSD,’’ and its Clearing Rules, ‘‘MBSD Rules’’) of FICC and Rule 3 of the Rulebook of the Government Securities Division (‘‘GSD,’’ and its Rulebook, ‘‘GSD Rules’’) of FICC to provide additional details regarding the requirement that MBSD and GSD Members participate in annual testing of FICC’s business continuity and disaster recovery plans (‘‘BCP Testing’’).5 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FICC 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 Terms not otherwise defined herein have the meaning set forth in the MBSD Rules and GSD Rules available at https://www.dtcc.com/legal/rulesand-procedures.aspx. 2 17 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 may be examined at the places specified in Item IV below. FICC has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change would amend Rule 3 (Ongoing Membership Requirements) of the MBSD Rules and Rule 3 (Ongoing Membership Requirements) of the GSD Rules to provide additional details regarding the requirement that MBSD and GSD Members participate in FICC’s annual BCP Testing. Currently, pursuant to Rule 2A (Initial Membership Requirements) of the MBSD Rules and Rule 2A (Initial Membership Requirements) of the GSD Rules, each applicant for membership of either MBSD or GSD must fulfill operational testing requirements, as established by FICC, that may be imposed to ensure the operational capability of the applicant.’’ 6 Once a firm becomes a Member of GSD or MBSD, MBSD Rule 3 and GSD Rule 3 each of their respective [sic] provides that Members may be required to fulfill certain operational testing requirements that may be imposed by FICC to test and monitor the continuing operational capability of the Members.7 Recently, the Commission promulgated Regulation Systems Compliance and Integrity (‘‘Reg. SCI’’), which requires FICC to establish standards to designate members 8 and requires participation by such designated members in scheduled BCP Testing with FICC on an annual basis.9 Although FICC already conducts annual BCP Testing with certain MBSD and GSD Members,10 FICC is proposing to amend Rule 3 of the MBSD Rules and Rule 3 of the GSD Rules to further 6 Rule 2A, Section 2 of MBSD Rules and Rule 2A, Section 5 of GSD Rules, supra, note 5. 7 Rule 3, Section 6 of MBSD Rules and Rule 3 Section 5 of GSD Rules, supra, note 5. 8 17 CFR 242.1004(a). In adopting Reg. SCI, the Commission determined not to require covered entities to notify the Commission of its designations or the standards that will be used in designating members, recognizing instead that each entity’s standards, designations, and updates, if applicable, would be part of its records and, therefore, available to the Commission and its staff upon request. See Securities and Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (File No. S7–01–13). 9 17 CFR 242.1004(a) and (b). 10 Rule 3, Section 6 of MBSD Rules and Rule 3 Section 5 of GSD Rules, supra, note 5. E:\FR\FM\02NON1.SGM 02NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67446-67450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27794]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76274; File No. SR-C2-2015-025]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing of a Proposed Rule Change Relating to Complex Orders, 
as Modified by Amendment No. 1

October 27, 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 13, 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, II, and III below, which Items have been prepared by the 
Exchange. On October 26, 2015, the Exchange submitted Amendment No. 1 
to the proposed rule change. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposed to amend Rule 6.13. The text of the proposed 
rule change is available on the Exchange's Web site (https://www.c2exchange.com/Legal/), at the Exchange's Office of the Secretary, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.13 regarding complex orders. 
The proposed rule change (1) amends the rule provisions regarding the 
initiation of a complex order auction (``COA''), (2) adds rule 
provisions regarding the impact of certain incoming orders and changes 
in the leg markets on an ongoing COA, and (3) amends the rule provision 
related to the size of COA responses. The proposed rule change also 
makes technical and other nonsubstantive changes.
    First, the Exchange proposes to amend Rule 6.13 and Interpretation 
and Policy .02 regarding the initiation of a COA. Currently, C2 Rule 
6.13(c)(2) provides that on receipt of a COA-eligible order \3\ and 
request from the Participant representing the order that it be 
processed through COA, the Exchange will send request for response 
(``RFR'') message to all Participants who have elected to receive RFR 
messages.\4\ Interpretation and Policy .02(a) states that with respect 
to the initiation of a COA, Participants routing complex orders 
directly to the complex order book (``COB'') may request that the 
complex orders be processed by COA on a class-by-class basis. 
Currently, all Participants have requested that all of their COA-
eligible orders process through COA upon entry into the System. 
Therefore, rather than have Participants affirmatively request that 
their COA-eligible orders COA, the Exchange proposes to amend Rule 
6.13(c)(2) to provide that incoming COA-eligible orders will COA by 
default.\5\
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    \3\ A ``COA-eligible order'' means a complex order that, as 
determined by the Exchange on class-by-class basis, is eligible for 
a COA considering the order's marketability (defined as a number of 
tickets away from the current market), size, complex order type and 
complex order origin types. Currently, in all classes, (a) only 
complex orders with origin codes for public and professional 
customers, (b) all complex order types except for immediate-or-
cancel (``IOC'') orders, and (c) marketable orders and ``tweeners'' 
limit orders bettering the same side of the derived net market are 
eligible for COA.
    \4\ ``RFR'' stands for a ``request for responses'' that occurs 
in the COA process. The RFR message will identify the component 
series, the size and side of the market of the COA-eligible order 
and any contingencies if applicable.
    \5\ This proposed rule change applies to all COA-eligible orders 
in all classes. Stock-option orders are currently not permitted on 
C2. The proposed rule change does not change the allocation or 
priority provisions of complex orders. The proposed rule change also 
makes a nonsubstantive change to move language regarding the System 
sending RFR messages to the beginning of the provision.
---------------------------------------------------------------------------

    The Exchange believes Participants should still maintain 
flexibility to have their COA-eligible orders not COA. In order to 
provide Participants with this flexibility, the proposed rule change 
adds that, notwithstanding the foregoing, Participants may request on 
an order-by-order basis that a COA-eligible order not COA (referred to 
as a ``do-not-COA'' request). Because of this proposed rule change, the 
Exchange deletes the language in Interpretation and Policy .02(a) that 
indicates Participants may request that complex orders be processed by 
COA on a class-by-class basis, as it is no longer necessary.\6\ While 
the proposed rule change will not permit Participants to not COA orders 
on a class-by-class basis, the Exchange believes that it will not 
burden Participants because they have not requested this in the past. 
Additionally, allowing Participants to make a do-not-COA request on an 
order-by-order basis will better allow them to make decisions regarding 
the handling of their orders based on market conditions at the time 
they submit their orders.
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    \6\ The proposed rule change deletes Interpretation and Policy 
.02(a) in order to include all information regarding the initiation 
of a COA in subparagraph (c)(2) in the same place within the rule. 
As a result, the proposed rule change deletes the lettering for 
paragraph (b), which will be the only remaining provision in 
Interpretation and Policy .02. The proposed rule change makes 
nonsubstantive changes to Rule 6.13(c) as well, including a change 
to conform heading punctuation to that used in other headings and 
deletion of an extra space.
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    While the proposed rule change provides that Participants may 
include a do-not-COA request on complex orders, the proposed rule 
change indicates that an order with a do-not-COA request may still COA 
after it has rested on the COB pursuant to Interpretation and Policy 
.02.\7\ The Exchange believes that Participants that include a do-not-
COA request for an order upon entry into the System do so to receive 
automatic execution with the leg market or the COB, as applicable, 
without the delay of the COA.\8\

[[Page 67447]]

However, if that does not occur and the order enters the COB to rest, 
the Exchange believes it is appropriate to COA the order after resting 
on the COB (if that functionality has been activated for the class) to 
try and obtain an execution even though the Participant initially did 
not want the order to COA, as the COA will not delay execution at that 
point.
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    \7\ Interpretation and Policy .02(b) (which the proposed rule 
change amends to become Interpretation and Policy .02) provides that 
the Exchange may determine on a class-by-class basis to 
automatically COA nonmarketable orders resting at the top of the COB 
if they are within a number of ticks away from the current derived 
net market.
    \8\ The current COA response time interval is 75 milliseconds.
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    The Exchange notes that an order with a do-not-COA request will 
still have execution opportunities. For example, such an order may 
execute automatically upon entry into the System against the leg 
markets or complex orders on the COB to the extent marketable (in 
accordance with allocation rules set forth in Rule 6.13). Additionally, 
pursuant to Rule 6.13(c)(8)(A), such an order on the opposite side of 
and marketable against a COA-eligible order may trade against the COA-
eligible order if the System receives the order while a COA is ongoing. 
A do-not-COA request merely provides the order with the opportunity to 
execute upon entry into the System rather than after going through an 
auction; the order will be subject to the same priority and allocation 
rules.\9\
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    \9\ A complex order that COAs upon entry into the System or 
after resting in the COB will not miss any execution opportunities. 
Pursuant to current Interpretation and Policy .02(b), an order that 
COAs after resting on the COB will be nonmarketable and at the top 
of the COB (and thus is the best-priced complex order at the time). 
Rule 6.13(c)(8) (including as amended by this rule filing, as 
further discussed below) describes how incoming complex orders 
received during a COA impact the COA, including providing that the 
COA'd order (which may be an order that COAs upon entry into the 
System or after resting in the COB) will have time priority over the 
incoming order, and ultimately provides that a COA'd order will not 
lose execution opportunities to complex orders submitted during the 
COA.
---------------------------------------------------------------------------

    Second, the proposed rule change adds subparagraphs Rule 
6.13(c)(8)(D) and (E) to describe additional circumstances that will 
cause a COA to end early.\10\ Proposed subparagraph (8)(D) describes 
how an incoming order with a do-not-COA request or that is not COA-
eligible may impact an ongoing COA. Rule 6.13(c)(8) currently describes 
the handling of unrelated complex orders that are received prior to the 
expiration of the COA Response Time Interval.\11\ The proposed rule 
change states that if an order with a do-not-COA request or an order 
that is not COA-eligible is received prior to the expiration of the 
Response Time Interval for the original COA and is on the same side of 
the market and at a price better than or equal to the starting price, 
then the original COA will end. Similar to the current provisions 
regarding incoming unrelated COA-eligible orders on the same side of 
the COA-eligible order (and at a price better than or equal to the 
starting price), the processing of the original COA pursuant to 
subparagraphs (c)(4) through (c)(6) remains the same \12\ with the 
addition that the priority of the original COA-eligible order and the 
order with the do-not-COA request or the order that is not COA-
eligible, as applicable, will be according to time priority. In other 
words, the COA-eligible order would trade before the order with the do-
not-COA request or order that is not COA-eligible, regardless of the 
price of each order.\13\ The purpose of this proposed provision (as it 
is for the current provisions related to unrelated complex orders) is 
to prevent the order with the do-not-COA request or the order that is 
not COA-eligible,\14\ as applicable, from executing prior to the 
original COA-eligible order, which, if it did not COA, may have 
executed or entered the COB (because it would have entered the COB 
first, it potentially would have priority over the incoming order to 
the extent the algorithm applicable to the class considered time as a 
factor for allocation).
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    \10\ The proposed rule change makes corresponding changes to the 
heading and introductory paragraph of subparagraph (c)(8).
    \11\ Rule 6.13(c)(8) states that incoming complex orders that 
are received prior to the expiration of the response time interval 
for a COA-eligible order (the ``original COA'') will impact the 
original COA as follows: (a) Incoming complex orders that are 
received prior to the expiration of the response time interval for 
the original COA that are on the opposite side of the market and are 
marketable against the starting price of the original COA-eligible 
order will cause the original COA to end. The processing of the 
original COA pursuant to subparagraphs (c)(4) through (c)(6) remains 
the same. (The ``starting price'' means the better of the original 
COA-eligible order's limit price or the best price, on a net debit 
or credit basis, that existed in the Book or COB at the beginning of 
the response time interval.) (b) Incoming COA-eligible orders that 
are received prior to the expiration of the response time interval 
for the original COA that are on the same side of the market, at the 
same price or worse than the original COA-eligible order and better 
than or equal to the starting price will join the original COA. The 
processing of the original COA pursuant to subparagraphs (c)(4) 
through (c)(6) remains the same with the addition that the priority 
of the original COA-eligible order and incoming COA-eligible 
order(s) will be according to time priority. (c) Incoming COA-
eligible orders that are received prior to the expiration of the 
response time interval for the original COA that are on the same 
side of the market and at a better price than the original COA-
eligible order will join the original COA, cause the original COA to 
end, and a new COA to begin for any remaining balance on the 
incoming COA-eligible order. The processing of the original COA 
pursuant to subparagraphs (c)(4) through (c)(6) remains the same 
with the addition that the priority of the original COA-eligible 
order and incoming COA-eligible order will be according to time 
priority.
    \12\ Rule 6.13(c)(4) through (c)(6) provides that at the 
expiration of the response time interval, the COA-eligible order 
will trade with orders and quotes in the following order: (a) 
Individual orders and quotes residing in the book (with allocation 
consistent with the trading priority applicable to incoming orders 
in the individual leg components), (b) public customer complex 
orders resting in the COB before, or that are received during, the 
response time interval and public customer RFR responses (with 
allocation according to time priority), (c) nonpublic customer 
orders resting in the COB before the response time interval (with 
allocation consistent with the trading priority applicable to 
incoming orders in the individual leg components), and (d) nonpublic 
customer orders resting in the COB that are received during the 
response time interval and nonpublic customer responses (with 
allocation consistent with the trading priority applicable to 
incoming orders in the individual leg components). If a COA-eligible 
order cannot be filled in whole or in a permissible ratio, the order 
(or any remaining balance) will route to the COB. Thus, the 
unrelated no-COA order or the order that is not COA-eligible will 
have execution opportunities against the leg markets, complex orders 
in the COB and COA responses, with priority after the original COA-
eligible order.
    \13\ This time priority is the same provided to COA-eligible 
orders over incoming orders in subparagraphs (c)(8)(B) and (C).
    \14\ Current paragraph (c)(8) currently addresses the impact of 
incoming COA-eligible orders on the same side of the original COA-
eligible order. The proposed rule change adds detail regarding the 
impact of orders that are not COA-eligible and orders with a do-not-
COA request. The Exchange believes this provides a more complete 
description in its rules regarding the impact of unrelated complex 
orders received during a COA.
---------------------------------------------------------------------------

    For example, assume that a COA-eligible order to buy with a net 
limit price of $1.20 is received when the book or COB price (and thus 
the starting price) is a net price bid of $1.10. The System will 
initiate a COA at a net price of $1.10. An incoming order with a do-
not-COA request to buy at a net price of $1.10 or higher causes the 
original COA to end. To the extent possible, the original COA-eligible 
order will be filled first, and then the order with the do-not-COA 
request will be filled (subject to the COA allocation provisions 
describe above).\15\ Any remaining balance on the original COA-eligible 
order or the incoming no-COA order will route to COB. The Exchange 
believes this result to be appropriate, even if the incoming order with 
the do-not-COA request had a higher buy price than the COA-eligible 
order (e.g. $1.21), because if the COA-eligible order had not initiated 
a COA and was marketable at the time it was entered (for example, if 
the offer in the book was $1.15), it could have executed against the 
book before the order was entered. Providing the COA-eligible order 
with time priority is intended to ensure it does not miss an execution 
opportunity it would have otherwise received if it had not initiated a 
COA.
---------------------------------------------------------------------------

    \15\ See id.
---------------------------------------------------------------------------

    Proposed subparagraph (8)(E) provides that if the leg markets were 
not marketable against a COA-eligible order when the order entered the 
System (and thus prior to the initiation of a COA) but

[[Page 67448]]

became marketable with the COA-eligible order prior to the expiration 
of the Response Time Interval, it will cause the COA to end.\16\ The 
processing of the original COA pursuant to subparagraphs (c)(4) through 
(c)(6) remains the same.
---------------------------------------------------------------------------

    \16\ This is similar to the result described in subparagraph 
(8)(A), which provides that an incoming complex order on the 
opposite side of the market as and marketable against the COA-
eligible order will cause the COA to end.
---------------------------------------------------------------------------

    For example, assume that the derived net leg market is $1.00 to 
$1.05. A COA-eligible order to buy at a net price of $1.02 is entered 
and initiates a COA. During the COA (prior to the end of the Response 
Time Interval), the derived net leg market offer changes to $1.01. 
Because this is marketable against the COA-eligible order, this change 
in the derived net leg markets will cause the COA to end. Assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA,\17\ the COA-eligible order will execute against the 
leg markets at that net price, and any remainder will then trade 
against complex orders in the COB and auction responses. If a complex 
order to buy was resting on the COB (for example, at a net price of 
$1.01) at the initiation of the COA (for example, a do-not-COA order or 
an order that is not COA-eligible),\18\ that order and the COA-eligible 
order would be allocated against the leg markets in the same manner as 
any other two complex orders pursuant to Rule 6.53C(c)(ii) regarding 
COB executions, which is by price and then pursuant to the rules of 
trading priority otherwise applicable to incoming orders in the 
individual component legs. The COA-eligible order would always have 
priority over the resting order, as it would always have a higher (if a 
buy order) or lower (if a sell order) net price than the resting order.
---------------------------------------------------------------------------

    \17\ The leg market offer would be the best price at the end of 
the COA if no auction response, order resting in the COB, or order 
that entered the System during the COA had a better price.
    \18\ As previously indicated, only orders that are marketable or 
that improve the price on the same side of the market initiate a 
COA. See supra note 1. Thus, for there to be a situation where a 
complex order was already resting on the COB at the initiation of a 
COA, the order resting on the COB would be at a worse price than the 
COA-eligible order that initiated the COA. If there is a complex 
order resting on the COB when that is on the same side and at the 
same or better price than an incoming complex order, then the 
incoming order will not COA and will also enter on the COB.
---------------------------------------------------------------------------

    In the example above, if a complex order to buy at a net price of 
$1.01 was resting in the COB at the time the COA-eligible order to buy 
at a net price of $1.02 entered the System and initiated the COA, and 
the same change in the derived net leg markets occurs, assuming the 
derived net leg market offer price of $1.01 is the best net price at 
the end of the COA, the COA-eligible order will trade against the 
derived net leg offer at $1.01 first, because it was entered at (and 
thus willing to pay) a better net price than the resting complex order 
(to the extent there was insufficient size in the leg markets to fill 
the COA-eligible order, the remainder would then execute against 
complex orders in the COB and auction responses). If there is 
sufficient size left in the leg markets to trade against the resting 
complex order, then the resting order will also trade (in full or in a 
permissible ratio).
    Third, the proposed rule amends Rule 6.13(c)(3)(A) to delete the 
language that RFR responses are limited to the size of the COA-eligible 
order for allocation purposes. If the allocation algorithm for complex 
orders in a class is pro-rata, the System is unable to block RFR 
responses that are larger than the size of the COA-eligible order. This 
proposed rule change will result in the rule regarding RFR responses 
more accurately reflecting current System functionality. The Exchange 
notes that RFR responses must continue to be on the opposite side of 
the market of the COA-eligible order and be expressed in the applicable 
minimum increment. RFR responses will be subject to the same allocation 
and priority rules. Pursuant to Rule 6.13(c)(7), RFR responses are firm 
with respect to the COA-eligible order for which the responses are 
submitted, provided that responses that exceed the size of a COA-
eligible order are also eligible to trade with other incoming COA-
eligible orders that are received during the Response Time 
Interval.\19\
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    \19\ Please note that the System currently accepts RFR responses 
that exceed the size of COA-eligible order. The intent of the 
provision proposed to be deleted was to consider the size of any 
response that did exceed the size of the COA-eligible order to the 
size of that order for allocation purposes (for example, if a COA-
eligible order is for 200, and a response is for 500, the System 
considers the size to be 500 when allocating orders and responses 
against the COA-eligible order, rather than considering the size to 
be 200). However, the System is unable to do this, and thus excess-
sized responses are considered at that size for allocation purposes. 
However, the excess size of responses is still eligible to trade as 
set forth in Rule 6.13(c)(7). Additionally, Participants continue to 
be subject to all rules related to business conduct, including Rule 
4.1 related to just and equitable principles of trade and Rule 4.7 
related to manipulation (which rules are incorporated into C2's 
rules by reference to Chicago Board Options Exchange, Incorporated 
Rules 4.1 and 4.7).
---------------------------------------------------------------------------

    Finally, the proposed rule change makes technical and other 
nonsubstantive changes. Currently, Interpretation and Policy .05 
provides that the Exchange may determine on a class-by-class basis (and 
announce via Regulatory Circular) which electronic allocation algorithm 
from Rule 6.12 will apply to complex orders in lieu of Rule 
6.13(b)(1)(B) for COB executions and/or (Rule 6.13(c)(5)(B) through (D) 
for COA. The proposed rule change moves that language from 
Interpretation and Policy .05 to those paragraphs.\20\ The Exchange 
believes it is simpler and more convenient to have the information 
regarding how COB and COA executions may allocate in one place within 
the rules.\21\ The Exchange also amends Rule 6.13(c)(5)(B) and (D) to 
add responses in the second sentence of each subparagraph. Those 
subparagraphs address the allocation of COA-eligible orders against 
certain orders and responses (as indicated in the initial sentence of 
each subparagraph), and the proposed rule change is consistent with 
that purpose. Additional nonsubstantive changes to Rule 6.13 are 
discussed above.
---------------------------------------------------------------------------

    \20\ The proposed rule change makes a corresponding change to 
Interpretation and Policy .06(c), which relates to executions of 
stock-options orders (types of complex orders) in the COB. The 
proposed rule change also deletes the rule text that states that in 
such classes, the orders and quotes in the individual leg series 
legs will continue to have the same priority as set forth in Rule 
6.13(b)(1)(A) for COB and Rule 6.13(c)(5)(A) for COA, as the 
Exchange believes this language is duplicative. Those paragraphs 
continue to state that complex orders that trade with orders and 
quotes in the Book (whether through COB or COA) will be allocated in 
accordance with the trading priority applicable in the individual 
component legs, with no discretion for the Exchange to change the 
allocation algorithm for those executions.
    \21\ The proposed rule change also deletes the language that the 
Exchange may announce this determination by Regulatory Circular, as 
Rule 6.13, Interpretation and Policy .01 indicates that the Exchange 
will announce by Regulatory Circular all determinations it makes 
under Rule 6.13, which includes the determination of allocation 
algorithms for COB and COA.
---------------------------------------------------------------------------

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 Section 6(b) of the Act.\22\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \23\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and 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

[[Page 67449]]

open market and a national market system, and, in general, to protect 
investors and the public interest. Additionally, the Exchange believes 
the proposed rule change is consistent with the Section 6(b)(5) \24\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ Id.
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    In particular, the proposed rule change removes impediments to a 
free and open market and protects investors by providing Participants 
with more flexibility regarding when complex orders will not COA. The 
proposed rule change removes the affirmative obligation currently 
imposed on Participants to request that their COA-eligible orders COA 
on a class-by-class basis, as Participants currently request that all 
of their COA-eligible orders COA upon entry into the System. Therefore, 
the proposed rule change to have COA as the default setting for COA-
eligible orders will have no impact on COA-eligible orders submitted to 
the Exchange. The proposed rule change will allow Participants to 
evaluate then-current market conditions and determine if they do not 
want to COA orders based on those conditions and instead want those 
orders to route to the COB for potential immediate execution. These 
orders with do-not COA requests will continue to have execution 
opportunities and be subject to the same priority and allocation rules. 
In addition, the proposed rule change promotes just and equitable 
principles of trade and promotes competition because another options 
exchange has a substantially similar rule, as further described below, 
which similarly allows members to designate that orders not initiate a 
complex order auction on that exchange.\25\
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    \25\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary 
.07(a)(viii) and (e) (describing the complex order live auction 
(``COLA'') process and ``do not auction'' orders).
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    The current rules describe how COA-eligible orders received while a 
COA is ongoing would impact the COA. The proposed rule change also adds 
detail regarding how incoming orders with do-not-COA requests or that 
are not COA-eligible, as well as how changes in the leg markets, may 
impact ongoing COAs, which protects investors by enhancing the 
description in C2 Rules of current COA functionality and circumstances 
that may cause a COA to end early. Because the proposed rule change 
adds a provision regarding no-COA orders to the C2 Rules, the Exchange 
believes it is appropriate to add the provision regarding how no-COA 
orders would impact a COA to the C2 Rules as well to ensure investors 
understand how these orders may impact a COA. The Exchange believes the 
proposed rule change promotes just and equitable principles of trade 
because, if these orders cause a COA to end, any executions that occur 
following the COA occur in accordance with allocation principles in 
place, subject to an exception that the original COA-eligible order 
receive time priority. This exception prevents an order that was 
entered after the initiation of a COA from trading ahead of an order 
with the same price that may have executed or entered the COB if it did 
not COA. Similarly, the Exchange believe it is fair for a COA-eligible 
order that was entered at a better price than an order that was resting 
in the COB prior to initiation of the COA to execute against leg 
markets that become marketable against the COA-eligible order and 
resting order during the COA, because the Participant who entered the 
COA-eligible order was willing to pay a better price than that of the 
resting order. Incoming orders that do not COA and leg market changes 
impact a COA in a substantially similar manner as incoming COA-eligible 
orders; the proposed rule change just applies to different order types 
not covered by the current Rules. This proposed change does not 
substantively change the COA or allocation process.
    The proposed rule change to delete the provision limiting the size 
of RFR responses to the size of the COA-eligible order further perfects 
the mechanism of a free and open market and protects investors because 
it more accurately describes current System functionality. RFR 
responses will be subject to the same allocation and priority rules, 
and COA will continue to function in the same manner. The Exchange 
notes that the rule related to the complex order auctions of another 
exchange does not limit responses size to the size of the auctioned 
order.\26\ The proposed rule change to reorganize certain provisions 
eliminates potential confusion regarding the processing of complex 
orders, which further benefits and protects investors.
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    \26\ See id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    C2 does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change, 
including the ability to designate orders to not COA, is available to 
all Participants. The Exchange believes the proposed rule change 
provides Participants with more flexibility with respect to the 
submission of their complex orders. The proposed rule change also 
eliminates the affirmative obligation imposed on Participants to 
request that COA-eligible orders COA, which they all do for all 
classes. While Participants may need to undertake system work to allow 
them to include a do-not-COA request on orders, use of this designation 
is voluntary. C2 believes this flexibility may promote competition by 
encouraging submission of complex orders to the Exchange. To the extent 
that proposed rule change makes C2 a more attractive marketplace to 
market participants on other exchanges, such market participants may 
elect to send orders to C2 to take advantage of the additional 
functionality. Additionally, other exchanges may determine to provide 
similar functionality and further enhance competition. The Exchange 
also notes that another options exchange has substantially similar 
provisions as the proposed rule change, as described above.
    The proposed rule change to add detail to the rules regarding the 
impact of changes in the leg markets on a COA describes current 
functionality and is merely intended to enhance the description of this 
functionality in the Rules, and thus has no impact on competition. The 
nonsubstantive and technical changes have no impact on competition.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 67450]]

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-C2-2015-025 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-C2-2015-025. 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-C2-2015-025 and should be 
submitted on or before November 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Robert W. Errett,
Deputy Secretary.
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    \27\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-27794 Filed 10-30-15; 8:45 am]
 BILLING CODE 8011-01-P

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