Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to AIM Retained Orders, 52922-52925 [2016-18909]

Download as PDF 52922 Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 17 of the Act and subparagraph (f)(2) of Rule 19b–4 18 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 19 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or. • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2016–105 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–NYSEArca–2016–105. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 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– NYSEArca–2016–105, and should be submitted on or before August 31, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–18910 Filed 8–9–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78478; File No. SR–C2– 2016–014] Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to AIM Retained Orders August 4, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 27, 2016, 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. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The text of the proposed rule change is available on the Exchange’s Web site (http://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 6.51 (Automated Improvement Mechanism (‘‘AIM’’)) to: (1) Clarify how orders submitted for electronic crossing into the AIM auction are treated if an auction cannot occur; (2) adopt Interpretation and Policy .10 to Rule 6.51 (AIM Retained Order Functionality) to describe the Exchange’s AIM Retained Order (‘‘A:AIR’’) functionality in the Rules; and (3) make minor edits to Interpretation and Policy .04 to Rule 6.13 (Price Check Parameters) relating to the treatment of complex AIM orders marked A:AIR and correct certain typographical errors. The Exchange notes that this filing is based upon and, in all material respects, substantially similar to a recent filing of Chicago Board Options Exchange, Incorporated (‘‘CBOE’’) regarding A:AIR functionality.5 Both AIM and A:AIR functionality are active on CBOE. 3 15 17 15 U.S.C. 78s(b)(3)(A). 18 17 CFR 240.19b–4(f)(2). 19 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 17:34 Aug 09, 2016 20 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. Jkt 238001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 5 See Securities Exchange Act Release No. 77848 (May 17, 2016), 81 FR 31978 (May 20, 2016) (SR– 4 17 E:\FR\FM\10AUN1.SGM 10AUN1 Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES Under Rule 6.51 (Automated Improvement Mechanism (‘‘AIM’’)), a Permit Holder (‘‘Participant’’) that represents agency orders may electronically execute an order it represents as agent (‘‘Agency Order’’) against principal interest or against a solicited order provided it submits the Agency Order for electronic execution into the AIM auction (‘‘Auction’’) for processing. Matched Agency Orders may be processed via AIM subject to certain eligibility requirements contained in Rule 6.51(a). Specifically, to be eligible for processing via AIM, the Agency Order must be: (1) In a class designated as eligible for AIM Auctions as determined by the Exchange and within the designated Auction order eligibility size parameters as such size parameters are determined by the Exchange; and (2) stopped as principal or with a solicited order at the better of the national best bid or offer (‘‘NBBO’’) or the Agency Order’s limit price (if the order is a limit order).6 Orders submitted for crossing into AIM, which are ineligible for Auction processing will result in both the Agency Order and the matching contra order(s) being cancelled. Under Rule 6.51(a)(1), an Auction may be conducted in a class designated as eligible for Auctions as determined by the Exchange. Any determinations made by the Exchange, such as eligible classes, will be communicated in a Regulatory Circular pursuant to Interpretation and Policy .05 to Rule 6.51. Notably, AIM functionality is currently not activated in any class on the Exchange. A:AIR functionality is an enhancement to AIM, which if activated, would allow Participants the flexibility to choose, on an order-byorder basis, whether an Agency Order should continue into the System 7 for processing rather than cancel in the event that an Auction cannot occur.8 CBOE–2016–024) (Order Approving Proposed Rule Change, as Modified by Amendment No. 2 Thereto, Relating to AIM Retained Orders). See also Interpretation and Policy .09 to CBOE Rule 6.74A (AIM Retained Order Functionality). 6 See Rule 6.51(a). 7 The System refers to the Exchange’s automated trading system as defined in Rule 1.1 (Definitions). 8 There are a variety of circumstances in which an AIM order may be submitted to the Exchange for processing, but an auction may not occur. For example, a Participant may submit an order for AIM processing, which is not AIM eligible because one or more of the conditions required for an AIM auction to occur pursuant to Rule 6.51(a) is not present. In addition, an order that is otherwise AIM eligible may not be able to process for a variety of reasons, including, but not limited to circumstances in which AIM functionality is suspended. In either of such cases, A:AIR functionality may allow the Agency Order to process despite the overall order not being AIM eligible. VerDate Sep<11>2014 17:34 Aug 09, 2016 Jkt 238001 A:AIR functionality essentially allows for the entry of Agency Orders into AIM with contingency processing instructions for handling in the event that the order cannot be processed via Auction. For example, using A:AIR functionality, a Permit Holder enters an Agency Order to buy 10 standard contracts at the market along with a matched solicited contra order to sell 10 standard contracts at $1.21. At the time the A:AIR order is entered, the NBBO is $1.00 to $1.20, with a Customer order to sell 30 contracts at $1.20 resting at the top of the book alone. Here, the order would not be eligible for submission into AIM because the Agency Order was not stopped with a solicited order priced better than the NBBO.9 As a result, pursuant to Rule 6.51(a)(2), the Auction would not begin. Whereas both the Agency Order and solicited order would have cancelled if the order were not marked A:AIR, in this case, because the order was marked A:AIR, the Agency Order would route to the automated trading system for processing and trade against the resting Customer— the solicited order would still be cancelled. Again, however, had the Permit Holder not marked this order A:AIR, both the Agency Order and solicited order would cancel. Currently, A:AIR functionality is not explicitly defined in the Exchange’s AIM rules.10 Accordingly, this filing is intended to further codify, clarify, and describe A:AIR functionality in the Rules. Specifically, the Exchange proposes to adopt Interpretation and Policy .10 to Rule 6.51 (AIM Retained Order Functionality), under which the Exchange would define an A:AIR order as the transmission of two or more orders for crossing pursuant to Rule 6.51, with the Agency Order priced at the market or a limit price in the standard increment for the option series and marked with a contingency instruction to route the Agency Order for processing and cancel any contra orders if an Auction cannot occur (including if the conditions described in Rule 6.51(a) are not met). Furthermore, to ensure that A:AIR orders are properly priced to allow the Exchange to book the Agency Order in the event an Auction cannot occur, proposed Interpretation and Policy .10 to Rule 6.51 would provide that orders marked ‘‘A:AIR’’ with Agency Orders 9 See Rule 6.51(a)(2). functionality is generally referred to in the Rules, although not using that term. See Interpretation and Policy .04 to Rule 6.13 (Price Check Parameters) at paragraphs (c)(5), (d), (f)(3), and (h)(4) referring to orders that instruct the System to process the Agency Order as an unpaired order if an AIM Auction cannot be initiated. 10 A:AIR PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 52923 that are not priced at the market or that are priced with a limit price not in the standard increment for the option series in which they are entered would be rejected. For example, if a Participant were to submit a matched Agency Order into AIM for processing in a class with a minimum increment of a nickel, which was stopped with a contra order at $0.07, both the Agency Order and the contra order would be rejected because the order, which is not priced in the minimum increment for the class, would not eligible for AIM processing and because the System would not be able to book an order at $0.07 in a class with a minimum increment of a nickel. Notably, this provision of proposed Interpretation and Policy .10 to Rule 6.51 is consistent with Exchange rules that only permit orders at the standard increment to enter the book.11 Finally, proposed Interpretation and Policy .10 to Rule 6.51 would provide that A:AIR order functionality could be made available on those order management platforms as determined by the Exchange and announced via Regulatory Circular. This provision is intended to make clear that A:AIR functionality may not be available on all trading platforms in use on the Exchange.12 The Exchange also notes that although orders submitted into AIM, which are not marked A:AIR and are ineligible for Auction processing will result in both the Agency Order and the matching contra order(s) being cancelled, the Rules do not explicitly provide as much. Accordingly, the Exchange proposes to add language to Rule 6.51(a) to provide that in the event that a Participant submits a matched Agency Order for electronic execution into the Auction that is ineligible for processing because it does not meet the conditions described in paragraph (a), both the Agency Order and any solicited contra orders will be cancelled unless marked as an AIM Retained order pursuant to proposed Interpretation and Policy .10 to Rule 6.51.13 11 See Rule 6.4. functionality is not currently supported on the PULSe trader workstation. PULSe is an order handling tool used for the manual handling of orders. Thus, when ineligible AIM orders would be rejected back to PULSe users, a person is present to decide how best to handle such orders. PULSe users can either re-route such orders to be booked or for alternative electronic processing on the Exchange. 13 Notably, the A:AIR functionality may be primarily used by smart router technology to ensure that ineligible AIM orders are submitted into the System for processing and not cancelled. Whereas traditional brokers and dealers are equipped to manually handle cancelled orders that are returned to them and may revise the cancelled orders’ terms or contact their customers for further instructions, 12 A:AIR E:\FR\FM\10AUN1.SGM Continued 10AUN1 52924 Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES The Exchange also proposes to make minor changes to Interpretation and Policy .04 to Rule 6.13 regarding price reasonability checks on complex orders to harmonize references to A:AIR functionality in Rule 6.13 with the language in proposed Interpretation and Policy .10 to Rule 6.51. Specifically, the Exchange proposes to modify Interpretation and Policy .04(c)(5), (d), (f)(3), and (h)(4) to Rule 6.13 (Price Check Parameters) to change references to AIM orders that instruct the System to process the Agency Order as an unpaired order if an AIM auction cannot be initiated, to instead refer to A:AIR orders as defined in proposed Interpretation and Policy .10 to Rule 6.51. These changes are non-substantive and intended only to harmonize existing references to A:AIR functionality currently in the Rules with the definition of A:AIR orders set forth in proposed Interpretation and Policy .10 to Rule 6.51. The proposed rule change also makes non-substantive changes in these paragraphs to capitalize the defined term Agency Order, consistent with Rule 6.51. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.14 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 15 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) 16 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that A:AIR functionality makes the Exchange’s price improvement mechanisms [sic] easier to use and smart routers are generally all electronic algorithmic systems that may not allow for manual handling of cancelled orders. 14 15 U.S.C. 78f(b). 15 15 U.S.C. 78f(b)(5). 16 Id. VerDate Sep<11>2014 17:34 Aug 09, 2016 Jkt 238001 minimizes the risk of orders being mishandled on the Exchange. The A:AIR functionality provides opportunities for execution of Customer orders that a Participant submits for crossing via AIM that cannot be auctioned. The Exchange believes that this functionality mitigates the risk that inadvertent mishandling of Agency Orders (i.e. Customer orders) will cause marketable Customer orders to go unfilled. The Exchange believes that such outcomes serve to protect investors’ interests by helping to ensure that ineligible AIM Agency Orders are processed in accordance with customer instructions rather than cancelled. Accordingly, the Exchange believes that the proposed rule change is consistent with the purposes of the Act. In addition, the Exchange believes that A:AIR functionality promotes competition amongst market participants by allowing more orders to be processed. Finally, the proposed rule change seeks to provide additional clarity and completeness in the Rules regarding functionalities that may be made available on the Exchange. The Exchange is continuously updating the Rules to provide additional detail, clarity, and transparency regarding its operations and trading systems. The Exchange believes that the adoption of detailed, clear, and transparent rules reduces burdens on competition and promotes just and equitable principles of trade. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that price improvement mechanism enhancements such as A:AIR functionality are widely used across the national options exchanges. The Exchange believes that offering additional functionalities and enhancements to its price improvement mechanisms [sic] promotes intermarket competition. The exchanges have developed these mechanisms in order to provide market participants diverse opportunities to seek valuable price improvement and as a means to compete with one another for order flow. The U.S. options exchanges are continuously making enhancements and adding functionalities to their price improvement mechanisms in order to provide more competitive marketplaces for market participants and better compete with one another. The Exchange believes that enhancements to such mechanisms promote intermarket PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 competition for order flow between the exchanges. A:AIR functionality is simply one of many enhancements that the Exchange has made to AIM for this purpose. 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 written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: A. Significantly affect the protection of investors or the public interest; B. impose any significant burden on competition; and C. become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 17 and Rule 19b–4(f)(6) 18 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–C2–2016–014 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. 17 15 18 17 E:\FR\FM\10AUN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 10AUN1 Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices All submissions should refer to File Number SR–C2–2016–014. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 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– 2016–014, and should be submitted on or before August 31, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–18909 Filed 8–9–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 32208; 812–14661] TrimTabs ETF Trust, et al.; Notice of Application August 4, 2016. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under mstockstill on DSK3G9T082PROD with NOTICES AGENCY: 19 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:34 Aug 09, 2016 Jkt 238001 sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act. The requested order would permit (a) actively-managed series of certain open-end management investment companies (‘‘Funds’’) to issue shares redeemable in large aggregations only (‘‘Creation Units’’); (b) secondary market transactions in Fund shares to occur at negotiated market prices rather than at net asset value (‘‘NAV’’); (c) certain Funds to pay redemption proceeds, under certain circumstances, more than seven days after the tender of shares for redemption; (d) certain affiliated persons of a Fund to deposit securities into, and receive securities from, the Fund in connection with the purchase and redemption of Creation Units; (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the Funds (‘‘Funds of Funds’’) to acquire shares of the Funds; and (f) certain Funds (‘‘Feeder Funds’’) to create and redeem Creation Units in-kind in a master-feeder structure. TrimTabs ETF Trust (the ‘‘Trust’’), a Delaware statutory trust that is registered under the Act as an openend management investment company with multiple series, TrimTabs Asset Management, LLC (the ‘‘Initial Adviser’’), a Delaware limited liability company registered as an investment adviser under the Investment Advisers Act of 1940, and Foreside Fund Services, LLC (the ‘‘Distributor’’), a Delaware limited liability company and broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’). FILING DATES: The application was filed on June 8, 2016, and amended on July 1, 2016. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on August 29, 2016, and should be accompanied by proof of service on applicants, in the form of an affidavit, or for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a APPLICANTS: PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 52925 hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090; Applicants: The Trust and the Initial Adviser, 1345 Avenue of the Americas, Fl. 2, New York, NY 10105; the Initial Distributor, 3 Canal Plaza, Suite 100, Portland, ME 04101. FOR FURTHER INFORMATION CONTACT: HaeSung Lee, Attorney-Adviser, at (202) 551–7345, or Mary Kay Frech, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at http:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Summary of the Application 1. Applicants request an order that would allow Funds to operate as actively-managed exchange traded funds (‘‘ETFs’’).1 Fund shares will be purchased and redeemed at their NAV in Creation Units only. All orders to purchase Creation Units and all redemption requests will be placed by or through an ‘‘Authorized Participant’’, which will have signed a participant agreement with the Distributor. Shares will be listed and traded individually on a national securities exchange, where share prices will be based on the current bid/offer market. Certain Funds may operate as Feeder Funds in a masterfeeder structure. Any order granting the requested relief would be subject to the terms and conditions stated in the application. 2. Each Fund will consist of a portfolio of securities and other assets and investment positions (‘‘Portfolio Holdings’’). Each Fund will disclose on its Web site the identities and quantities of the Portfolio Holdings that will form 1 Applicants request that the order apply to an initial series and any future series of the Trust offering exchange-traded Shares, as well as other existing or future open-end management companies or existing or future series thereof offering exchange-traded Shares (and their respective existing or future Master Funds, as defined below) that may utilize active management investment strategies (collectively, ‘‘Future Funds’’). Any Future Fund will (a) be advised by the Initial Adviser or an entity controlling, controlled by, or under common control with the Initial Adviser (each, an ‘‘Adviser’’), and (b) comply with the terms and conditions of the application. E:\FR\FM\10AUN1.SGM 10AUN1

Agencies

[Federal Register Volume 81, Number 154 (Wednesday, August 10, 2016)]
[Notices]
[Pages 52922-52925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18909]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78478; File No. SR-C2-2016-014]


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

August 4, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 27, 2016, 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. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The text of the proposed rule change is available on the Exchange's 
Web site (http://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 6.51 (Automated Improvement 
Mechanism (``AIM'')) to: (1) Clarify how orders submitted for 
electronic crossing into the AIM auction are treated if an auction 
cannot occur; (2) adopt Interpretation and Policy .10 to Rule 6.51 (AIM 
Retained Order Functionality) to describe the Exchange's AIM Retained 
Order (``A:AIR'') functionality in the Rules; and (3) make minor edits 
to Interpretation and Policy .04 to Rule 6.13 (Price Check Parameters) 
relating to the treatment of complex AIM orders marked A:AIR and 
correct certain typographical errors. The Exchange notes that this 
filing is based upon and, in all material respects, substantially 
similar to a recent filing of Chicago Board Options Exchange, 
Incorporated (``CBOE'') regarding A:AIR functionality.\5\ Both AIM and 
A:AIR functionality are active on CBOE.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 77848 (May 17, 
2016), 81 FR 31978 (May 20, 2016) (SR-CBOE-2016-024) (Order 
Approving Proposed Rule Change, as Modified by Amendment No. 2 
Thereto, Relating to AIM Retained Orders). See also Interpretation 
and Policy .09 to CBOE Rule 6.74A (AIM Retained Order 
Functionality).

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

[[Page 52923]]

    Under Rule 6.51 (Automated Improvement Mechanism (``AIM'')), a 
Permit Holder (``Participant'') that represents agency orders may 
electronically execute an order it represents as agent (``Agency 
Order'') against principal interest or against a solicited order 
provided it submits the Agency Order for electronic execution into the 
AIM auction (``Auction'') for processing. Matched Agency Orders may be 
processed via AIM subject to certain eligibility requirements contained 
in Rule 6.51(a). Specifically, to be eligible for processing via AIM, 
the Agency Order must be: (1) In a class designated as eligible for AIM 
Auctions as determined by the Exchange and within the designated 
Auction order eligibility size parameters as such size parameters are 
determined by the Exchange; and (2) stopped as principal or with a 
solicited order at the better of the national best bid or offer 
(``NBBO'') or the Agency Order's limit price (if the order is a limit 
order).\6\ Orders submitted for crossing into AIM, which are ineligible 
for Auction processing will result in both the Agency Order and the 
matching contra order(s) being cancelled.
---------------------------------------------------------------------------

    \6\ See Rule 6.51(a).
---------------------------------------------------------------------------

    Under Rule 6.51(a)(1), an Auction may be conducted in a class 
designated as eligible for Auctions as determined by the Exchange. Any 
determinations made by the Exchange, such as eligible classes, will be 
communicated in a Regulatory Circular pursuant to Interpretation and 
Policy .05 to Rule 6.51. Notably, AIM functionality is currently not 
activated in any class on the Exchange.
    A:AIR functionality is an enhancement to AIM, which if activated, 
would allow Participants the flexibility to choose, on an order-by-
order basis, whether an Agency Order should continue into the System 
\7\ for processing rather than cancel in the event that an Auction 
cannot occur.\8\ A:AIR functionality essentially allows for the entry 
of Agency Orders into AIM with contingency processing instructions for 
handling in the event that the order cannot be processed via Auction. 
For example, using A:AIR functionality, a Permit Holder enters an 
Agency Order to buy 10 standard contracts at the market along with a 
matched solicited contra order to sell 10 standard contracts at $1.21. 
At the time the A:AIR order is entered, the NBBO is $1.00 to $1.20, 
with a Customer order to sell 30 contracts at $1.20 resting at the top 
of the book alone. Here, the order would not be eligible for submission 
into AIM because the Agency Order was not stopped with a solicited 
order priced better than the NBBO.\9\ As a result, pursuant to Rule 
6.51(a)(2), the Auction would not begin. Whereas both the Agency Order 
and solicited order would have cancelled if the order were not marked 
A:AIR, in this case, because the order was marked A:AIR, the Agency 
Order would route to the automated trading system for processing and 
trade against the resting Customer--the solicited order would still be 
cancelled. Again, however, had the Permit Holder not marked this order 
A:AIR, both the Agency Order and solicited order would cancel.
---------------------------------------------------------------------------

    \7\ The System refers to the Exchange's automated trading system 
as defined in Rule 1.1 (Definitions).
    \8\ There are a variety of circumstances in which an AIM order 
may be submitted to the Exchange for processing, but an auction may 
not occur. For example, a Participant may submit an order for AIM 
processing, which is not AIM eligible because one or more of the 
conditions required for an AIM auction to occur pursuant to Rule 
6.51(a) is not present. In addition, an order that is otherwise AIM 
eligible may not be able to process for a variety of reasons, 
including, but not limited to circumstances in which AIM 
functionality is suspended. In either of such cases, A:AIR 
functionality may allow the Agency Order to process despite the 
overall order not being AIM eligible.
    \9\ See Rule 6.51(a)(2).
---------------------------------------------------------------------------

    Currently, A:AIR functionality is not explicitly defined in the 
Exchange's AIM rules.\10\ Accordingly, this filing is intended to 
further codify, clarify, and describe A:AIR functionality in the Rules. 
Specifically, the Exchange proposes to adopt Interpretation and Policy 
.10 to Rule 6.51 (AIM Retained Order Functionality), under which the 
Exchange would define an A:AIR order as the transmission of two or more 
orders for crossing pursuant to Rule 6.51, with the Agency Order priced 
at the market or a limit price in the standard increment for the option 
series and marked with a contingency instruction to route the Agency 
Order for processing and cancel any contra orders if an Auction cannot 
occur (including if the conditions described in Rule 6.51(a) are not 
met).
---------------------------------------------------------------------------

    \10\ A:AIR functionality is generally referred to in the Rules, 
although not using that term. See Interpretation and Policy .04 to 
Rule 6.13 (Price Check Parameters) at paragraphs (c)(5), (d), 
(f)(3), and (h)(4) referring to orders that instruct the System to 
process the Agency Order as an unpaired order if an AIM Auction 
cannot be initiated.
---------------------------------------------------------------------------

    Furthermore, to ensure that A:AIR orders are properly priced to 
allow the Exchange to book the Agency Order in the event an Auction 
cannot occur, proposed Interpretation and Policy .10 to Rule 6.51 would 
provide that orders marked ``A:AIR'' with Agency Orders that are not 
priced at the market or that are priced with a limit price not in the 
standard increment for the option series in which they are entered 
would be rejected. For example, if a Participant were to submit a 
matched Agency Order into AIM for processing in a class with a minimum 
increment of a nickel, which was stopped with a contra order at $0.07, 
both the Agency Order and the contra order would be rejected because 
the order, which is not priced in the minimum increment for the class, 
would not eligible for AIM processing and because the System would not 
be able to book an order at $0.07 in a class with a minimum increment 
of a nickel. Notably, this provision of proposed Interpretation and 
Policy .10 to Rule 6.51 is consistent with Exchange rules that only 
permit orders at the standard increment to enter the book.\11\ Finally, 
proposed Interpretation and Policy .10 to Rule 6.51 would provide that 
A:AIR order functionality could be made available on those order 
management platforms as determined by the Exchange and announced via 
Regulatory Circular. This provision is intended to make clear that 
A:AIR functionality may not be available on all trading platforms in 
use on the Exchange.\12\
---------------------------------------------------------------------------

    \11\ See Rule 6.4.
    \12\ A:AIR functionality is not currently supported on the PULSe 
trader workstation. PULSe is an order handling tool used for the 
manual handling of orders. Thus, when ineligible AIM orders would be 
rejected back to PULSe users, a person is present to decide how best 
to handle such orders. PULSe users can either re-route such orders 
to be booked or for alternative electronic processing on the 
Exchange.
---------------------------------------------------------------------------

    The Exchange also notes that although orders submitted into AIM, 
which are not marked A:AIR and are ineligible for Auction processing 
will result in both the Agency Order and the matching contra order(s) 
being cancelled, the Rules do not explicitly provide as much. 
Accordingly, the Exchange proposes to add language to Rule 6.51(a) to 
provide that in the event that a Participant submits a matched Agency 
Order for electronic execution into the Auction that is ineligible for 
processing because it does not meet the conditions described in 
paragraph (a), both the Agency Order and any solicited contra orders 
will be cancelled unless marked as an AIM Retained order pursuant to 
proposed Interpretation and Policy .10 to Rule 6.51.\13\
---------------------------------------------------------------------------

    \13\ Notably, the A:AIR functionality may be primarily used by 
smart router technology to ensure that ineligible AIM orders are 
submitted into the System for processing and not cancelled. Whereas 
traditional brokers and dealers are equipped to manually handle 
cancelled orders that are returned to them and may revise the 
cancelled orders' terms or contact their customers for further 
instructions, smart routers are generally all electronic algorithmic 
systems that may not allow for manual handling of cancelled orders.

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

[[Page 52924]]

    The Exchange also proposes to make minor changes to Interpretation 
and Policy .04 to Rule 6.13 regarding price reasonability checks on 
complex orders to harmonize references to A:AIR functionality in Rule 
6.13 with the language in proposed Interpretation and Policy .10 to 
Rule 6.51. Specifically, the Exchange proposes to modify Interpretation 
and Policy .04(c)(5), (d), (f)(3), and (h)(4) to Rule 6.13 (Price Check 
Parameters) to change references to AIM orders that instruct the System 
to process the Agency Order as an unpaired order if an AIM auction 
cannot be initiated, to instead refer to A:AIR orders as defined in 
proposed Interpretation and Policy .10 to Rule 6.51. These changes are 
non-substantive and intended only to harmonize existing references to 
A:AIR functionality currently in the Rules with the definition of A:AIR 
orders set forth in proposed Interpretation and Policy .10 to Rule 
6.51. The proposed rule change also makes non-substantive changes in 
these paragraphs to capitalize the defined term Agency Order, 
consistent with Rule 6.51.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\14\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \15\ 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) \16\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that A:AIR functionality makes 
the Exchange's price improvement mechanisms [sic] easier to use and 
minimizes the risk of orders being mishandled on the Exchange. The 
A:AIR functionality provides opportunities for execution of Customer 
orders that a Participant submits for crossing via AIM that cannot be 
auctioned. The Exchange believes that this functionality mitigates the 
risk that inadvertent mishandling of Agency Orders (i.e. Customer 
orders) will cause marketable Customer orders to go unfilled. The 
Exchange believes that such outcomes serve to protect investors' 
interests by helping to ensure that ineligible AIM Agency Orders are 
processed in accordance with customer instructions rather than 
cancelled. Accordingly, the Exchange believes that the proposed rule 
change is consistent with the purposes of the Act.
    In addition, the Exchange believes that A:AIR functionality 
promotes competition amongst market participants by allowing more 
orders to be processed. Finally, the proposed rule change seeks to 
provide additional clarity and completeness in the Rules regarding 
functionalities that may be made available on the Exchange. The 
Exchange is continuously updating the Rules to provide additional 
detail, clarity, and transparency regarding its operations and trading 
systems. The Exchange believes that the adoption of detailed, clear, 
and transparent rules reduces burdens on competition and promotes just 
and equitable principles of trade.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that 
price improvement mechanism enhancements such as A:AIR functionality 
are widely used across the national options exchanges. The Exchange 
believes that offering additional functionalities and enhancements to 
its price improvement mechanisms [sic] promotes intermarket 
competition. The exchanges have developed these mechanisms in order to 
provide market participants diverse opportunities to seek valuable 
price improvement and as a means to compete with one another for order 
flow. The U.S. options exchanges are continuously making enhancements 
and adding functionalities to their price improvement mechanisms in 
order to provide more competitive marketplaces for market participants 
and better compete with one another. The Exchange believes that 
enhancements to such mechanisms promote intermarket competition for 
order flow between the exchanges. A:AIR functionality is simply one of 
many enhancements that the Exchange has made to AIM for this purpose.

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 written comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \17\ and 
Rule 19b-4(f)(6) \18\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-C2-2016-014 on the subject line.

Paper Comments

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


[[Page 52925]]


All submissions should refer to File Number SR-C2-2016-014. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 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-C2-2016-014, and should be 
submitted on or before August 31, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18909 Filed 8-9-16; 8:45 am]
 BILLING CODE 8011-01-P