Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Order Approving a Proposed Rule Change Relating to Opening and Closing Rotations for Series Trading on the Exchange, 3375-3379 [2017-00367]
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Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices
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more flexible interface for Participants
to access Redemptions services, process
their Redemptions allocations, and view
event information, replacing the less
efficient PTS/PBS interface for
Redemptions with CA Web, and (b)
provide clarity to Participants by
updating and streamlining the Guide to
better reflect DTC’s Redemptions
services and practices, including the
migration to ISO 20022 messaging and
the transition to CA Web, and by
making ministerial updates and
corrections. Therefore, by promoting
efficiencies for Participants’ processing
of Redemptions at DTC, and updating
the Guide to reflect the current state of
DTC’s services in this regard, the
proposed rule change promotes the
prompt and accurate clearance and
settlement of securities transactions
consistent with the requirements of the
Act, in particular Section 17A(b)(3)(F),
cited above.
In addition, by establishing the Fee
Start Date for the Reorganizations CCF
File Fee and the retirement dates for
CCF files for Distributions,
Redemptions, and Reorganizations
Announcements, the proposed rule
change would require Participants to
complete their transition to ISO 20022
messaging by a date certain. ISO 20022
messaging provides Participants with (a)
more data fields than are in CCF files,
increasing transparency about the
events being announced, and (b) near
real-time industry standard messaging,
which is not available for CCF files,
providing consistency for Participants
and accelerating the flow of
information, therefore increasing
efficiency. Ultimately, DTC expects that
Participants would better process their
announcements, instructions,
entitlements and allocations, promoting
the prompt and accurate clearance and
settlement of securities transactions
consistent with the requirements of the
Act, in particular Section 17A(b)(3)(F),
cited above.
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
impact on competition, because the
transition from PTS/PBS functions for
the processing of Redemptions to CA
Web would only enhance and simplify
a current service and process, and the
retirement of the CCF Announcement
files would remove an outdated process
and replace it with an improved
standard of messaging. Both the CA Web
and ISO 20022 messaging would be
available to Participants without
additional costs. In addition, since
Participants have been aware of these
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forthcoming changes, and any related
operational impact on their systems, for
several years, DTC believes that, they
have had sufficient time to mitigate any
implementation costs.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule change have not been
solicited or received. DTC will notify
the Commission of any written
comments received by DTC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 25 of the Act and
subparagraph (f)(4) of Rule 19b–4 26
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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, 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–
DTC–2016–2016–014 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–DTC–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 (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 DTC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–DTC–
2016–014 and should be submitted on
or before February 1, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–00369 Filed 1–10–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79743; File No. SR–C2–
2016–021]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Order Approving a Proposed Rule
Change Relating to Opening and
Closing Rotations for Series Trading
on the Exchange
January 5, 2017.
I. Introduction
On November 4, 2016, C2 Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘C2’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b-4 thereunder,2 a
proposed rule change to amend its rules
relating to the opening and closing of
27 17
25 15
U.S.C. 78s(b)(3)(A).
26 17 CFR 240.19b–4(f)(4).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices
series for trading on the Exchange. The
Commission published the proposed
rule change for comment in the Federal
Register on November 21, 2016.3 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
II. Description of the Proposed Rule
Change
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C2 proposes to amend its rules
relating to the opening and closing of
series for trading on the Exchange. Rule
6.11 describes the process that the
automated trading system used by the
Exchange for the trading of options
contracts (the ‘‘System’’) uses to open
series on the Exchange each trading day.
The Exchange may also use this process
for closing series or opening series after
a trading halt. The Exchange is
proposing various changes to reorganize
and simplify the rule and to more
accurately reflect current System
functionality.4
According to the Exchange, the
System generally processes the opening
of each series in four stages: 5
(1) Pre-Opening Period: During the
pre-opening period, the System accepts
orders and quotes and disseminates
messages that contain information based
on resting orders and quotes in the
book, which may include the expected
opening price (‘‘EOP’’), expected
opening size (‘‘EOS’’), any reason why
a series may not open, and imbalance
information, including the size and side
of an imbalance (collectively, ‘‘expected
opening information’’ or ‘‘EOIs’’).
(2) Initiation of the Opening Rotation:
The System then initiates the opening
rotation procedure and distributes a
‘‘Rotation Notice’’ to market
participants.
(3) Opening Rotation Period: During
the opening rotation period, the System
matches and executes orders and quotes
against each other to establish an
opening Exchange best bid and offer
(‘‘BBO’’) and trade price for each series
while continuing to disseminate EOIs.
(4) Opening of Trading: The System
then opens series for trading, subject to
the satisfaction of certain conditions.
According to C2, the proposed rule
change is designed to more clearly
organize Rule 6.11 in this sequential
order and makes the additional specific
changes discussed in more detail below.
Pre-Opening Period
Rule 6.11(a) currently provides that
the System accepts orders and quotes
3 See Securities Exchange Act Release No. 79315
(November 15, 2016), 81 FR 83313 (‘‘Notice’’).
4 See id. at 83313.
5 See id.
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for a period of time before the opening
of trading in the underlying security or,
in the case of index options, prior to
8:30 a.m.6 The Exchange proposes to
amend Rule 6.11(a) to provide that the
pre-opening period will begin no later
than 15 minutes prior to the expected
initiation of an opening rotation and no
earlier than 2:00 a.m.7
Under the proposal, the Exchange
generally will not restrict the size or
origin code of orders that may be
submitted during the pre-opening
period. Therefore, the proposed rule
change amends Rule 6.11(a)(1) to delete
the provision that requires the Exchange
to designate on a class-by-class basis the
eligible order size, eligible order type,
and eligible order origin code which the
System will accept.8 Additionally, the
proposed rule change clarifies that the
System will accept all quotes and all
order types during the pre-opening
period except for immediate-or-cancel,
fill-or-kill, intermarket sweep orders,
and Market-Maker trade prevention
orders.9
The proposed rule change amends
Rule 6.11(a)(2) in several ways. First, it
defines EOIs and specifies the timing of
their dissemination. EOIs contain
information based on resting orders and
quotes in the Book, including the EOP,
the EOS, any reason why a series may
not open pursuant to paragraph (d) of
Rule 6.11,10 and any imbalance
information, including the size and side
of the imbalance. EOIs will be
disseminated to all market participants
that have elected to receive them
beginning at a time determined by the
Exchange, which will be no earlier than
three hours prior to the expected
initiation of an opening rotation for a
series. The System will then
disseminate EOIs at regular intervals of
time, or less frequently if there are no
updates since the previously
disseminated EOI.11
The proposed rule change further
modifies Rule 6.11(a)(2) to redefine the
terms EOP and EOS and address when
that information will be disseminated.
6 All
times set forth in Rule 6.11 are central time.
See id. at 83313, n.3. In addition, since the System
begins the pre-opening period at the same time for
each class within each type of option (equity, index
and exchange-traded products (‘‘ETPs’’)), the
proposed rule change deletes the provision of the
current rule that says the Exchange will determine
the time on a class-by-class basis. See id. at 83313.
7 The Exchange notes that the pre-opening period
currently begins at approximately 6:30 a.m. See id.
at 83313, n.4.
8 See id. at 83313.
9 See id. at 83313–14 for a discussion of these
order types, which are defined in Rule 6.10.
10 Proposed paragraph (d) of Rule 6.11 sets forth
certain opening conditions, which are discussed in
greater detail below.
11 See Notice, supra note 3, at 83314.
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Currently, Rule 6.11(a)(2) states that the
EOP is the price at which the greatest
number of orders and quotes in the book
are expected to trade and provides that
an EOP will only be calculated if (a)
there are market orders in the book, or
the book is crossed or locked and (b) at
least one quote is present. The proposed
rule change revises this language to state
that the EOP is the price at which any
opening trade is expected to execute
and adds that the EOS is the size of any
expected opening trade. The proposed
rule change further states the System
will only disseminate EOP and EOS
messages if the width between the
highest quote bid and lowest quote offer
on the Exchange or disseminated by
other exchanges is no wider than the
‘‘Opening Exchange Prescribed Width
range’’ or ‘‘OEPW range’’ (as described
below).12
Opening Rotation Initiation and Notice
Rule 6.11(b) currently provides that,
unless unusual circumstances exist, at a
randomly selected time within a
number of seconds after the opening
trade and/or the opening quote is
disseminated in the market for the
underlying security13 (or after 8:30 a.m.
for index options), the System initiates
the opening rotation procedure and
sends a notice (‘‘Rotation Notice’’) to
market participants.
The Exchange proposes to amend
Rule 6.11(b) to provide that the System
will initiate the opening rotation
procedure and send out a Rotation
Notice on a class-by-class basis as
follows:
Æ With respect to equity and ETP
options, after the opening trade or the
opening quote is disseminated in the
market for the underlying security, or at
8:30 a.m. for classes determined by the
Exchange (including over-the-counter
equity classes); or
Æ with respect to index options, at
8:30 a.m., or at the later of 8:30 a.m. and
the time the Exchange receives a
12 See id. at 83313–14, for more detailed
discussion of these changes to the pre-opening
period. According to the Exchange, the OEPW range
is a price protection measure intended to prevent
orders from executing at extreme prices on the
open. See id. at 83317.
13 The ‘‘market for the underlying security’’ is
currently the primary listing market, the primary
volume market (defined as the market with the most
liquidity in that underlying security for the
previous two calendar months), or the first market
to open the underlying security. Since the Exchange
does not designate the primary volume market as
the market for the underlying security for any class,
the proposed rule change deletes that option. The
proposed rule change also changes the term
‘‘market’’ to ‘‘exchange’’ and clarifies that the
Exchange determines on a class-by-class basis
which market is the market for the underlying
security. See id. at 83314, n.8.
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disseminated index value for classes
determined by the Exchange.14
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Opening Rotation Period
Rule 6.11(c) provides that after the
Rotation Notice is sent, the System
enters into a rotation period, during
which the opening price is established
for each series. The proposed rule
change reorganizes paragraph (c) to
more clearly demarcate and further
describe (1) when the opening rotation
period begins, (2) what happens during
the period, (3) the handling of EOIs
during the period, and (4) when the
period ends.15
During the opening rotation period,
the System establishes the opening trade
price and the opening BBO by matching
and executing resting orders and quotes
against each other. The proposed rule
change modifies the definition of the
opening trade price of a series to be the
‘‘market-clearing’’ price, which is the
single price at which the largest number
of contracts in the book can execute,
leaving bids and offers that cannot trade
with each other.16 The proposed rule
change also states that all orders (except
complex orders) and quotes in a series
in the book prior to the opening rotation
period participate in the opening
rotation for a series. The Exchange notes
that contingency orders that participate
in the opening rotation may execute
during the opening rotation period only
if their contingencies are triggered.17
The proposed rule change clarifies
that the System will continue to
disseminate EOIs (not just the EOP and
EOS) during the opening rotation
period, which may be disseminated at
more frequent intervals closer to the
opening.18 In addition, the proposed
rule change updates the description of
the length of the opening rotation period
14 See id. at 83314–15 (providing detailed
description of the Exchange’s changes to initiating
the opening rotation).
15 See proposed Rule 6.11(c); see also Notice,
supra note 3, at 83315.
16 See Notice, supra note 3, at at 83315. If there
are multiple prices at which the same number of
contracts would clear, the System will use the price
at or nearest to the midpoint of the range consisting
of the higher of the opening NBB and widest bid
point of the OEPW range, and the lower of the
opening NBO and widest offer point of the OEPW
range. See id.
17 See id. Further, the Exchange notes that the
proposed rule change moves the rule provision
regarding the priority order of orders and quotes
during this matching process from current
subparagraph (g)(1) to proposed subparagraph
(c)(1)(C). The System prioritizes orders in the
following order: (1) Market orders, (2) limit orders
and quotes whose prices are better than the opening
price, and (3) resting orders and quotes at the
opening price. The proposed rule change also notes
that contingency orders are prioritized as set forth
in Rule 6.12(c). See id. at 83315, n.11, and
accompanying text.
18 See id. at 83315.
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and adds detail to the description of
how the System processes series to open
following the opening rotation period.
Specifically, current subparagraph (c)(2)
states that the System will process the
series of a class in a random order and
the series will begin opening after a
period following the Rotation Notice,
which period may not exceed sixty
seconds and will be established on a
class-by-class basis by the Exchange.19
Proposed subparagraph (c)(3) retains
that process, but clarifies that C2 will
determine the length and number of
these intervals for all classes.20
Opening Quote and Trade Price
In its filing, the Exchange represented
that, pursuant to the Options Price
Reporting Authority (‘‘OPRA’’) Plan,
once a series opens, the System
disseminates all quote and trade price
information to OPRA, including
opening quote and trade price
information.21 Accordingly, the
Exchange proposes to delete text in
current paragraph (d) of Rule 6.11
stating that the opening price is
determined by series and that C2
disseminates opening quote and trade
information through OPRA, because the
Exchange already disseminates such
information pursuant to the OPRA Plan,
and therefore believes that this
provision is unnecessarily repetitive.22
Despite the deletion of that language
from the rule concerning reporting data
through OPRA, the Exchange is not
proposing a substantive change to
reporting this information through
OPRA.
Opening Conditions
Current Rule 6.11(e) provides that the
System will not open a series if one of
a number of specified conditions is met,
including the absence of a quote or if
the opening price would not be within
an acceptable range, or if the opening
trade would be at a price that is not the
national best bid or offer (‘‘NBBO’’) or
would leave a market order
imbalance.23 Current Rule 6.11(f)
describes what happens when each of
these conditions is present, including
matching orders and quotes to the
extent possible or exposing marketable
19 See
id. at 83315–16.
to the Exchange, currently, the
Exchange has set the period of time that must pass
before the System begins processing series to open
at one second, and the Exchange has set the number
of intervals to one and the length of that interval
to one second. As a result, the opening rotation
period currently lasts one to two seconds. See
Regulatory Circular RG11–008; see also Notice,
supra note 3, at 83316, n.12.
21 See Notice, supra note 3, at 83316.
22 See id.
23 See id.
20 According
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orders at the NBBO under certain
conditions. The proposed rule change
would amend the opening conditions as
follows:
(1) If there are no quotes on the
Exchange or disseminated from at least
one away exchange present in the series,
the System will not open the series;
(2) if the width between the best quote
bid and best quote offer, which may
consist of Market-Makers quotes or bids
and offers disseminated from an away
exchange, is wider than an acceptable
opening price range (as determined by
the Exchange on a class-by-class and
premium basis) (the OEPW range) 24 and
there are orders or quotes marketable
against each other or that lock or cross
the OEPW range, the System will not
open the series. However, if the opening
quote width is no wider than the
intraday acceptable price range for the
series (‘‘IEPW range’’) and there are no
orders or quotes marketable against each
other or that lock or cross the OEPW
range, the System will open the series.
If the opening quote width is wider than
the IEPW range, the System will not
open the series. If the opening quote for
a series consists solely of bids and offers
disseminated from an away exchange(s),
the System will open the series by
matching orders and quotes to the
extent they can trade and will report the
opening trade, if any, at the opening
trade price. The System will then
expose any remaining marketable buy
(sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB),
whichever is lower (higher).
(3) if the opening trade price would be
outside the OEPW range or the NBBO,
the System will open the series by
matching orders and quotes to the
extent they can trade and will report the
opening trade, if any, at an opening
trade price not outside either the OEPW
range or NBBO. The System will then
expose any remaining marketable buy
(sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB),
whichever is lower (higher);
(4) if the opening trade would leave
a market order imbalance, the System
will open the series by matching orders
and quotes to the extent they can trade
and will report the opening trade, if any,
at the opening trade price. The System
will then expose any remaining
marketable buy (sell) orders at the
widest offer (bid) point of the OEPW
range or NBO (NBB), whichever is lower
(higher); or
(5) if the opening quote bid (offer) or
the NBB (NBO) crosses the opening
24 Current OEPW settings are set forth in
Regulatory Circular RG14–020. See Notice, supra
note 3, at 83316, n.14.
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quote offer (bid) or the NBO (NBB) by
more than an amount determined by the
Exchange on a class-by-class and
premium basis, the System will not
open the series.25 If the opening quote
bid (offer) or NBO (NBO) crosses the
opening quote offer (bid) or NBO (NBB)
by no more than the specified amount,
the System will open the series by
matching orders and quotes to the
extent they can trade and will report the
opening trade, if any, at the opening
trade price. The System will then
expose any remaining marketable buy
(sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB),
whichever is lower (higher). If the best
away market bid and offer are inverted
by no more than the specified amount,
there is a marketable order on each side
of the series, and the System opens the
series, the System will expose the order
on the side with the larger size and
route for execution the order on the side
with the smaller size to an away
exchange that is at the NBBO.26
In addition, the proposed rule change
moves provisions related to the
exposure of orders at the open from
current subparagraph (g)(2) and
Interpretation and Policy .04 to
proposed paragraph (d) to eliminate
duplicative language and to include all
provisions regarding the opening
exposure process in one place.27 The
proposed rule change provides that the
exposure of orders pursuant to proposed
paragraph (d) will be conducted via the
Hybird Agency Liaison (‘‘HAL’’)
pursuant to Rule 6.18. Because the
Exchange no longer uses a matching
period for HAL opening auctions and
just uses an exposure period (which
may not exceed 1.5 seconds), it
proposes to delete the provision
regarding the matching period, among
other changes.28
The Exchange also proposes to add to
paragraph (d) that if the System does not
open a series pursuant to paragraph (d),
notwithstanding proposed paragraph (c)
(which states the opening rotation
period may not last more than 60
seconds), the opening rotation period
continues (including the dissemination
of EOIs) until the condition causing the
delay is satisfied or the Exchange
otherwise determines it is necessary to
25 Currently, this amount is $0.25 for options with
prices less than $3.00 and $0.50 for options with
prices of $3.00 or more. See Regulatory Circular
RG10–005; see also Notice, supra note 3, at 83317,
n.17.
26 See Notice, supra note 3, at 83317.
27 See id. at 83317.
28 See id. at 83317–18.
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open a series in accordance with
proposed paragraph (e).29
Exchange Determinations
Current Rule 6.11 provides in various
places, including paragraphs (b)(2) and
(h), that a senior Exchange official in the
Help Desk may determine whether to
modify the opening procedures when
they deem necessary. The Exchange
proposes to delete paragraph (b)(2) and
centralize references to the Help Desk in
one paragraph (retitled from (h) to (e)).
The proposed rule change lists
examples of actions the Help Desk may
take in the interests of commencing or
maintaining a fair and orderly market,
in the event of unusual market
conditions, or in the public interest,
including delaying or compelling the
opening of any series in any options
class, and modifying timers or settings
described in Rule 6.11. The proposed
rule change adds that the Exchange will
make and maintain records to document
all determinations to deviate from the
standard manner of the opening
procedure, and periodically review
these determinations.30
The Exchange also proposes to amend
Interpretation and Policy .02, which
states all pronouncements regarding
determinations by the Exchange
pursuant to Rule 6.11 and the
Interpretations and Policies thereunder
will be announced via Regulatory
Circular with appropriate advanced
notice to ensure participants are aware
of these determinations and have
sufficient time to make any necessary
changes in response to the
determinations. The proposed rule
change adds that notice of
determinations with respect to the
opening process may be made ‘‘as
otherwise provided,’’ which recognizes
that some parts of Rule 6.11 provide that
certain notifications will be made in a
different manner (for example, via
electronic message rather than via
Regulatory Circular).31
Non-Substantive Changes
The proposed rule change also
amends current Rule 6.11(i) and
proposed Rule 6.11(f) to indicate that
29 Current Rule 6.11(j) and proposed Rule 6.11(g)
provide that the opening procedures described in
the rule may also be used to conduct a closing
rotation after the close of a trading session for series
that open pursuant to Rule 6.11. The proposed rule
change makes non-substantive changes to proposed
paragraph (g) to more clearly and simply state the
potential applicability of the opening procedures to
a closing rotation for series that open pursuant to
Rule 6.11 and to include additional detail regarding
the notification to Participants regarding the
decision to conduct a closing rotation. See id. at
83318, n.20.
30 See id. at 83318.
31 See id.
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the procedure described in Rule 6.11
may be used to reopen a series, in
addition to a class, after a trading halt
to address a potential situation in which
only certain series are subjected to halt.
The proposed rule change also adds
detail regarding notice of use of this
opening procedure following a trading
halt and clarifies that the procedure
would be the same, though depending
on facts and circumstances, there may
be no pre-opening period or a shorter
pre-opening period. Proposed paragraph
(f) further states the Exchange will
announce the reopening of a class or
series after a trading halt as soon as
practicable via electronic message to
Participants that request to receive such
messages.32
The Exchange proposes to amend
Interpretation and Policy .01, which
states the Exchange may determine on a
class-by-class basis which electronic
algorithm from Rule 6.12 applies to the
class during rotations. The proposed
rule change makes the electronic
algorithm that applies to a class intraday
the default algorithm during rotations,
but continues to leave the Exchange
flexibility to apply a different algorithm
to a class during rotations if it deems
such action to be necessary or
appropriate.33
Finally, the proposed rule change
makes numerous non-substantive and
clerical changes throughout Rule 6.11
(and its Interpretations and Policies),
including adding or amending headings
and defined terms, updating crossreferences, adding introductory and
clarifying language, using consistent
language and punctuation, and
replacing terms such as ‘‘option series’’
with series in recognition of the fact that
C2 only trades options.34
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act,35 and the rules and
regulations thereunder applicable to a
national securities exchange.36 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,37 which
requires, among other things, that a
32 See id. C2 also notes that the Exchange may
reopen a class after a trading halt as otherwise set
forth in the Rules, including Rule 6.32. See id. at
n.21.
33 See id. at 83318.
34 See id.
35 15 U.S.C. 78f.
36 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
37 15 U.S.C. 78f(b)(5).
E:\FR\FM\11JAN1.SGM
11JAN1
Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices
national securities exchange have rules
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.
In particular, the proposed rule
change reorganizes and attempts to
clarify the description of the opening
(and sometimes closing) procedures,
deletes text that the Exchange believes
is either obsolete or unnecessary,
removes certain discretion for the
Exchange to make determinations under
the rule on a class-by-class basis where
C2 no longer needs that discretion, and
is intended to promote greater
consistency across Rule 6.11. The
Commission notes that these changes
may offer market participants a better
understanding of how the Exchange’s
opening (and sometimes closing)
procedures operate. To the extent the
changes achieve that goal, they may
promote transparency, reduce the
potential for investor confusion, and
assist market participants in deciding
whether to participate in C2’s trading
rotations and, if they do participate,
have confidence and certainty as to how
their orders will be processed by the C2
System.
The Commission believes that the
proposed rule change is designed to
promote just and equitable principles of
trade by seeking to ensure that series
open in a fair and orderly manner with
sufficient liquidity and opportunities for
execution at prices that are determined
by market forces. In particular, the
Exchange notes that the proposed rule
change is designed to ensure that market
participants are aware of the
circumstances under which the System
may not open a series.38 The proposed
rule change also sets out the
circumstances when the Exchange may
exercise discretion under the rule and
strives to narrow that discretion within
certain established parameters.39 The
proposed rule change further requires
sradovich on DSK3GMQ082PROD with NOTICES
38 See
Notice, supra note 3, at 83319.
determinations, including the
establishment of parameters governing the opening
process, will be set forth in Regulatory Circulars (or
as otherwise specified by the Exchange under the
proposed rule). On account of the critical
importance of this information to investors’
understanding of how the Exchange’s System
operates, C2 should ensure that such information is
prominently displayed, readily searchable and
retrievable, up-to-date, and comprehensive.
39 Exchange
VerDate Sep<11>2014
19:05 Jan 10, 2017
Jkt 241001
3379
the Exchange to document and
periodically review Exchange decisions
made under the rule to deviate from the
standard opening procedures, and
stipulates that the Help Desk can so
deviate in response to unusual market
conditions with specific regard to the
public interest.40 In this manner, such
Exchange determinations made by highlevel senior Exchange personnel under
the rule should be limited, transparent,
and made with due regard to the
Exchange’s obligations under the Act.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act and the rules and
regulations thereunder applicable to a
national securities exchange.
solicit comments on the proposed rule
change from interested persons.
IV. Conclusion
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.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,41 that the
proposed rule change (SR–C2–2016–
021) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–00367 Filed 1–10–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Fees Schedule. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
[Release No. 34–79745; File No. SR–CBOE–
2016–094]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fees
Schedule
January 5, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
23, 2016, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) 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
Commission is publishing this notice to
40 See proposed Rule 6.11(e); see also Notice,
supra note 3, at 83318.
41 15 U.S.C. 78s(b)(2).
42 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
The Exchange proposes to amend its
Fees Schedule. Specifically, the
Exchange proposes to waive transaction
fees incurred from certain transactions
executed in compression forums.
SEC Rule 15c3–1 (Net Capital
Requirements for Brokers or Dealers)
(‘‘Net Capital Rules’’) requires every
registered broker-dealer [sic] maintain
certain specified minimum levels of
capital.3 The Net Capital Rules are
designed to protect securities customers,
counterparties, and creditors by
requiring broker-dealers to have
sufficient liquid resources on hand, at
all times, to meet their financial
obligations. Notably, hedged positions,
including offsetting futures and options
contract positions, result in certain net
capital requirement reductions under
the Net Capital Rules.4
All Options Clearing Corporation
(‘‘OCC’’) clearing members are subject to
the Net Capital Rules. However, a subset
3 17
CFR 240.15c3–1.
addition, the Net Capital Rules permit various
offsets under which a percentage of an option
position’s gain at any one valuation point is
allowed to offset another position’s loss at the same
valuation point (e.g., vertical spreads).
4 In
E:\FR\FM\11JAN1.SGM
11JAN1
]]>Agencies
[Federal Register Volume 82, Number 7 (Wednesday, January 11, 2017)]
[Notices]
[Pages 3375-3379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00367]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79743; File No. SR-C2-2016-021]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Order Approving a Proposed Rule Change Relating to Opening and Closing
Rotations for Series Trading on the Exchange
January 5, 2017.
I. Introduction
On November 4, 2016, C2 Options Exchange, Incorporated
(``Exchange'' or ``C2'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its rules relating to
the opening and closing of
[[Page 3376]]
series for trading on the Exchange. The Commission published the
proposed rule change for comment in the Federal Register on November
21, 2016.\3\ The Commission received no comments on the proposal. This
order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 79315 (November 15,
2016), 81 FR 83313 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
C2 proposes to amend its rules relating to the opening and closing
of series for trading on the Exchange. Rule 6.11 describes the process
that the automated trading system used by the Exchange for the trading
of options contracts (the ``System'') uses to open series on the
Exchange each trading day. The Exchange may also use this process for
closing series or opening series after a trading halt. The Exchange is
proposing various changes to reorganize and simplify the rule and to
more accurately reflect current System functionality.\4\
---------------------------------------------------------------------------
\4\ See id. at 83313.
---------------------------------------------------------------------------
According to the Exchange, the System generally processes the
opening of each series in four stages: \5\
---------------------------------------------------------------------------
\5\ See id.
---------------------------------------------------------------------------
(1) Pre-Opening Period: During the pre-opening period, the System
accepts orders and quotes and disseminates messages that contain
information based on resting orders and quotes in the book, which may
include the expected opening price (``EOP''), expected opening size
(``EOS''), any reason why a series may not open, and imbalance
information, including the size and side of an imbalance (collectively,
``expected opening information'' or ``EOIs'').
(2) Initiation of the Opening Rotation: The System then initiates
the opening rotation procedure and distributes a ``Rotation Notice'' to
market participants.
(3) Opening Rotation Period: During the opening rotation period,
the System matches and executes orders and quotes against each other to
establish an opening Exchange best bid and offer (``BBO'') and trade
price for each series while continuing to disseminate EOIs.
(4) Opening of Trading: The System then opens series for trading,
subject to the satisfaction of certain conditions.
According to C2, the proposed rule change is designed to more
clearly organize Rule 6.11 in this sequential order and makes the
additional specific changes discussed in more detail below.
Pre-Opening Period
Rule 6.11(a) currently provides that the System accepts orders and
quotes for a period of time before the opening of trading in the
underlying security or, in the case of index options, prior to 8:30
a.m.\6\ The Exchange proposes to amend Rule 6.11(a) to provide that the
pre-opening period will begin no later than 15 minutes prior to the
expected initiation of an opening rotation and no earlier than 2:00
a.m.\7\
---------------------------------------------------------------------------
\6\ All times set forth in Rule 6.11 are central time. See id.
at 83313, n.3. In addition, since the System begins the pre-opening
period at the same time for each class within each type of option
(equity, index and exchange-traded products (``ETPs'')), the
proposed rule change deletes the provision of the current rule that
says the Exchange will determine the time on a class-by-class basis.
See id. at 83313.
\7\ The Exchange notes that the pre-opening period currently
begins at approximately 6:30 a.m. See id. at 83313, n.4.
---------------------------------------------------------------------------
Under the proposal, the Exchange generally will not restrict the
size or origin code of orders that may be submitted during the pre-
opening period. Therefore, the proposed rule change amends Rule
6.11(a)(1) to delete the provision that requires the Exchange to
designate on a class-by-class basis the eligible order size, eligible
order type, and eligible order origin code which the System will
accept.\8\ Additionally, the proposed rule change clarifies that the
System will accept all quotes and all order types during the pre-
opening period except for immediate-or-cancel, fill-or-kill,
intermarket sweep orders, and Market-Maker trade prevention orders.\9\
---------------------------------------------------------------------------
\8\ See id. at 83313.
\9\ See id. at 83313-14 for a discussion of these order types,
which are defined in Rule 6.10.
---------------------------------------------------------------------------
The proposed rule change amends Rule 6.11(a)(2) in several ways.
First, it defines EOIs and specifies the timing of their dissemination.
EOIs contain information based on resting orders and quotes in the
Book, including the EOP, the EOS, any reason why a series may not open
pursuant to paragraph (d) of Rule 6.11,\10\ and any imbalance
information, including the size and side of the imbalance. EOIs will be
disseminated to all market participants that have elected to receive
them beginning at a time determined by the Exchange, which will be no
earlier than three hours prior to the expected initiation of an opening
rotation for a series. The System will then disseminate EOIs at regular
intervals of time, or less frequently if there are no updates since the
previously disseminated EOI.\11\
---------------------------------------------------------------------------
\10\ Proposed paragraph (d) of Rule 6.11 sets forth certain
opening conditions, which are discussed in greater detail below.
\11\ See Notice, supra note 3, at 83314.
---------------------------------------------------------------------------
The proposed rule change further modifies Rule 6.11(a)(2) to
redefine the terms EOP and EOS and address when that information will
be disseminated. Currently, Rule 6.11(a)(2) states that the EOP is the
price at which the greatest number of orders and quotes in the book are
expected to trade and provides that an EOP will only be calculated if
(a) there are market orders in the book, or the book is crossed or
locked and (b) at least one quote is present. The proposed rule change
revises this language to state that the EOP is the price at which any
opening trade is expected to execute and adds that the EOS is the size
of any expected opening trade. The proposed rule change further states
the System will only disseminate EOP and EOS messages if the width
between the highest quote bid and lowest quote offer on the Exchange or
disseminated by other exchanges is no wider than the ``Opening Exchange
Prescribed Width range'' or ``OEPW range'' (as described below).\12\
---------------------------------------------------------------------------
\12\ See id. at 83313-14, for more detailed discussion of these
changes to the pre-opening period. According to the Exchange, the
OEPW range is a price protection measure intended to prevent orders
from executing at extreme prices on the open. See id. at 83317.
---------------------------------------------------------------------------
Opening Rotation Initiation and Notice
Rule 6.11(b) currently provides that, unless unusual circumstances
exist, at a randomly selected time within a number of seconds after the
opening trade and/or the opening quote is disseminated in the market
for the underlying security\13\ (or after 8:30 a.m. for index options),
the System initiates the opening rotation procedure and sends a notice
(``Rotation Notice'') to market participants.
---------------------------------------------------------------------------
\13\ The ``market for the underlying security'' is currently the
primary listing market, the primary volume market (defined as the
market with the most liquidity in that underlying security for the
previous two calendar months), or the first market to open the
underlying security. Since the Exchange does not designate the
primary volume market as the market for the underlying security for
any class, the proposed rule change deletes that option. The
proposed rule change also changes the term ``market'' to
``exchange'' and clarifies that the Exchange determines on a class-
by-class basis which market is the market for the underlying
security. See id. at 83314, n.8.
---------------------------------------------------------------------------
The Exchange proposes to amend Rule 6.11(b) to provide that the
System will initiate the opening rotation procedure and send out a
Rotation Notice on a class-by-class basis as follows:
[cir] With respect to equity and ETP options, after the opening
trade or the opening quote is disseminated in the market for the
underlying security, or at 8:30 a.m. for classes determined by the
Exchange (including over-the-counter equity classes); or
[cir] with respect to index options, at 8:30 a.m., or at the later
of 8:30 a.m. and the time the Exchange receives a
[[Page 3377]]
disseminated index value for classes determined by the Exchange.\14\
---------------------------------------------------------------------------
\14\ See id. at 83314-15 (providing detailed description of the
Exchange's changes to initiating the opening rotation).
---------------------------------------------------------------------------
Opening Rotation Period
Rule 6.11(c) provides that after the Rotation Notice is sent, the
System enters into a rotation period, during which the opening price is
established for each series. The proposed rule change reorganizes
paragraph (c) to more clearly demarcate and further describe (1) when
the opening rotation period begins, (2) what happens during the period,
(3) the handling of EOIs during the period, and (4) when the period
ends.\15\
---------------------------------------------------------------------------
\15\ See proposed Rule 6.11(c); see also Notice, supra note 3,
at 83315.
---------------------------------------------------------------------------
During the opening rotation period, the System establishes the
opening trade price and the opening BBO by matching and executing
resting orders and quotes against each other. The proposed rule change
modifies the definition of the opening trade price of a series to be
the ``market-clearing'' price, which is the single price at which the
largest number of contracts in the book can execute, leaving bids and
offers that cannot trade with each other.\16\ The proposed rule change
also states that all orders (except complex orders) and quotes in a
series in the book prior to the opening rotation period participate in
the opening rotation for a series. The Exchange notes that contingency
orders that participate in the opening rotation may execute during the
opening rotation period only if their contingencies are triggered.\17\
---------------------------------------------------------------------------
\16\ See Notice, supra note 3, at at 83315. If there are
multiple prices at which the same number of contracts would clear,
the System will use the price at or nearest to the midpoint of the
range consisting of the higher of the opening NBB and widest bid
point of the OEPW range, and the lower of the opening NBO and widest
offer point of the OEPW range. See id.
\17\ See id. Further, the Exchange notes that the proposed rule
change moves the rule provision regarding the priority order of
orders and quotes during this matching process from current
subparagraph (g)(1) to proposed subparagraph (c)(1)(C). The System
prioritizes orders in the following order: (1) Market orders, (2)
limit orders and quotes whose prices are better than the opening
price, and (3) resting orders and quotes at the opening price. The
proposed rule change also notes that contingency orders are
prioritized as set forth in Rule 6.12(c). See id. at 83315, n.11,
and accompanying text.
---------------------------------------------------------------------------
The proposed rule change clarifies that the System will continue to
disseminate EOIs (not just the EOP and EOS) during the opening rotation
period, which may be disseminated at more frequent intervals closer to
the opening.\18\ In addition, the proposed rule change updates the
description of the length of the opening rotation period and adds
detail to the description of how the System processes series to open
following the opening rotation period. Specifically, current
subparagraph (c)(2) states that the System will process the series of a
class in a random order and the series will begin opening after a
period following the Rotation Notice, which period may not exceed sixty
seconds and will be established on a class-by-class basis by the
Exchange.\19\ Proposed subparagraph (c)(3) retains that process, but
clarifies that C2 will determine the length and number of these
intervals for all classes.\20\
---------------------------------------------------------------------------
\18\ See id. at 83315.
\19\ See id. at 83315-16.
\20\ According to the Exchange, currently, the Exchange has set
the period of time that must pass before the System begins
processing series to open at one second, and the Exchange has set
the number of intervals to one and the length of that interval to
one second. As a result, the opening rotation period currently lasts
one to two seconds. See Regulatory Circular RG11-008; see also
Notice, supra note 3, at 83316, n.12.
---------------------------------------------------------------------------
Opening Quote and Trade Price
In its filing, the Exchange represented that, pursuant to the
Options Price Reporting Authority (``OPRA'') Plan, once a series opens,
the System disseminates all quote and trade price information to OPRA,
including opening quote and trade price information.\21\ Accordingly,
the Exchange proposes to delete text in current paragraph (d) of Rule
6.11 stating that the opening price is determined by series and that C2
disseminates opening quote and trade information through OPRA, because
the Exchange already disseminates such information pursuant to the OPRA
Plan, and therefore believes that this provision is unnecessarily
repetitive.\22\ Despite the deletion of that language from the rule
concerning reporting data through OPRA, the Exchange is not proposing a
substantive change to reporting this information through OPRA.
---------------------------------------------------------------------------
\21\ See Notice, supra note 3, at 83316.
\22\ See id.
---------------------------------------------------------------------------
Opening Conditions
Current Rule 6.11(e) provides that the System will not open a
series if one of a number of specified conditions is met, including the
absence of a quote or if the opening price would not be within an
acceptable range, or if the opening trade would be at a price that is
not the national best bid or offer (``NBBO'') or would leave a market
order imbalance.\23\ Current Rule 6.11(f) describes what happens when
each of these conditions is present, including matching orders and
quotes to the extent possible or exposing marketable orders at the NBBO
under certain conditions. The proposed rule change would amend the
opening conditions as follows:
---------------------------------------------------------------------------
\23\ See id.
---------------------------------------------------------------------------
(1) If there are no quotes on the Exchange or disseminated from at
least one away exchange present in the series, the System will not open
the series;
(2) if the width between the best quote bid and best quote offer,
which may consist of Market-Makers quotes or bids and offers
disseminated from an away exchange, is wider than an acceptable opening
price range (as determined by the Exchange on a class-by-class and
premium basis) (the OEPW range) \24\ and there are orders or quotes
marketable against each other or that lock or cross the OEPW range, the
System will not open the series. However, if the opening quote width is
no wider than the intraday acceptable price range for the series
(``IEPW range'') and there are no orders or quotes marketable against
each other or that lock or cross the OEPW range, the System will open
the series. If the opening quote width is wider than the IEPW range,
the System will not open the series. If the opening quote for a series
consists solely of bids and offers disseminated from an away
exchange(s), the System will open the series by matching orders and
quotes to the extent they can trade and will report the opening trade,
if any, at the opening trade price. The System will then expose any
remaining marketable buy (sell) orders at the widest offer (bid) point
of the OEPW range or NBO (NBB), whichever is lower (higher).
---------------------------------------------------------------------------
\24\ Current OEPW settings are set forth in Regulatory Circular
RG14-020. See Notice, supra note 3, at 83316, n.14.
---------------------------------------------------------------------------
(3) if the opening trade price would be outside the OEPW range or
the NBBO, the System will open the series by matching orders and quotes
to the extent they can trade and will report the opening trade, if any,
at an opening trade price not outside either the OEPW range or NBBO.
The System will then expose any remaining marketable buy (sell) orders
at the widest offer (bid) point of the OEPW range or NBO (NBB),
whichever is lower (higher);
(4) if the opening trade would leave a market order imbalance, the
System will open the series by matching orders and quotes to the extent
they can trade and will report the opening trade, if any, at the
opening trade price. The System will then expose any remaining
marketable buy (sell) orders at the widest offer (bid) point of the
OEPW range or NBO (NBB), whichever is lower (higher); or
(5) if the opening quote bid (offer) or the NBB (NBO) crosses the
opening
[[Page 3378]]
quote offer (bid) or the NBO (NBB) by more than an amount determined by
the Exchange on a class-by-class and premium basis, the System will not
open the series.\25\ If the opening quote bid (offer) or NBO (NBO)
crosses the opening quote offer (bid) or NBO (NBB) by no more than the
specified amount, the System will open the series by matching orders
and quotes to the extent they can trade and will report the opening
trade, if any, at the opening trade price. The System will then expose
any remaining marketable buy (sell) orders at the widest offer (bid)
point of the OEPW range or NBO (NBB), whichever is lower (higher). If
the best away market bid and offer are inverted by no more than the
specified amount, there is a marketable order on each side of the
series, and the System opens the series, the System will expose the
order on the side with the larger size and route for execution the
order on the side with the smaller size to an away exchange that is at
the NBBO.\26\
---------------------------------------------------------------------------
\25\ Currently, this amount is $0.25 for options with prices
less than $3.00 and $0.50 for options with prices of $3.00 or more.
See Regulatory Circular RG10-005; see also Notice, supra note 3, at
83317, n.17.
\26\ See Notice, supra note 3, at 83317.
---------------------------------------------------------------------------
In addition, the proposed rule change moves provisions related to
the exposure of orders at the open from current subparagraph (g)(2) and
Interpretation and Policy .04 to proposed paragraph (d) to eliminate
duplicative language and to include all provisions regarding the
opening exposure process in one place.\27\ The proposed rule change
provides that the exposure of orders pursuant to proposed paragraph (d)
will be conducted via the Hybird Agency Liaison (``HAL'') pursuant to
Rule 6.18. Because the Exchange no longer uses a matching period for
HAL opening auctions and just uses an exposure period (which may not
exceed 1.5 seconds), it proposes to delete the provision regarding the
matching period, among other changes.\28\
---------------------------------------------------------------------------
\27\ See id. at 83317.
\28\ See id. at 83317-18.
---------------------------------------------------------------------------
The Exchange also proposes to add to paragraph (d) that if the
System does not open a series pursuant to paragraph (d),
notwithstanding proposed paragraph (c) (which states the opening
rotation period may not last more than 60 seconds), the opening
rotation period continues (including the dissemination of EOIs) until
the condition causing the delay is satisfied or the Exchange otherwise
determines it is necessary to open a series in accordance with proposed
paragraph (e).\29\
---------------------------------------------------------------------------
\29\ Current Rule 6.11(j) and proposed Rule 6.11(g) provide that
the opening procedures described in the rule may also be used to
conduct a closing rotation after the close of a trading session for
series that open pursuant to Rule 6.11. The proposed rule change
makes non-substantive changes to proposed paragraph (g) to more
clearly and simply state the potential applicability of the opening
procedures to a closing rotation for series that open pursuant to
Rule 6.11 and to include additional detail regarding the
notification to Participants regarding the decision to conduct a
closing rotation. See id. at 83318, n.20.
---------------------------------------------------------------------------
Exchange Determinations
Current Rule 6.11 provides in various places, including paragraphs
(b)(2) and (h), that a senior Exchange official in the Help Desk may
determine whether to modify the opening procedures when they deem
necessary. The Exchange proposes to delete paragraph (b)(2) and
centralize references to the Help Desk in one paragraph (retitled from
(h) to (e)). The proposed rule change lists examples of actions the
Help Desk may take in the interests of commencing or maintaining a fair
and orderly market, in the event of unusual market conditions, or in
the public interest, including delaying or compelling the opening of
any series in any options class, and modifying timers or settings
described in Rule 6.11. The proposed rule change adds that the Exchange
will make and maintain records to document all determinations to
deviate from the standard manner of the opening procedure, and
periodically review these determinations.\30\
---------------------------------------------------------------------------
\30\ See id. at 83318.
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The Exchange also proposes to amend Interpretation and Policy .02,
which states all pronouncements regarding determinations by the
Exchange pursuant to Rule 6.11 and the Interpretations and Policies
thereunder will be announced via Regulatory Circular with appropriate
advanced notice to ensure participants are aware of these
determinations and have sufficient time to make any necessary changes
in response to the determinations. The proposed rule change adds that
notice of determinations with respect to the opening process may be
made ``as otherwise provided,'' which recognizes that some parts of
Rule 6.11 provide that certain notifications will be made in a
different manner (for example, via electronic message rather than via
Regulatory Circular).\31\
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\31\ See id.
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Non-Substantive Changes
The proposed rule change also amends current Rule 6.11(i) and
proposed Rule 6.11(f) to indicate that the procedure described in Rule
6.11 may be used to reopen a series, in addition to a class, after a
trading halt to address a potential situation in which only certain
series are subjected to halt. The proposed rule change also adds detail
regarding notice of use of this opening procedure following a trading
halt and clarifies that the procedure would be the same, though
depending on facts and circumstances, there may be no pre-opening
period or a shorter pre-opening period. Proposed paragraph (f) further
states the Exchange will announce the reopening of a class or series
after a trading halt as soon as practicable via electronic message to
Participants that request to receive such messages.\32\
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\32\ See id. C2 also notes that the Exchange may reopen a class
after a trading halt as otherwise set forth in the Rules, including
Rule 6.32. See id. at n.21.
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The Exchange proposes to amend Interpretation and Policy .01, which
states the Exchange may determine on a class-by-class basis which
electronic algorithm from Rule 6.12 applies to the class during
rotations. The proposed rule change makes the electronic algorithm that
applies to a class intraday the default algorithm during rotations, but
continues to leave the Exchange flexibility to apply a different
algorithm to a class during rotations if it deems such action to be
necessary or appropriate.\33\
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\33\ See id. at 83318.
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Finally, the proposed rule change makes numerous non-substantive
and clerical changes throughout Rule 6.11 (and its Interpretations and
Policies), including adding or amending headings and defined terms,
updating cross-references, adding introductory and clarifying language,
using consistent language and punctuation, and replacing terms such as
``option series'' with series in recognition of the fact that C2 only
trades options.\34\
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\34\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act,\35\
and the rules and regulations thereunder applicable to a national
securities exchange.\36\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\37\
which requires, among other things, that a
[[Page 3379]]
national securities exchange have rules 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.
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\35\ 15 U.S.C. 78f.
\36\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\37\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change reorganizes and attempts to
clarify the description of the opening (and sometimes closing)
procedures, deletes text that the Exchange believes is either obsolete
or unnecessary, removes certain discretion for the Exchange to make
determinations under the rule on a class-by-class basis where C2 no
longer needs that discretion, and is intended to promote greater
consistency across Rule 6.11. The Commission notes that these changes
may offer market participants a better understanding of how the
Exchange's opening (and sometimes closing) procedures operate. To the
extent the changes achieve that goal, they may promote transparency,
reduce the potential for investor confusion, and assist market
participants in deciding whether to participate in C2's trading
rotations and, if they do participate, have confidence and certainty as
to how their orders will be processed by the C2 System.
The Commission believes that the proposed rule change is designed
to promote just and equitable principles of trade by seeking to ensure
that series open in a fair and orderly manner with sufficient liquidity
and opportunities for execution at prices that are determined by market
forces. In particular, the Exchange notes that the proposed rule change
is designed to ensure that market participants are aware of the
circumstances under which the System may not open a series.\38\ The
proposed rule change also sets out the circumstances when the Exchange
may exercise discretion under the rule and strives to narrow that
discretion within certain established parameters.\39\ The proposed rule
change further requires the Exchange to document and periodically
review Exchange decisions made under the rule to deviate from the
standard opening procedures, and stipulates that the Help Desk can so
deviate in response to unusual market conditions with specific regard
to the public interest.\40\ In this manner, such Exchange
determinations made by high-level senior Exchange personnel under the
rule should be limited, transparent, and made with due regard to the
Exchange's obligations under the Act.
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\38\ See Notice, supra note 3, at 83319.
\39\ Exchange determinations, including the establishment of
parameters governing the opening process, will be set forth in
Regulatory Circulars (or as otherwise specified by the Exchange
under the proposed rule). On account of the critical importance of
this information to investors' understanding of how the Exchange's
System operates, C2 should ensure that such information is
prominently displayed, readily searchable and retrievable, up-to-
date, and comprehensive.
\40\ See proposed Rule 6.11(e); see also Notice, supra note 3,
at 83318.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act and the rules
and regulations thereunder applicable to a national securities
exchange.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (SR-C2-2016-021) be, and hereby
is, approved.
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\41\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00367 Filed 1-10-17; 8:45 am]
BILLING CODE 8011-01-P
