Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Rule 6.13, 20951-20956 [2017-08981]
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Federal Register / Vol. 82, No. 85 / Thursday, May 4, 2017 / Notices
isolate the impact of the Pilot so that
more precise and robust analysis can be
performed. Similarly, identifying daily
the number of active MPIDs should
increase the ability of researchers to
assess the impact of the Pilot by
allowing them to control for changes in
the number of OTC Trading Centers in
each group that are active in Pilot
Securities.25
The Commission also believes that
FINRA’s proposal to aggregate and
publish data from those OTC Trading
Centers for which CHX is the DEA
should help to mitigate confidentiality
concerns. The Commission notes that
CHX is DEA to a small number of OTC
Trading Centers. Therefore, including
these OTC Trading Centers in the
broader anonymous data set should
mitigate concerns about the disclosure
of their identities.
For the reasons noted above, the
Commission finds that the proposal is
consistent with the requirements of the
Act. The proposal clarifies and
implements certain data collection
requirements set forth in the Plan.
V. Conclusion
It is therefore ordered that, pursuant
to Section 19(b)(2) of the Act,26 that the
proposed rule change (SR–FINRA–
2017–006), be and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–08978 Filed 5–3–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80554; File No. SR–C2–
2017–016]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Related to Rule 6.13
April 28, 2017.
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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 April 25,
2017, C2 Options Exchange,
25 The Commission also notes that FINRA will
publish Appendix B data from OTC Trading Centers
120 days after the month end. This delay in
publication should help support FINRA’s efforts to
mitigate confidentiality concerns.
26 15 U.S.C. 78s(b)(2).
27 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal pursuant to
Section 19(b)(3)(A) 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 Exchange seeks to amend Rule
6.13. The text of the proposed rule
change is provided below.
(additions are italicized; deletions are
[bracketed])
*
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*
C2 Options Exchange, Incorporated
Rules
*
*
*
*
*
Rule 6.13. Complex Order Execution
(a)–(b) No change.
(c) Process for Complex Order RFR
Auction. Prior to routing to the COB,
eligible complex orders may be subject
to an automated request for responses
(‘‘RFR’’) auction process.
(1) For purposes of paragraph (c):
(A) ‘‘COA’’ is the automated complex
order RFR auction process.
(B) A ‘‘COA-eligible order’’ means a
complex order that, as determined by
the Exchange on a class-by-class basis,
is eligible for a COA considering the
order’s [marketability (defined as a
number of ticks away from the current
market),] size, complex order type and
complex order origin types (i.e. nonbroker-dealer public customer, brokerdealers that are not Market-Makers or
specialists on an options exchange, and/
or Market-makers or specialists on an
options exchange). Complex orders
processed through a COA may be
executed without consideration to
prices of the same complex orders that
might be available on other exchanges.
(2) Initiation of a COA:
(A) The System will send an RFR
message to all Participants who have
elected to receive RFR messages on
receipt of (i) a COA-eligible order with
two or more legs that is better than the
same side of the Exchange spread
market or (ii) a complex order with three
or more legs that meets the class, size,
and complex order type parameters of
subparagraph (c)(1)(B) and is
marketable against the Exchange spread
3 15
4 17
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market. Complex orders as described in
subparagraph (c)(2)(A)(ii) will initiate a
COA regardless of the order’s routing
parameters or handling instructions.
Immediate or cancel orders that are not
marketable against the derived net
market in accordance with
subparagraph (c)(2)(B) will be cancelled.
The RFR message will identify the
component series, the size and side of
the market of the COA-eligible order
and any contingencies, if applicable.
(B) [Notwithstanding the foregoing,
Participants may request on an order-byorder basis that incoming COA-eligible
orders not COA (a ‘‘do-not-COA’’
request).] Notwithstanding
subparagraph (c)(2)(A)(i), Trading
Permit Holders may request on an
order-by-order basis that an incoming
COA-eligible order with two legs not
COA (a ‘‘do-not-COA’’ request).
Notwithstanding subparagraph
(c)(2)(A)(ii), the System will reject back
to a Trading Permit Holder any complex
order described in that subparagraph
that includes a do-not-COA request. An
order initially submitted to the
Exchange with a do-not-COA request
may still COA after it has rested on the
COB pursuant to Interpretation and
Policy .02.
(3)–(9) No change.
. . . Interpretations and Policies:
.01–.07 No change.
*
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The text of the proposed rule change
is also available on the Exchange’s Web
site (https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Exchange seeks to amend Rule 6.13(c)
in order to hardcode the marketability
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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parameter (i.e., the price at which a
complex order may initiate a COA);
amend Rule 6.13(c)(2) related to when a
complex order will initiate a COA to
account for risks to Market-Makers
associated with the use of the
Exchange’s Quote Risk Monitoring
(‘‘QRM’’) Mechanism; and amend Rule
6.13(c)(2) to make conforming changes
to the ‘‘do-not-COA’’ functionality. The
Exchange notes that other than the fact
the proposed rule text does not
reference manual order handling or the
Public Automated Routing (‘‘PAR’’)
workstation (because C2 is entirely
electronic) all of the proposed rule
changes are based on and identical to
CBOE Rule 6.53C(d)(i)–(ii).
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Marketability
Currently, the marketability parameter
in Rule 6.13(c)(1)(B) defined as a
number of ticks away from the current
market, sets the price at which a
complex order will initiate a COA. The
Exchange proposes to remove the
marketability parameter from the
definition of ‘‘COA-eligible order,’’
which will remove the Exchange’s
flexibility to set the price at which a
complex order will initiate a COA. The
Exchange does not foresee any issues
with removing the flexibility to
determine the price at which a COA will
be initiated because the Exchange does
not foresee a future need to modify the
price at which auctions are initiated. If
unforeseen circumstances arise where
the Exchange believes it is necessary to
modify the price at which auctions are
initiated then the Exchange will submit
a subsequent rule filing. Additionally,
removing such flexibility may provide
increased certainty to market
participants about the price at which a
complex order will initiate a COA,
helping to remove impediments to and
perfect the mechanism of a free and
open market.
The Exchange proposes to hardcode
the price at which a complex order may
initiate a COA in Proposed Rule
6.13(c)(2)(A). For example, assuming all
of the non-price specific requirements
are met, a complex order with two or
more legs under proposed subparagraph
(c)(2)(A)(i) will initiate a COA if the
Exchange spread market 5 is 1–1.20 and
the complex order is to buy at $1.01 or
higher or to sell at 1.19 or lower.6
5 The term ‘‘Exchange spread market’’ means the
derived net market based on the BBOs in the
individual series legs comprising a complex order
and, if a stock-option order, the NBBO of the stock
leg. See Rule 1.1.
6 The Exchange notes that the prices at which a
complex order will initiate a COA under
subparagraph (c)(2)(A)(i) is consistent with the
current settings for the marketability parameter.
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Additionally, assuming the non-price
specific requirements are met, a
complex order with three legs under
subparagraph (c)(2)(A)(ii) will initiate a
COA if the Exchange Spread Market is
1–1.20 and the complex order is to buy
at $1.20 or higher or to sell at $1.00 or
lower. Initiating a COA in these
situations will relieve the risk to
Market-Makers noted below, which
helps promote just and equitable
principles of trade by relieving risk to
Market-Makers allowing them to more
efficiently and effectively provide
important liquidity.
QRM
Under Rule 8.12, C2 offers MarketMakers that are obligated to provide and
maintain continuous electronic quotes
in an option class the QRM Mechanism,
which is functionality to help MarketMakers manage their quotes and related
risk. Market-Makers with appointments
on the System 7 must, among other
things, provide and maintain
continuous electronic quotes in a
specified percentage of series in each
class for a specified percentage of time.8
To comply with this requirement, each
Market-Maker may use its own
proprietary quotation and risk
management system to determine the
prices and sizes at which it quotes. In
addition, each Market-Maker may use
QRM.9
A Market-Maker’s risk in a class is not
limited to the risk in a single series of
that class. Rather, a Market-Maker is
generally actively quoting in multiple
classes, and each class may comprise
hundreds or thousands of individual
series. The System automatically
executes orders against a MarketMaker’s quotes in accordance with the
Exchange’s priority and allocation
rules.10 As a result, a Market-Maker has
exposure and risk in all series in which
it is quoting in each of its appointed
classes. QRM is an optional
functionality that helps Market-Makers,
and Participant organizations with
This portion of the proposal simply hardcodes
existing settings.
7 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of options contracts. See Rule 1.1.
8 See e.g., Rules 8.5, 8.13, and 8.17.
9 Although Market-Makers or Participant
organizations must establish parameters for an
acronym or firm, as applicable, for each QRM
function set forth in Rule 8.12, a Market-Maker or
Participant organization could set the value for the
total number of contracts executed in a class at a
level exceeding the total number of contracts it
actually quotes in the class, which allows MarketMakers or Participant organization who prefer to
use their own risk-management systems to enter
values that assure the Exchange parameters will not
be triggered.
10 See Rules 6.12 and 6.13.
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which a Market-Maker is associated,
limit this overall exposure and risk.
Specifically, if a Market-Maker elects
to use QRM, the System will cancel a
Market-Maker’s quotes in all series in an
appointed class if certain parameters the
Market-Maker establishes are triggered.
Market-Makers may set the following
QRM parameters (Market-Makers may
set none, some or all of these
parameters):
• A maximum number of contracts
for that class (the ‘‘contract limit’’) and
a specified rolling time period in
seconds within which such contract
limit is to be measured (the
‘‘measurement interval’’);
• a maximum cumulative percentage
(which is the sum of the percentages of
the original quoted size of each side of
each series that trade) (the ‘‘cumulative
percentage limit’’) that the MarketMaker is willing to trade within a
specified measurement interval; or
• a maximum number of series for
which either side of the quote is fully
traded (the ‘‘number of series fully
traded’’) within a specified
measurement interval.
If the Exchange determines the
Market-Maker has traded more than the
contract limit or cumulative percentage
limit, or has traded at least the number
of series fully traded, of a class during
the specified measurement interval, the
System will cancel all of the MarketMaker’s electronic quotes in that class
(and any other cases with the same
underlying security) until the MarketMaker refreshes those quotes (a ‘‘QRM
Incident’’). A Market-Maker, or
Participant organization with which the
Market-Maker is associated, may also
specify a maximum number of QRM
Incidents that may occur on an
Exchange-wide basis during a specified
measurement interval. If the Exchange
determines that a Market-Maker or
Participant Organization, as applicable,
has reached its QRM Incident limit
during the specified measurement
interval, the System will cancel all of
the Market-Maker’s or Participant
Organization’s quotes, as applicable,
and the Market-Maker’s orders resting in
the book in all classes and prevent the
Market-Maker and Participant
organization from sending additional
quotes or orders to the Exchange until
the earlier to occur of (1) the MarketMaker or Participant organization
reactivates this ability or (2) the next
trading day.
The purpose of the QRM functionality
is to allow Market-Makers to provide
liquidity across most series in their
appointed classes without being at risk
of executing the full cumulative size of
all their quotes before being given
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adequate opportunity to adjust their
quotes. For example, if a Market-Maker
can enter quotes with a size of 25
contracts in 100 series of class ABC, its
potential exposure is 2,500 contracts in
ABC. To mitigate the risk of having all
2,500 contracts in ABC execute without
the opportunity to evaluate its positions,
the Market-Maker may elect to use
QRM. If the Market-Maker elects to use
the contract limit functionality and sets
the contract limit at 100 and the
measurement interval at five seconds for
ABC, the System will automatically
cancel the Market-Maker’s quotes in all
series of ABC if 100 or more contracts
in series of ABC execute during any
five-second period.
To assure that all quotations are firm
for their full size, the System performs
the parameter calculations after an
execution against a Market-Maker’s
quote occurs. For example, using the
same parameters in class ABC as above,
if a Market-Maker has executed a total
of 95 contracts in ABC within the
previous three seconds, a quote in a
series of ABC with a size of 25 contracts
continues to be firm for all 25 contracts.
An incoming order in that series could
execute all 25 contracts of that quote,
and, following the execution, the total
size parameter would add 25 contracts
to the previous total of 95 for a total of
120 contracts executed in ABC. Because
the total size executed within the
previous five seconds now exceeds the
100 contract limit for ABC, the System
would, following the execution,
immediately cancel all of the MarketMaker’s quotes in series of ABC. The
Market-Maker would then enter new
quotes for series in ABC. Thus, QRM
limits the amount by which a MarketMaker’s executions in a class may
exceed its contract limit to the largest
size of its quote in a single series of the
class (or 25 in this example).
The Exchange proposes to amend
Rule 6.13 regarding complex orders to
limit a potential source of unintended
Market-Maker risk related to how the
System calculates risk parameters under
Rule 8.12 when complex orders leg into
the market.11 As discussed above, by
11 Rule 6.13(b)(1)(A) provides that complex orders
in the complex order book (‘‘COB’’) may execute
against individual orders or quotes in the book
provided the complex order can be executed in full
(or a permissible ratio) by the orders and quotes in
the book. Rule 6.13(c)(5)(A) provides that orders
that are eligible for the complex order auction
(‘‘COA’’) may trade with individual orders and
quotes in the book provided the COA-eligible order
can be executed in full (or a permissible ratio) by
the orders and quotes in the book. COA is an
automated request for responses (‘‘RFR’’) auction
process. Upon initiation of a COA, the Exchange
sends an RFR message to all Trading Permit Holders
who have elected to receive RFR messages, which
RFR message identifies the series, size and side of
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checking the risk parameters following
each execution in a series, the risk
parameters allow a Market-Maker to
provide liquidity across multiple series
of a class without being at risk of
executing the full cumulative size of all
its quotes. This is not the case, however,
when a complex order legs into the
regular market (i.e., the market for
individual, or simple, orders). Because
the execution of each leg of a complex
order is contingent on the execution of
the other legs, the execution of all the
legs in the regular market is processed
as a single transaction, not as a series of
individual transactions.
For example, if market participants
enter into the System individual orders
to buy 25 contracts for the Jan 30 call,
Jan 35 call, Jan 40 call and Jan 45 call
in class ABC, the System processes each
order as it is received and calculates the
Market-Makers parameters in class ABC
following the execution of each 25contract call. However, if a market
participant enters into the System a
complex order to buy all four of these
strikes in class ABC 25 times, which
complex order executes against bids and
offers for the individual series (i.e., legs
into the market), the System will
calculate the Market-Maker’s parameters
in class ABC following the execution of
all 100 contracts. If the Market-Maker
had set the same parameters in class
ABC as discussed above (100-contract
limit with five-second measurement
interval) and had executed 95 contracts
in class ABC within the previous three
seconds, the amount by which the next
transaction might exceed 100 is limited
to the largest size of its quote in a single
series of the class. In that example, since
the largest size of the Market-Maker’s
quotes in any series was 25 contracts,
the Market-Maker could not have
exceeded the 100-contract limit by more
than 20 contracts (95 + 25 = 120).
However, with respect to the complex
order with four legs 25 times, the next
transaction against the Market-Maker’s
quotes potentially could be as large as
100 contracts (depending upon whether
there are other market participants at
the same price), creating the potential in
this example for the Market-Maker to
exceed the 100-contract limit by 95
contracts (95 + 100 = 195) instead of 20
contracts.
As this example demonstrates, legging
of complex orders into the regular
market presents higher risk to Marketthe market of the COA-eligible order and any
contingencies. Eligible market participants may
submit responses during a response time interval.
At the conclusion of the response time interval,
COA-eligible orders are allocated in accordance
with Rule 6.13(c)(5), including against individual
orders and quotes in the book.
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20953
Makers than executing their quotes
against individual orders entered in
multiple series of a class in the regular
market, because it may result in MarketMakers exceeding their risk parameters
by a greater number of contracts. This
risk is directly proportional to the
number of legs associated with a
complex order. Market-Makers have
expressed concerns to the Exchange
regarding this risk.
As noted above, it is the legging of
complex orders into the regular market
that presents the potential risk to
Market-Makers. Generally, a complex
order has the potential to leg into the
market when the complex order is
marketable against leg quotes. For
example, if the Exchange spread market
of a complex order strategy is 1.00–1.20
and a complex order to buy or sell at
$1.10 is entered, the complex order
would not execute against the legs of the
regular market because the leg markets
(which make-up the Exchange spread
market) cannot satisfy the order. A
complex order to buy at $1.20 or higher
or to sell at $1.00 or lower (i.e., an order
that is marketable against the Exchange
spread market) would potentially be
executable against the leg quotes.
To address this Market-Maker risk,
the Exchange proposes to add
subparagraph (2)(A)(ii) to Rule 6.13(c) to
require certain orders with three or
more legs to COA prior to entering the
COB. But first, for clarity sake, the
Exchange proposes to add subparagraph
(2)(A)(i) to Rule 6.13(c) to provide that
the System will initiate a COA upon
receipt of a COA-eligible order (i.e., an
order that meets the class, size, complex
order type and complex order origin
types parameters) 12 with two or more
legs that is better than the same side of
the Exchange spread market. The
Exchange notes that subparagraph
(2)(A)(i) is not a substantive change.
Subparagraph (2)(A)(i) simply
reorganizes the currently effective rule.
Whereas today Rule 6.13(c)(2) states that
the System will initiate a COA on
receipt of a COA-eligible order, which
currently means an order with two or
more legs that meets the class,
marketability, size, order type, and
origin type parameters, proposed
subparagraph (2)(A)(i) states that the
System will initiate a COA on receipt of
a COA-eligible order (which as
proposed in subparagraph (c)(1)(B) will
continue to include the class, size, order
type, and origin type parameters but
will no longer include the marketability
parameter as it will be hardcoded into
subparagraph (c)(A)(i)) with two or more
12 See
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Rule 6.13(c)(1)(B).
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legs 13 that is better than the same side
of the Exchange spread market (which is
the current setting for marketability). As
noted, the purpose of subparagraph
(2)(A)(i) is to provide clarity as it relates
to additional subparagraph (2)(A)(ii),
and the Exchange believes reorganizing
current functionality into paragraph
(2)(A)(i) will help bring clarity to
subparagraph (2)(A)(ii).
Now, with regards to subparagraph
(2)(A)(ii), the Exchange proposes to
provide that the System will initiate a
COA upon receipt of a complex order
with three or more legs that meets the
class, size, and complex order type
parameters of subparagraph (c)(1)(B)
and is marketable against the Exchange
spread market. The purpose of proposed
subparagraph (2)(A)(ii) of Rule 6.13(c) is
simply to allow certain orders with
three legs that will not COA under
subparagraph (c)(2)(A)(i) to COA
pursuant to subparagraph (c)(2)(A)(ii).
In short, if an order with three or more
legs does not COA pursuant to Rule
6.13(c)(2)(A)(i)—because it is not COAeligible—it may still COA pursuant to
Rule 6.13(c)(2)(A)(ii), as long as the
order meets the class, size, complex
order type parameters of subparagraph
(c)(1)(B) and is marketable against the
Exchange Spread market.
For example, complex orders
identified as IOC are not currently COAeligible under the current rule (and the
Exchange has no plans at this time to
make them COA-eligible pursuant to
proposed subparagraph (2)(A)(i)).
However, IOC orders that have a large
number of legs that execute immediately
against prices in the leg markets are an
example of orders that cause the risk to
Market-Makers described above. Also,
such orders do not appear to have
investment strategies similar to
traditional complex orders but instead
are specifically designed to circumvent
QRM settings. Thus, proposed
subparagraph (2)(A)(ii) will allow the
Exchange to initiate a COA upon receipt
of orders with three or more legs that
meet the class, size, order type
parameter (including IOCs) that are
marketable against the Exchange spread
market.
The proposed rule change will only
impact a small percentage of complex
orders that enter into the System, as a
large percentage of complex orders
entered into the System are only two
legs. The Exchange also notes that
13 Including ‘‘two or more legs’’ in proposed
subparagraph (A)(i) is actually superfluous language
because the term ‘‘COA-eligible order’’ by definition
must be a ‘‘complex order,’’ and a ‘‘complex order’’
by definition must have two or more legs. See Rule
6.13(c)(1)(B). A ‘‘complex order’’ is by definition
two or more legs. See Rule 6.13(a)(1).
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complex orders with three or more legs
will still have opportunities for
execution through COA or on the COB
if they do not execute at the end of the
COA (including execution with the leg
markets). Thus, the Exchange believes
that requiring complex orders with three
or more legs to COA prior to entering
COB and legging into the regular market
does not create any unusual
circumstances for the System. The
Exchange believes that the potential risk
to Market-Makers in the regular market
of allowing orders with three or more
legs to directly enter COB and leg into
the market far outweighs the potential
benefit of continuing to allow COA to be
voluntary for a limited number of
orders.
The Exchange believes that requiring
certain complex orders with three or
more legs to COA prior to entering COB
and legging into the market will
discourage market participants from
continuing to enter the complex orders
that expose Market-Makers to the risk
described above. The proposed rule
change eliminates the possibility of
immediate executions of those
particular complex orders. Market
participants may still enter those
complex orders. However, if they do,
those complex orders will COA, which
COA will allow Market-Makers to
become aware of those complex orders
and have adequate opportunity to react
accordingly, including to adjust their
quotes to avoid circumvention of their
QRM settings. If a Market-Maker
receives an RFR for a COA for one of
those complex orders in one of its
appointed classes, and the MarketMaker believes the order may execute
against its quotes and cause executions
that significantly exceed its contract
limit in that class, the Market-Maker
may adjust its quotes as it deems
necessary to reduce its risk exposure
prior to the complex order legging into
the market and being presented to the
Market-Maker for execution. The
Exchange believes the proposed rule
change will allow Market-Makers to
better manage their risk in their
appointments, as it will reduce the risk
of those complex orders causing
executions that significantly exceed
Market-Makers’ risk parameters. The
Exchange believes this reduced risk will
encourage Market-Makers to quote
larger size, which will increase liquidity
and enhance competition in those
classes.
The Exchange notes that the proposed
rule change does not impact the
allocation of complex orders or relieve
Market-Makers of their obligations to
provide continuous electronic quotes
under the Exchange Rules or to provide
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‘‘firm’’ quotes pursuant to Rule 8.6 or
Rule 602 of Regulation NMS.
Do Not COA
SR–C2–2015–025 provided, among
other things, that rather than have
Participants affirmatively request that
their orders COA, incoming COAeligible orders would COA by default.14
Rule 6.13(c)(2) currently provides that
Participants may request on an order-byorder basis that a COA-eligible order not
COA (referred to as a ‘‘do-not-COA’’
request). The Exchange proposes to
make conforming changes to the do-notCOA request to account for the
amendment to Rule 6.13(c)(2)(A)(i) and
(ii). The Exchange proposes to add Rule
6.13(c)(2)(B) to provide that
notwithstanding subparagraph
(c)(2)(A)(i), Trading Permit Holders may
request on an order-by-order basis that
an incoming COA-eligible order with
two legs not COA. Proposed Rule
6.13(c)(2)(B) also provides that
notwithstanding subparagraph
(c)(2)(A)(ii), the System will reject back
to a Trading Permit Holder any complex
order described in that subparagraph
that includes a do-not-COA request.
This will allow Participants the ability
to request their orders not COA but also
ensure that three-legged orders—which
may cause the risk to Market-Makers
described above—to be rejected. In
either case, order entry firms are
sophisticated market participants
capable of managing their orders as they
see fit.
The Exchange will announce the
implementation date of the proposed
rule change in a Regulatory Circular to
be published no later than 90 days
following the effective date. The
implementation date will be no later
than 180 days following the effective
date.
2. Statutory Basis
Exchange believes the proposed rule
change is consistent with the Securities
Exchange Act of 1934 (the ‘‘Act’’) and
the rules and regulations thereunder
applicable to the Exchange and, in
particular, the requirements of Section
6(b) of the Act.15 Specifically, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 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
14 See Securities Exchange Act Release No. 76621
(December 11, 2015), 80 FR 78793 (December 17,
2015).
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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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) 17 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
the proposed rule change alleviates a
potential risk to Market-Makers that
arises through the use of QRM. Complex
orders with three or more legs that meet
the class, size, and order type (including
IOCs) parameters of subparagraph
(c)(1)(B) and that are marketable against
the derived net market (which the
Exchange has identified as potentially
causing risk to Market-Makers) will
initiate a COA, which helps promote
just and equitable principles of trade by
relieving risk to Market-Makers allowing
them to more efficiently and effectively
provide important liquidity. Orders that
are designated as IOC and meet the class
and size parameters of subparagraph
(c)(1)(B), but that are not marketable
against the derived net market, will be
cancelled, which allows order entry
firms to use their own sophisticated
technology to manage their orders
helping to remove impediments to and
perfects the mechanism of a free and
open market.
The Exchange also believes the
proposed rule change to initiate a COA
upon receipt of complex orders with
three or more legs that meet the class,
size, and order type (including IOCs)
parameters of subparagraph (c)(1)(B)
and that are marketable against the
derived net market is consistent with
the requirement that Market-Makers’
quotes be firm under Rule 602 of
Regulation NMS.18 The proposed rule
pmangrum on DSK3GDR082PROD with NOTICES
17 Id.
18 Rule 602(b)(2) obligates a Market-Maker to
execute any order to buy or sell a subject security
presented to it by another broker or dealer or any
other person belonging to a category of persons with
whom the Market-Maker customarily deals, at a
price at least as favorable to the buyer or sell as the
Market-Maker’s published bid or offer in any
amount up to its published quotation size. Rule
602(b)(3) provides that no Market-Maker is
obligated to execute a transaction for any subject
security to purchase or sell that subject security in
an amount greater than its revised quotation size if,
prior to the presentation of an order for the
purchase or sale of a subject security, the MarketMaker communicated to the Exchange a revised
quotation size. Similarly, no Market-Maker is
obligated to execute a transaction for any subject
security if, before the order sought to be executed
is presented, the Market-Maker has communicated
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change does not relieve Market-Makers
of their obligation to provide ‘‘firm’’
quotes. If a complex order with three or
more legs goes through COA and then
legs into the market for execution upon
completion of the COA, at which point
the complex order would execute
against a Market-Maker’s quotes based
on priority rules, the Market-Maker
must execute its quotes against the order
at its then-published bid or offer up to
its published quote size, even if such
execution would cause the MarketMaker to significantly exceed its risk
parameters. However, prior to the end of
COA (and thus prior to a complex order
legging into the market), a Market-Maker
may adjust its published quotes to
manage its risk in a class as it deems
necessary, including to prevent
executions that would exceed its risk
parameters. In this case, the firm quote
rule does not obligate the Market-Maker
to execute its quotes against the
complex order at the quote price and
size that was published when the order
entered the System and initiated the
COA. Rather, the Market-Maker’s firm
quote obligation applies only to its
disseminated quote at the time an order
is presented to the Market-Maker for
execution, which presentation does not
occur until the System processes the
order against the leg markets after
completion of the COA.19 Thus, the
proposed rule change is consistent with
the firm quote rule.
Additionally, the Exchange is
removing flexibility with regards to the
marketability parameter. Although the
Exchange prefers flexibility, the
Exchange does not foresee the need to
retain flexibility with regards to the
marketability parameter and hardcoding
the parameter may help avoid confusion
with regards to the price at which a
to the Exchange a revised bid or offer. C2 Rule 8.6
imposes a similar obligation (Market-Maker bids
and offers are firm for all orders under Rule 8.6 and
SEC Rule 602 for the number of contracts specified
in the bid or offer).
19 See Staff Legal Bulletin No. 16, Transaction in
Listed Options Under Exchange Act Rule 11Ac1–1,
U.S. Securities and Exchange Commission, Division
of Market Regulation, January 20, 2004 (‘‘Scenario
3: When an Order is ‘‘Presented’’ . . . If an
individual market maker generates its own
quotations . . . and exchange systems route
incoming orders to the responsible broker-dealer
with priority, when is an order presented to a
responsible broker-dealer? Response: . . . . When
each market maker is the responsible broker-dealer
with respect to its own quote, an order is presented
to it when received by the market maker from the
exchange system.’’). When a complex order is
processing through COA, the order is still in the
System and has not yet been presented to a broker
or dealer (including a Market-Maker) for execution.
Only after completion of the COA, when the System
allocates the complex order for execution in
accordance with priority rules, will that order be
‘‘presented’’ to the Market-Maker for firm quote
purposes.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
20955
complex order will initiate a COA,
which also helps to remove
impediments to and perfect the
mechanism of a free and open market.
Finally, the proposed rule change will
allow Participants to use their
knowledge and experience to evaluate
then-current market conditions and
determine if they do not want to COA
orders based on those conditions, which
also removes impediments to and
perfects the mechanism of a free and
open market. This allows Participants
to, for example, have two-legged orders
routed to the COB for potential
immediate execution or three-legged
orders to be rejected if they do not want
to have three-legged orders delayed by
COA.
The Exchange notes that other than
the fact the proposed rule text does not
reference manual order handling or the
Public Automated Routing (‘‘PAR’’)
workstation (because C2 is entirely
electronic) all of the proposed rule
changes are based on and identical to
CBOE Rule 6.53C(d)(i)–(ii).
B. Self-Regulatory Organization’s
Statement on Burden on Competition
C2 does not believe that the proposed
rule change will impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange does
not believe the proposed rule change
will impose any burden on intramarket
competition because the proposed rule
change is intended to reduce risk to
Market-Makers that are quoting in the
regular market. C2 believes that the
proposed rule change will promote
competition by encouraging MarketMakers to increase the size of and to
more aggressively price their quotes,
which will increase liquidity on the
Exchange. To the extent that the rule
change makes C2 a more attractive
marketplace, market participants are
free to become Trading Permit Holders
on C2 and other exchanges are free to
amend their rules in a similar manner.
Furthermore, the Exchange also does
not believe that the hardcoding of the
price at which a complex order may
initiate a COA instead of the Exchange
having the flexibility to modify the price
parameter will impose a burden on
competition as the hardcoded parameter
will apply equally to all participants.
Finally, the Exchange does not believe
allowing Participants to determine not
to have their orders COA will impose a
burden on competition as it will also
apply equally to all participants and
allow Participants to use their
knowledge and experience executing
orders to determine whether they want
an order to COA. The Exchange notes
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Federal Register / Vol. 82, No. 85 / Thursday, May 4, 2017 / Notices
that other than the fact the proposed
rule text does not reference manual
order handling or the Public Automated
Routing (‘‘PAR’’) workstation (because
C2 is entirely electronic) all of the
proposed rule changes are based on and
identical to CBOE Rule 6.53C(d)(i)–(ii).
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days 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 20 and Rule 19b–
4(f)(6) thereunder.21
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
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:
pmangrum on DSK3GDR082PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2017–016 on the subject line.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–C2–2017–016. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–C2–
2017–016 and should be submitted on
or before May 25, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–08981 Filed 5–3–17; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 9984]
Notice of Information Collection Under
OMB Emergency Review:
Supplemental Questions for Visa
Applicants
20 15
21 17
VerDate Sep<11>2014
14:39 May 03, 2017
Jkt 241001
Notice of request for emergency
OMB approval and public comment.
ACTION:
The Department of State has
submitted the information collection
SUMMARY:
22 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00093
Fmt 4703
Sfmt 4703
request described below to the Office of
Management and Budget (OMB) for
review and approval in accordance with
the emergency review procedures of the
Paperwork Reduction Act of 1995. The
purpose of this notice is to allow for
public comment from all interested
individuals and organizations.
Emergency review and approval of this
collection has been requested from OMB
by May 18. If granted, the emergency
approval is only valid for 180 days.
ADDRESSES: Direct any comments on
this emergency request to both the
Department of State Desk Officer in the
Office of Information and Regulatory
Affairs at the Office of Management and
Budget (OMB) and to Bureau of
Consular Affairs, Visa Office.
All public comments must be
received by May 18.
You may submit comments to OMB
by the following methods:
• Email: oira_submission@
omb.eop.gov. You must include the DS
form number (if applicable), information
collection title, and OMB control
number in the subject line of your
message.
• Fax: 202–395–5806. Attention: Desk
Officer for Department of State.
You may submit comments to Bureau
of Consular Affairs, Visa Office by the
following methods:
• You may submit comments to
Bureau of Consular Affairs, Visa Office
by the following methods:
• Web: Persons with access to the
Internet may comment on this notice by
going to www.Regulations.gov. You can
search for the document by entering
‘‘Docket Number: DOS–2017–0019’’ in
the Search field. Then click the
‘‘Comment Now’’ button and complete
the comment form.
• Email: PRA_BurdenComments@
state.gov. You must include Emergency
Submission Comment on
‘‘Supplemental Questions for Visa
Applicants’’ in the subject line of your
message.
You must include the DS form
number (if applicable) information
collection title, and the OMB control
number in any correspondence.
FOR FURTHER INFORMATION CONTACT:
Direct requests for additional
information regarding the collection
listed in this notice, including requests
for copies of the proposed collection
instrument and supporting documents
to PRA_BurdenComments@state.gov.
SUPPLEMENTARY INFORMATION:
• Title of Information Collection:
Supplemental Questions for Visa
Applicants.
• OMB Control Number: New.
• Type of Request: Emergency
Review.
E:\FR\FM\04MYN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 85 (Thursday, May 4, 2017)]
[Notices]
[Pages 20951-20956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08981]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80554; File No. SR-C2-2017-016]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Related to Rule 6.13
April 28, 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 April 25, 2017, C2 Options Exchange, Incorporated (the
``Exchange'' or ``C2'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. The Exchange filed the proposal pursuant to Section
19(b)(3)(A) 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).
\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 Exchange seeks to amend Rule 6.13. The text of the proposed
rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
C2 Options Exchange, Incorporated Rules
* * * * *
Rule 6.13. Complex Order Execution
(a)-(b) No change.
(c) Process for Complex Order RFR Auction. Prior to routing to the
COB, eligible complex orders may be subject to an automated request for
responses (``RFR'') auction process.
(1) For purposes of paragraph (c):
(A) ``COA'' is the automated complex order RFR auction process.
(B) A ``COA-eligible order'' means a complex order that, as
determined by the Exchange on a class-by-class basis, is eligible for a
COA considering the order's [marketability (defined as a number of
ticks away from the current market),] size, complex order type and
complex order origin types (i.e. non-broker-dealer public customer,
broker-dealers that are not Market-Makers or specialists on an options
exchange, and/or Market-makers or specialists on an options exchange).
Complex orders processed through a COA may be executed without
consideration to prices of the same complex orders that might be
available on other exchanges.
(2) Initiation of a COA:
(A) The System will send an RFR message to all Participants who
have elected to receive RFR messages on receipt of (i) a COA-eligible
order with two or more legs that is better than the same side of the
Exchange spread market or (ii) a complex order with three or more legs
that meets the class, size, and complex order type parameters of
subparagraph (c)(1)(B) and is marketable against the Exchange spread
market. Complex orders as described in subparagraph (c)(2)(A)(ii) will
initiate a COA regardless of the order's routing parameters or handling
instructions. Immediate or cancel orders that are not marketable
against the derived net market in accordance with subparagraph
(c)(2)(B) will be cancelled. The RFR message will identify the
component series, the size and side of the market of the COA-eligible
order and any contingencies, if applicable.
(B) [Notwithstanding the foregoing, Participants may request on an
order-by-order basis that incoming COA-eligible orders not COA (a ``do-
not-COA'' request).] Notwithstanding subparagraph (c)(2)(A)(i), Trading
Permit Holders may request on an order-by-order basis that an incoming
COA-eligible order with two legs not COA (a ``do-not-COA'' request).
Notwithstanding subparagraph (c)(2)(A)(ii), the System will reject back
to a Trading Permit Holder any complex order described in that
subparagraph that includes a do-not-COA request. An order initially
submitted to the Exchange with a do-not-COA request may still COA after
it has rested on the COB pursuant to Interpretation and Policy .02.
(3)-(9) No change.
. . . Interpretations and Policies:
.01-.07 No change.
* * * * *
The text of the proposed rule change is also available on the
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Exchange seeks to amend Rule 6.13(c) in order to hardcode the
marketability
[[Page 20952]]
parameter (i.e., the price at which a complex order may initiate a
COA); amend Rule 6.13(c)(2) related to when a complex order will
initiate a COA to account for risks to Market-Makers associated with
the use of the Exchange's Quote Risk Monitoring (``QRM'') Mechanism;
and amend Rule 6.13(c)(2) to make conforming changes to the ``do-not-
COA'' functionality. The Exchange notes that other than the fact the
proposed rule text does not reference manual order handling or the
Public Automated Routing (``PAR'') workstation (because C2 is entirely
electronic) all of the proposed rule changes are based on and identical
to CBOE Rule 6.53C(d)(i)-(ii).
Marketability
Currently, the marketability parameter in Rule 6.13(c)(1)(B)
defined as a number of ticks away from the current market, sets the
price at which a complex order will initiate a COA. The Exchange
proposes to remove the marketability parameter from the definition of
``COA-eligible order,'' which will remove the Exchange's flexibility to
set the price at which a complex order will initiate a COA. The
Exchange does not foresee any issues with removing the flexibility to
determine the price at which a COA will be initiated because the
Exchange does not foresee a future need to modify the price at which
auctions are initiated. If unforeseen circumstances arise where the
Exchange believes it is necessary to modify the price at which auctions
are initiated then the Exchange will submit a subsequent rule filing.
Additionally, removing such flexibility may provide increased certainty
to market participants about the price at which a complex order will
initiate a COA, helping to remove impediments to and perfect the
mechanism of a free and open market.
The Exchange proposes to hardcode the price at which a complex
order may initiate a COA in Proposed Rule 6.13(c)(2)(A). For example,
assuming all of the non-price specific requirements are met, a complex
order with two or more legs under proposed subparagraph (c)(2)(A)(i)
will initiate a COA if the Exchange spread market \5\ is 1-1.20 and the
complex order is to buy at $1.01 or higher or to sell at 1.19 or
lower.\6\ Additionally, assuming the non-price specific requirements
are met, a complex order with three legs under subparagraph
(c)(2)(A)(ii) will initiate a COA if the Exchange Spread Market is 1-
1.20 and the complex order is to buy at $1.20 or higher or to sell at
$1.00 or lower. Initiating a COA in these situations will relieve the
risk to Market-Makers noted below, which helps promote just and
equitable principles of trade by relieving risk to Market-Makers
allowing them to more efficiently and effectively provide important
liquidity.
---------------------------------------------------------------------------
\5\ The term ``Exchange spread market'' means the derived net
market based on the BBOs in the individual series legs comprising a
complex order and, if a stock-option order, the NBBO of the stock
leg. See Rule 1.1.
\6\ The Exchange notes that the prices at which a complex order
will initiate a COA under subparagraph (c)(2)(A)(i) is consistent
with the current settings for the marketability parameter. This
portion of the proposal simply hardcodes existing settings.
---------------------------------------------------------------------------
QRM
Under Rule 8.12, C2 offers Market-Makers that are obligated to
provide and maintain continuous electronic quotes in an option class
the QRM Mechanism, which is functionality to help Market-Makers manage
their quotes and related risk. Market-Makers with appointments on the
System \7\ must, among other things, provide and maintain continuous
electronic quotes in a specified percentage of series in each class for
a specified percentage of time.\8\ To comply with this requirement,
each Market-Maker may use its own proprietary quotation and risk
management system to determine the prices and sizes at which it quotes.
In addition, each Market-Maker may use QRM.\9\
---------------------------------------------------------------------------
\7\ The term ``System'' means the automated trading system used
by the Exchange for the trading of options contracts. See Rule 1.1.
\8\ See e.g., Rules 8.5, 8.13, and 8.17.
\9\ Although Market-Makers or Participant organizations must
establish parameters for an acronym or firm, as applicable, for each
QRM function set forth in Rule 8.12, a Market-Maker or Participant
organization could set the value for the total number of contracts
executed in a class at a level exceeding the total number of
contracts it actually quotes in the class, which allows Market-
Makers or Participant organization who prefer to use their own risk-
management systems to enter values that assure the Exchange
parameters will not be triggered.
---------------------------------------------------------------------------
A Market-Maker's risk in a class is not limited to the risk in a
single series of that class. Rather, a Market-Maker is generally
actively quoting in multiple classes, and each class may comprise
hundreds or thousands of individual series. The System automatically
executes orders against a Market-Maker's quotes in accordance with the
Exchange's priority and allocation rules.\10\ As a result, a Market-
Maker has exposure and risk in all series in which it is quoting in
each of its appointed classes. QRM is an optional functionality that
helps Market-Makers, and Participant organizations with which a Market-
Maker is associated, limit this overall exposure and risk.
---------------------------------------------------------------------------
\10\ See Rules 6.12 and 6.13.
---------------------------------------------------------------------------
Specifically, if a Market-Maker elects to use QRM, the System will
cancel a Market-Maker's quotes in all series in an appointed class if
certain parameters the Market-Maker establishes are triggered. Market-
Makers may set the following QRM parameters (Market-Makers may set
none, some or all of these parameters):
A maximum number of contracts for that class (the
``contract limit'') and a specified rolling time period in seconds
within which such contract limit is to be measured (the ``measurement
interval'');
a maximum cumulative percentage (which is the sum of the
percentages of the original quoted size of each side of each series
that trade) (the ``cumulative percentage limit'') that the Market-Maker
is willing to trade within a specified measurement interval; or
a maximum number of series for which either side of the
quote is fully traded (the ``number of series fully traded'') within a
specified measurement interval.
If the Exchange determines the Market-Maker has traded more than
the contract limit or cumulative percentage limit, or has traded at
least the number of series fully traded, of a class during the
specified measurement interval, the System will cancel all of the
Market-Maker's electronic quotes in that class (and any other cases
with the same underlying security) until the Market-Maker refreshes
those quotes (a ``QRM Incident''). A Market-Maker, or Participant
organization with which the Market-Maker is associated, may also
specify a maximum number of QRM Incidents that may occur on an
Exchange-wide basis during a specified measurement interval. If the
Exchange determines that a Market-Maker or Participant Organization, as
applicable, has reached its QRM Incident limit during the specified
measurement interval, the System will cancel all of the Market-Maker's
or Participant Organization's quotes, as applicable, and the Market-
Maker's orders resting in the book in all classes and prevent the
Market-Maker and Participant organization from sending additional
quotes or orders to the Exchange until the earlier to occur of (1) the
Market-Maker or Participant organization reactivates this ability or
(2) the next trading day.
The purpose of the QRM functionality is to allow Market-Makers to
provide liquidity across most series in their appointed classes without
being at risk of executing the full cumulative size of all their quotes
before being given
[[Page 20953]]
adequate opportunity to adjust their quotes. For example, if a Market-
Maker can enter quotes with a size of 25 contracts in 100 series of
class ABC, its potential exposure is 2,500 contracts in ABC. To
mitigate the risk of having all 2,500 contracts in ABC execute without
the opportunity to evaluate its positions, the Market-Maker may elect
to use QRM. If the Market-Maker elects to use the contract limit
functionality and sets the contract limit at 100 and the measurement
interval at five seconds for ABC, the System will automatically cancel
the Market-Maker's quotes in all series of ABC if 100 or more contracts
in series of ABC execute during any five-second period.
To assure that all quotations are firm for their full size, the
System performs the parameter calculations after an execution against a
Market-Maker's quote occurs. For example, using the same parameters in
class ABC as above, if a Market-Maker has executed a total of 95
contracts in ABC within the previous three seconds, a quote in a series
of ABC with a size of 25 contracts continues to be firm for all 25
contracts. An incoming order in that series could execute all 25
contracts of that quote, and, following the execution, the total size
parameter would add 25 contracts to the previous total of 95 for a
total of 120 contracts executed in ABC. Because the total size executed
within the previous five seconds now exceeds the 100 contract limit for
ABC, the System would, following the execution, immediately cancel all
of the Market-Maker's quotes in series of ABC. The Market-Maker would
then enter new quotes for series in ABC. Thus, QRM limits the amount by
which a Market-Maker's executions in a class may exceed its contract
limit to the largest size of its quote in a single series of the class
(or 25 in this example).
The Exchange proposes to amend Rule 6.13 regarding complex orders
to limit a potential source of unintended Market-Maker risk related to
how the System calculates risk parameters under Rule 8.12 when complex
orders leg into the market.\11\ As discussed above, by checking the
risk parameters following each execution in a series, the risk
parameters allow a Market-Maker to provide liquidity across multiple
series of a class without being at risk of executing the full
cumulative size of all its quotes. This is not the case, however, when
a complex order legs into the regular market (i.e., the market for
individual, or simple, orders). Because the execution of each leg of a
complex order is contingent on the execution of the other legs, the
execution of all the legs in the regular market is processed as a
single transaction, not as a series of individual transactions.
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\11\ Rule 6.13(b)(1)(A) provides that complex orders in the
complex order book (``COB'') may execute against individual orders
or quotes in the book provided the complex order can be executed in
full (or a permissible ratio) by the orders and quotes in the book.
Rule 6.13(c)(5)(A) provides that orders that are eligible for the
complex order auction (``COA'') may trade with individual orders and
quotes in the book provided the COA-eligible order can be executed
in full (or a permissible ratio) by the orders and quotes in the
book. COA is an automated request for responses (``RFR'') auction
process. Upon initiation of a COA, the Exchange sends an RFR message
to all Trading Permit Holders who have elected to receive RFR
messages, which RFR message identifies the series, size and side of
the market of the COA-eligible order and any contingencies. Eligible
market participants may submit responses during a response time
interval. At the conclusion of the response time interval, COA-
eligible orders are allocated in accordance with Rule 6.13(c)(5),
including against individual orders and quotes in the book.
---------------------------------------------------------------------------
For example, if market participants enter into the System
individual orders to buy 25 contracts for the Jan 30 call, Jan 35 call,
Jan 40 call and Jan 45 call in class ABC, the System processes each
order as it is received and calculates the Market-Makers parameters in
class ABC following the execution of each 25-contract call. However, if
a market participant enters into the System a complex order to buy all
four of these strikes in class ABC 25 times, which complex order
executes against bids and offers for the individual series (i.e., legs
into the market), the System will calculate the Market-Maker's
parameters in class ABC following the execution of all 100 contracts.
If the Market-Maker had set the same parameters in class ABC as
discussed above (100-contract limit with five-second measurement
interval) and had executed 95 contracts in class ABC within the
previous three seconds, the amount by which the next transaction might
exceed 100 is limited to the largest size of its quote in a single
series of the class. In that example, since the largest size of the
Market-Maker's quotes in any series was 25 contracts, the Market-Maker
could not have exceeded the 100-contract limit by more than 20
contracts (95 + 25 = 120). However, with respect to the complex order
with four legs 25 times, the next transaction against the Market-
Maker's quotes potentially could be as large as 100 contracts
(depending upon whether there are other market participants at the same
price), creating the potential in this example for the Market-Maker to
exceed the 100-contract limit by 95 contracts (95 + 100 = 195) instead
of 20 contracts.
As this example demonstrates, legging of complex orders into the
regular market presents higher risk to Market-Makers than executing
their quotes against individual orders entered in multiple series of a
class in the regular market, because it may result in Market-Makers
exceeding their risk parameters by a greater number of contracts. This
risk is directly proportional to the number of legs associated with a
complex order. Market-Makers have expressed concerns to the Exchange
regarding this risk.
As noted above, it is the legging of complex orders into the
regular market that presents the potential risk to Market-Makers.
Generally, a complex order has the potential to leg into the market
when the complex order is marketable against leg quotes. For example,
if the Exchange spread market of a complex order strategy is 1.00-1.20
and a complex order to buy or sell at $1.10 is entered, the complex
order would not execute against the legs of the regular market because
the leg markets (which make-up the Exchange spread market) cannot
satisfy the order. A complex order to buy at $1.20 or higher or to sell
at $1.00 or lower (i.e., an order that is marketable against the
Exchange spread market) would potentially be executable against the leg
quotes.
To address this Market-Maker risk, the Exchange proposes to add
subparagraph (2)(A)(ii) to Rule 6.13(c) to require certain orders with
three or more legs to COA prior to entering the COB. But first, for
clarity sake, the Exchange proposes to add subparagraph (2)(A)(i) to
Rule 6.13(c) to provide that the System will initiate a COA upon
receipt of a COA-eligible order (i.e., an order that meets the class,
size, complex order type and complex order origin types parameters)
\12\ with two or more legs that is better than the same side of the
Exchange spread market. The Exchange notes that subparagraph (2)(A)(i)
is not a substantive change. Subparagraph (2)(A)(i) simply reorganizes
the currently effective rule. Whereas today Rule 6.13(c)(2) states that
the System will initiate a COA on receipt of a COA-eligible order,
which currently means an order with two or more legs that meets the
class, marketability, size, order type, and origin type parameters,
proposed subparagraph (2)(A)(i) states that the System will initiate a
COA on receipt of a COA-eligible order (which as proposed in
subparagraph (c)(1)(B) will continue to include the class, size, order
type, and origin type parameters but will no longer include the
marketability parameter as it will be hardcoded into subparagraph
(c)(A)(i)) with two or more
[[Page 20954]]
legs \13\ that is better than the same side of the Exchange spread
market (which is the current setting for marketability). As noted, the
purpose of subparagraph (2)(A)(i) is to provide clarity as it relates
to additional subparagraph (2)(A)(ii), and the Exchange believes
reorganizing current functionality into paragraph (2)(A)(i) will help
bring clarity to subparagraph (2)(A)(ii).
---------------------------------------------------------------------------
\12\ See Rule 6.13(c)(1)(B).
\13\ Including ``two or more legs'' in proposed subparagraph
(A)(i) is actually superfluous language because the term ``COA-
eligible order'' by definition must be a ``complex order,'' and a
``complex order'' by definition must have two or more legs. See Rule
6.13(c)(1)(B). A ``complex order'' is by definition two or more
legs. See Rule 6.13(a)(1).
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Now, with regards to subparagraph (2)(A)(ii), the Exchange proposes
to provide that the System will initiate a COA upon receipt of a
complex order with three or more legs that meets the class, size, and
complex order type parameters of subparagraph (c)(1)(B) and is
marketable against the Exchange spread market. The purpose of proposed
subparagraph (2)(A)(ii) of Rule 6.13(c) is simply to allow certain
orders with three legs that will not COA under subparagraph
(c)(2)(A)(i) to COA pursuant to subparagraph (c)(2)(A)(ii). In short,
if an order with three or more legs does not COA pursuant to Rule
6.13(c)(2)(A)(i)--because it is not COA-eligible--it may still COA
pursuant to Rule 6.13(c)(2)(A)(ii), as long as the order meets the
class, size, complex order type parameters of subparagraph (c)(1)(B)
and is marketable against the Exchange Spread market.
For example, complex orders identified as IOC are not currently
COA-eligible under the current rule (and the Exchange has no plans at
this time to make them COA-eligible pursuant to proposed subparagraph
(2)(A)(i)). However, IOC orders that have a large number of legs that
execute immediately against prices in the leg markets are an example of
orders that cause the risk to Market-Makers described above. Also, such
orders do not appear to have investment strategies similar to
traditional complex orders but instead are specifically designed to
circumvent QRM settings. Thus, proposed subparagraph (2)(A)(ii) will
allow the Exchange to initiate a COA upon receipt of orders with three
or more legs that meet the class, size, order type parameter (including
IOCs) that are marketable against the Exchange spread market.
The proposed rule change will only impact a small percentage of
complex orders that enter into the System, as a large percentage of
complex orders entered into the System are only two legs. The Exchange
also notes that complex orders with three or more legs will still have
opportunities for execution through COA or on the COB if they do not
execute at the end of the COA (including execution with the leg
markets). Thus, the Exchange believes that requiring complex orders
with three or more legs to COA prior to entering COB and legging into
the regular market does not create any unusual circumstances for the
System. The Exchange believes that the potential risk to Market-Makers
in the regular market of allowing orders with three or more legs to
directly enter COB and leg into the market far outweighs the potential
benefit of continuing to allow COA to be voluntary for a limited number
of orders.
The Exchange believes that requiring certain complex orders with
three or more legs to COA prior to entering COB and legging into the
market will discourage market participants from continuing to enter the
complex orders that expose Market-Makers to the risk described above.
The proposed rule change eliminates the possibility of immediate
executions of those particular complex orders. Market participants may
still enter those complex orders. However, if they do, those complex
orders will COA, which COA will allow Market-Makers to become aware of
those complex orders and have adequate opportunity to react
accordingly, including to adjust their quotes to avoid circumvention of
their QRM settings. If a Market-Maker receives an RFR for a COA for one
of those complex orders in one of its appointed classes, and the
Market-Maker believes the order may execute against its quotes and
cause executions that significantly exceed its contract limit in that
class, the Market-Maker may adjust its quotes as it deems necessary to
reduce its risk exposure prior to the complex order legging into the
market and being presented to the Market-Maker for execution. The
Exchange believes the proposed rule change will allow Market-Makers to
better manage their risk in their appointments, as it will reduce the
risk of those complex orders causing executions that significantly
exceed Market-Makers' risk parameters. The Exchange believes this
reduced risk will encourage Market-Makers to quote larger size, which
will increase liquidity and enhance competition in those classes.
The Exchange notes that the proposed rule change does not impact
the allocation of complex orders or relieve Market-Makers of their
obligations to provide continuous electronic quotes under the Exchange
Rules or to provide ``firm'' quotes pursuant to Rule 8.6 or Rule 602 of
Regulation NMS.
Do Not COA
SR-C2-2015-025 provided, among other things, that rather than have
Participants affirmatively request that their orders COA, incoming COA-
eligible orders would COA by default.\14\ Rule 6.13(c)(2) currently
provides that Participants may request on an order-by-order basis that
a COA-eligible order not COA (referred to as a ``do-not-COA'' request).
The Exchange proposes to make conforming changes to the do-not-COA
request to account for the amendment to Rule 6.13(c)(2)(A)(i) and (ii).
The Exchange proposes to add Rule 6.13(c)(2)(B) to provide that
notwithstanding subparagraph (c)(2)(A)(i), Trading Permit Holders may
request on an order-by-order basis that an incoming COA-eligible order
with two legs not COA. Proposed Rule 6.13(c)(2)(B) also provides that
notwithstanding subparagraph (c)(2)(A)(ii), the System will reject back
to a Trading Permit Holder any complex order described in that
subparagraph that includes a do-not-COA request. This will allow
Participants the ability to request their orders not COA but also
ensure that three-legged orders--which may cause the risk to Market-
Makers described above--to be rejected. In either case, order entry
firms are sophisticated market participants capable of managing their
orders as they see fit.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 76621 (December 11,
2015), 80 FR 78793 (December 17, 2015).
---------------------------------------------------------------------------
The Exchange will announce the implementation date of the proposed
rule change in a Regulatory Circular to be published no later than 90
days following the effective date. The implementation date will be no
later than 180 days following the effective date.
2. Statutory Basis
Exchange believes the proposed rule change is consistent with the
Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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
[[Page 20955]]
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) \17\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change
alleviates a potential risk to Market-Makers that arises through the
use of QRM. Complex orders with three or more legs that meet the class,
size, and order type (including IOCs) parameters of subparagraph
(c)(1)(B) and that are marketable against the derived net market (which
the Exchange has identified as potentially causing risk to Market-
Makers) will initiate a COA, which helps promote just and equitable
principles of trade by relieving risk to Market-Makers allowing them to
more efficiently and effectively provide important liquidity. Orders
that are designated as IOC and meet the class and size parameters of
subparagraph (c)(1)(B), but that are not marketable against the derived
net market, will be cancelled, which allows order entry firms to use
their own sophisticated technology to manage their orders helping to
remove impediments to and perfects the mechanism of a free and open
market.
The Exchange also believes the proposed rule change to initiate a
COA upon receipt of complex orders with three or more legs that meet
the class, size, and order type (including IOCs) parameters of
subparagraph (c)(1)(B) and that are marketable against the derived net
market is consistent with the requirement that Market-Makers' quotes be
firm under Rule 602 of Regulation NMS.\18\ The proposed rule change
does not relieve Market-Makers of their obligation to provide ``firm''
quotes. If a complex order with three or more legs goes through COA and
then legs into the market for execution upon completion of the COA, at
which point the complex order would execute against a Market-Maker's
quotes based on priority rules, the Market-Maker must execute its
quotes against the order at its then-published bid or offer up to its
published quote size, even if such execution would cause the Market-
Maker to significantly exceed its risk parameters. However, prior to
the end of COA (and thus prior to a complex order legging into the
market), a Market-Maker may adjust its published quotes to manage its
risk in a class as it deems necessary, including to prevent executions
that would exceed its risk parameters. In this case, the firm quote
rule does not obligate the Market-Maker to execute its quotes against
the complex order at the quote price and size that was published when
the order entered the System and initiated the COA. Rather, the Market-
Maker's firm quote obligation applies only to its disseminated quote at
the time an order is presented to the Market-Maker for execution, which
presentation does not occur until the System processes the order
against the leg markets after completion of the COA.\19\ Thus, the
proposed rule change is consistent with the firm quote rule.
---------------------------------------------------------------------------
\18\ Rule 602(b)(2) obligates a Market-Maker to execute any
order to buy or sell a subject security presented to it by another
broker or dealer or any other person belonging to a category of
persons with whom the Market-Maker customarily deals, at a price at
least as favorable to the buyer or sell as the Market-Maker's
published bid or offer in any amount up to its published quotation
size. Rule 602(b)(3) provides that no Market-Maker is obligated to
execute a transaction for any subject security to purchase or sell
that subject security in an amount greater than its revised
quotation size if, prior to the presentation of an order for the
purchase or sale of a subject security, the Market-Maker
communicated to the Exchange a revised quotation size. Similarly, no
Market-Maker is obligated to execute a transaction for any subject
security if, before the order sought to be executed is presented,
the Market-Maker has communicated to the Exchange a revised bid or
offer. C2 Rule 8.6 imposes a similar obligation (Market-Maker bids
and offers are firm for all orders under Rule 8.6 and SEC Rule 602
for the number of contracts specified in the bid or offer).
\19\ See Staff Legal Bulletin No. 16, Transaction in Listed
Options Under Exchange Act Rule 11Ac1-1, U.S. Securities and
Exchange Commission, Division of Market Regulation, January 20, 2004
(``Scenario 3: When an Order is ``Presented'' . . . If an individual
market maker generates its own quotations . . . and exchange systems
route incoming orders to the responsible broker-dealer with
priority, when is an order presented to a responsible broker-dealer?
Response: . . . . When each market maker is the responsible broker-
dealer with respect to its own quote, an order is presented to it
when received by the market maker from the exchange system.''). When
a complex order is processing through COA, the order is still in the
System and has not yet been presented to a broker or dealer
(including a Market-Maker) for execution. Only after completion of
the COA, when the System allocates the complex order for execution
in accordance with priority rules, will that order be ``presented''
to the Market-Maker for firm quote purposes.
---------------------------------------------------------------------------
Additionally, the Exchange is removing flexibility with regards to
the marketability parameter. Although the Exchange prefers flexibility,
the Exchange does not foresee the need to retain flexibility with
regards to the marketability parameter and hardcoding the parameter may
help avoid confusion with regards to the price at which a complex order
will initiate a COA, which also helps to remove impediments to and
perfect the mechanism of a free and open market.
Finally, the proposed rule change will allow Participants to use
their knowledge and experience to evaluate then-current market
conditions and determine if they do not want to COA orders based on
those conditions, which also removes impediments to and perfects the
mechanism of a free and open market. This allows Participants to, for
example, have two-legged orders routed to the COB for potential
immediate execution or three-legged orders to be rejected if they do
not want to have three-legged orders delayed by COA.
The Exchange notes that other than the fact the proposed rule text
does not reference manual order handling or the Public Automated
Routing (``PAR'') workstation (because C2 is entirely electronic) all
of the proposed rule changes are based on and identical to CBOE Rule
6.53C(d)(i)-(ii).
B. Self-Regulatory Organization's Statement on Burden on Competition
C2 does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
the proposed rule change will impose any burden on intramarket
competition because the proposed rule change is intended to reduce risk
to Market-Makers that are quoting in the regular market. C2 believes
that the proposed rule change will promote competition by encouraging
Market-Makers to increase the size of and to more aggressively price
their quotes, which will increase liquidity on the Exchange. To the
extent that the rule change makes C2 a more attractive marketplace,
market participants are free to become Trading Permit Holders on C2 and
other exchanges are free to amend their rules in a similar manner.
Furthermore, the Exchange also does not believe that the hardcoding of
the price at which a complex order may initiate a COA instead of the
Exchange having the flexibility to modify the price parameter will
impose a burden on competition as the hardcoded parameter will apply
equally to all participants. Finally, the Exchange does not believe
allowing Participants to determine not to have their orders COA will
impose a burden on competition as it will also apply equally to all
participants and allow Participants to use their knowledge and
experience executing orders to determine whether they want an order to
COA. The Exchange notes
[[Page 20956]]
that other than the fact the proposed rule text does not reference
manual order handling or the Public Automated Routing (``PAR'')
workstation (because C2 is entirely electronic) all of the proposed
rule changes are based on and identical to CBOE Rule 6.53C(d)(i)-(ii).
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days 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 \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------
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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-C2-2017-016 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2017-016. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-C2-2017-016 and should be
submitted on or before May 25, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------
\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08981 Filed 5-3-17; 8:45 am]
BILLING CODE 8011-01-P
