Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 6.45 Relating to Disaster Recovery, 46554-46558 [2017-21405]

Download as PDF 46554 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices the implementation date for such amendments be extended. change should be approved or disapproved. 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 and Rule 19b– 4(f)(6) thereunder.9 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 10 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 11 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission notes that waiver of the operative delay will allow the Exchange to immediately extend the implementation date of the Proposed Rule Change, and avoid the potential confusion and disruption that could result if the extension did not become operative until after October 1, 2017. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.12 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule IV. Solicitation of Comments ethrower on DSK3G9T082PROD with NOTICES 9 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. 10 17 CFR 240.19b–4(f)(6). 11 17 CFR 240.19b–4(f)(6)(iii). 12 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–21410 Filed 10–4–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–81768; File No. SR–C2– 2017–025] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2017–115 on the subject line. Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 6.45 Relating to Disaster Recovery Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2017–115. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2017–115 and should be submitted on or before October 26, 2017. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 September 29, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 20, 2017, C2 Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘C2’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.45 relating to disaster recovery. The text of the proposed rule change is also available on the Exchange’s Web site (http://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 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 1 15 E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Background ethrower on DSK3G9T082PROD with NOTICES C2 adopted Rule 6.45 in 2012 for the limited purpose of providing alternative means of operation in the event C2’s trading system became inoperable or otherwise unavailable for use due to a disaster or other unusual circumstance. In particular, Rule 6.45, as originally adopted, was intended to allow C2 to operate a ‘‘Disaster Recovery Facility’’ (‘‘DRF’’) to continue to trade exclusively listed option classes until C2’s main trading system was again available.5 C2 utilizes hardware located in the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’) building in Chicago, IL, for the purposes of operating the DRF. C2’s main trading engine is located on the East coast. In 2015, Rule 6.45 was amended to add greater detail to C2’s disaster recovery rules and harmonize the disaster recovery rules with newly implemented disaster recovery-related regulatory imperatives of Regulation Systems Compliance and Integrity (‘‘Regulation SCI’’), which superseded and replaced the SEC’s voluntary Automation Review Policy.6 In doing so, C2 made certain changes to Rule 6.45 to provide additional details regarding the Exchange’s back-up trading systems, business continuity and disaster recovery plans, and testing 5 See Securities Exchange Act Release No. 67357 (July 5, 2012), 77 FR 40928 (July 11, 2012) (Order Granting Approval of Proposed Rule Change to Implement a Disaster Recovery Facility) (SR–C2– 2012–011). C2 notes it no longer has any exclusively listed option products. 6 See Securities Exchange Act Release No. 76300 (October 4, 2015), 80 FR 68343 (October 28, 2015) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Amending Rule 6.45 Relating to Disaster Recovery) (SR–C2–2015–030); see also Securities Exchange Act Release Nos. 73639 (November 19, 2014), 79 FR at 72252 (December 5, 2014) (Regulation Systems Compliance and Integrity) (File No. S7–01–13); 27445 (November 16, 1989), 54 FR 48703 (November 24, 1989) (Automated Systems of SelfRegulatory Organizations) (File No. S7–29–89); 29185 (May 9, 1991), 56 FR 22490 (May 15, 1991) (Automated Systems of Self-Regulatory Organizations) (File No. S7–12–91). VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 and update its disaster recovery rules to ensure consistency with Regulation SCI. C2 now proposes to make additional changes to its disaster recovery rules to provide C2 the authority to take additional steps necessary to preserve the C2’s ability to conduct business in the event that C2’s primary and/or backup data center(s) become inoperable or otherwise unavailable for use due to a significant systems failure, disaster or other unusual circumstances and make clear in the Rules the intermediary steps that C2 may take to disable certain systems and users’ connectivity while continuing to operate its primary data center. C2 believes this authority serves the interests of all investors and the general public, because it helps C2 ensure its continuous operation and ability to maintain fair and orderly markets in the event of a significant systems failure or other unusual circumstance. Proposal C2 proposes to amend Rule 6.45 relating to disaster recovery. Specifically, the Exchange proposes to make changes to Rule 6.45 to: (1) Allow C2 to establish certain additional temporary requirements applicable to particular Designated BCP/DR Participants 7 during use of the back-up data center; (2) permit C2 to deactivate certain nonessential systems and systems functionalities in response to limited systems disruptions or malfunctions, security intrusions, systems compliance issues, or other unusual circumstances; and (3) permit C2 to restrict access of a Permit Holder or associated person to the System if such access poses a significant threat to C2’s ability to operate systems essential to maintain a fair and orderly market. C2 proposes to add new Rule 6.45(b)(iv)(B) (Alternative BCP/DR Participant Obligations), which would provide that during the use of the backup data center, C2 may, if necessary for the maintenance of fair and orderly markets, establish heightened quoting obligations for Designated BCP/DR 7 Under Rule 6.45(b)(iv)(A), C2 shall designate those Permit Holders that C2 reasonably determines are, taken as a whole, the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of C2’s business continuity and disaster recovery plans (‘‘Designated BCP/DR Participants’’). Designated BCP/DR Participants will include all C2 Market-Makers and all C2 Permit Holders connected to the C2 primary data center and transacting non-Participant customer business, unless a C2 Permit Holder, other than a C2 MarketMaker, can demonstrate ready access to the backup data center through another C2 Permit Holder that is a designated participant. As further discussed below, temporary requirements may be imposed on C2 Market-Makers during use of the back-up data center. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 46555 Participants in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker up to the standards specified for Designated Primary Market-Makers (‘‘DPMs’’) in Rule 8.17(a) 8 and/or disallow the ability to deselect an appointment intraday in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker.9 Proposed Rule 6.45(b)(iv)(B) would also provide that C2 would notify market participants of any such additional temporary requirements prior to implementation in a reasonable manner as determined by 8 Currently, under Rule 8.17(a)(i), for example, DPMs must provide continuous quotes in at least the lesser of 99% of the non-adjusted option series (as defined in Rule 8.5(a)(1)) or 100% of the nonadjusted option series minus one call-put pair with the term ‘‘call-put pair’’ referring to one call and one put that cover the same underlying instrument and have the same expiration date and exercise price, and assure that its disseminated market quotations are accurate. This obligation does not apply to intra-day add-on series on the day during which such series are added for trading. For purposes of Rule 8.17(a)(1), ‘‘continuous’’ means 90% of the time. If a technical failure or limitation of the System prevents a DPM from maintaining, or from communicating to C2, timely and accurate quotes in a series, the duration of such failure shall not be considered in determining whether that DPM has satisfied the 90% quoting standard with respect to the series. C2 may consider other exceptions to this obligation based on demonstrated legal or regulatory requirements or other mitigating circumstances. Compliance with this quoting obligation applies to all of a DPM’s allocated classes collectively. C2 will determine compliance by a DPM with this quoting obligation on a monthly basis. However, determining compliance with this obligation on a monthly basis does not relieve a DPM from meeting this obligation on a daily basis, nor does it prohibit C2 from taking disciplinary action against DPM for failing to meet this obligation each trading day. See Rule 8.17(a)(1). Accordingly, under proposed Rule 6.45(b)(iv)(B), during use of the back-up data center, C2 could require that Market-Makers in AAPL provide continuous electronic quotes in up to 99% of the non-adjusted option series or 100% of the nonadjusted option serious minus one call-put pair. 9 In accordance with Rule 1001(a)(2)(v) of Regulation SCI, C2 maintains written policies and procedures reasonably designed to ensure that its trading systems (including with respect to both C2’s primary and back-up data center trading systems), have levels of capacity, integrity, resiliency, availability, and security adequate to maintain C2’s operational capability and promote the maintenance of fair and orderly markets, including, but not limited to business continuity and disaster recovery plans that are reasonably designed to achieve next two-hour resumption of its critical SCI systems, as defined in Rule 1000 of Regulation SCI. See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (Regulation Systems Compliance and Integrity) (File No. S7–01–13). Notably, C2 employs business continuity and disaster recovery standards reasonably designed to achieve two-hour resumption of all trading systems that are essential to conducting business on C2 and which C2 believes are reasonably designed to support resumption in a significantly shorter amount of time, including, but not limited to with respect to those systems that are essential to the trading of proprietary products and products exclusively licensed for trading on the Exchange. E:\FR\FM\05OCN1.SGM 05OCN1 46556 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES C2.10 C2 believes this extended authority would afford C2 with necessary flexibility to address unexpected contingencies that may arise if a disaster or other unusual circumstances occur, causing C2 to use the back-up data center and help ensure that C2 operates a fair and orderly market in the event of a market emergency. C2 also proposes nonsubstantive changes to the lettering in paragraph (b)(iv) to accommodate the addition of new Rule 6.45(b)(iv)(B). Accordingly, current Rule 6.45(b)(iv)(B) would become Rule 6.45(b)(iv)(C), and current Rule 6.45(b)(iv)(C) would become Rule 6.45(b)(iv)(D). C2 also proposes to add Rule 6.45(c) (Deactivation of Certain Systems), which would provide that in the event of a systems disruption or malfunction, security intrusion, systems compliance issue, or other unusual circumstances, C2 may, in accordance with the Rules or if necessary to maintain fair and orderly markets or to protect investors, temporarily deactivate certain systems or systems functionalities that are not essential to conducting business on C2. Many of the systems and systems functionalities described in the Rules are provided optionally by C2 to enhance participants’ trading experience, but are not required to be active under the Rules and are not necessary for C2 to conduct business.11 As is described in the Rules, many of the C2’s systems functionalities may be made available (or unavailable) by C2 on a class-by-class basis. Such systems and systems functionalities that are nonessential to conducting business on C2 include, but are not limited to, the Automated Improvement Mechanism (AIM) 12 and the Solicitation Auction Mechanism (SAM).13 In addition, the activation of other functionalities may not be described by the Rule, but could be suspended temporarily (e.g., until the earlier of the end of a trading session or until systems disruptions could be remedied) if disruption or malfunction of that functionality were to interfere with the C2’s ability to conduct business in a fair and orderly manner. For example, if a certain order type were to cause a wider system malfunction or a certain complex order product could not be created without triggering widespread 10 C2 would make these notifications on the Systems Notification page on C2’s Web site, via an Exchange-used messaging service, and/or other reasonable notification mechanisms. 11 See, e.g., Rules 6.10, 6.11, 6.13, 6.14, 6.17, 6.18, 6.51, and 6.52. 12 See generally Rule 6.51. 13 See generally Rule 6.52. VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 systems issues,14 C2 might announce, via its systems status page or otherwise, the suspension of the availability of that order type or complex product. If such an event impacts a non-essential system or system functionality, C2 may deem it necessary to maintain fair and orderly markets to deactivate that system or functionality until any issues are resolved to prevent any potential harm to investors. Proposed Rule 6.45(c) would also provide that C2 would notify market participants of any such deactivation, and subsequent reactivation, promptly and in a reasonable manner determined by the Exchange. C2 may make these notifications on the Systems Notification page on C2’s Web site, via an Exchange-used messaging service such as SendWordNow,15 Regulatory Circular, and/or other reasonable notification mechanisms. Finally, C2 proposes Rule 6.45(d) (Connectivity Restriction), which would permit C2 to temporarily restrict a Permit Holder’s or associated person’s access to the trading system if it is determined by the President (or seniorlevel designee) of C2, that because of a systems issue, such access threatens C2’s ability to operate systems essential to the maintenance of fair and orderly markets.16 Such access would remain restricted until the end of the trading session or an earlier time if the President (or senior-level designee) of C2, in consultation with the affected Permit Holder(s), determines that lifting the restriction no longer poses a threat to C2’s ability to operate systems essential to conducting business or continuing to maintain a fair and orderly market on C2 or to investors.17 14 For example, if the creation of a certain complex order product (e.g., the October/November calendar spread in class XYZ) were to cause significant trading disruptions in an entire class (e.g., trading in all of XYZ), C2 might determine to turn off calendar spreads or complex orders in general in the class in order to help ensure that regular trading (i.e., trading of simple orders) in the class remained available. 15 See C2 Regulatory Circular RG15–036 RG (Send Word Now Smart Notification Services); see also C2 Regulatory Circular RG15–037. 16 In such cases, C2 would make efforts to contact the affected Permit Holder immediately before or contemporaneously with the restriction of access to the system to the extent possible while protecting C2’s ability to operate systems essential to the maintenance of fair and orderly markets. 17 In determining whether a Permit Holder’s access threatens C2’s ability to operate systems essential to the maintenance of fair and orderly markets and/or determining that lifting the restriction no longer poses a threat to C2’s ability to operate systems essential to conducting business or continuing to maintain a fair and orderly market on the Exchange or to investors, a designee of the President of C2 would only be charged with making such determinations in the President of C2’s PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 In the current electronic trading environment, if a Permit Holder’s systems malfunctions or is compromised, it could disrupt C2’s systems or market or harm other investors. For example, software malfunctions may pose a risk to C2’s systems, investors, and the general public without proper risk controls. Proposed Rule 6.45(d) would simply give C2 the authority to activate additional risk controls to stem the access of a Permit Holder that has experienced a systems disruption or malfunction, which poses undue risk to C2. 2. Statutory Basis C2 believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to C2 and, in particular, the requirements of Section 6(b) of the Act.18 Specifically, C2 believes the proposed rule change is consistent with the Section 6(b)(5) 19 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, C2 believes the proposed rule change is consistent with the Section 6(b)(5) 20 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed rule change is designed to promote C2’s ability to ensure the continued operation of a fair and orderly market in the event of a systems failure, disaster, or other unusual circumstances that might threaten the ability to conduct business on C2. C2 recognizes that switching operations to the back-up data center may occur in times of uncertainty or great volatility in the markets. It is at these times that the investors may have the greatest need for viable, trustworthy marketplaces. The proposed rule change seeks to ensure that such a marketplace will exist when most needed, and thus, C2 believes that the proposed rule protects investors in the most fundamental sense. absence. In such cases, the designee would be a senior executive (i.e. Vice President or above) of C2. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). 20 Id. E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES In particular, C2 believes that proposed Rule 6.45(b)(iv)(B) allowing C2, during the use of the back-up data center to (1) establish heightened quoting obligations for Designated BCP/ DR Participants in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker up to the standards specified for DPMs specified in Rule 8.17(a) and/or (2) disallow the ability to deselect an appointment intraday in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker would help ensure the maintenance of a fair and orderly market in the event of a disaster, which is in the interests of all market participants, investors, and the general public. C2 believes that adopting rules that help ensure that markets are open and available during times of turmoil and emergency is an important goal consistent with the Act. C2 also believes that deactivation of certain systems in proposed Rule 6.45(c), whether by rule or otherwise, in order to ensure that C2 is able to provide a fair and orderly market in the face of systems disruptions and malfunction is in the best interests of market participants, investors, and the general public. Similarly, C2 believes that the proposed connectivity restriction in proposed Rule 6.45(d) would help ensure that C2 remains open and available to all market participants. C2 notes that other connectivity restrictions are already in place on the Exchange.21 Furthermore, C2 believes that proposed Rule 6.45(d) is consistent with Section 6(b)(7) 22 of the Act, which requires C2 to adopt rules that provide a fair procedure for the disciplining of members and persons associated with members, the denial of membership to 21 See, e.g., Rules 6.34 (Participant Electronic Connectivity) and 6.48 (Technical Disconnect). Under Rule 6.34(b), C2 may limit the number of messages sent by Participants accessing C2 electronically in order to protect the integrity of the System. In addition, C2 may impose restrictions on the use of a computer connected through an application programming interface (‘‘API’’) if it believes such restrictions are necessary to ensure the proper performance of the system. Any such restrictions shall be objectively determined and submitted to the Commission for approval pursuant to a rule change filing under Section 19(b) of the Exchange Act. Under Rule 6.48(a), when a CBOE Application Server (‘‘CAS’’) loses communication with a Client Application such that a CAS does not receive an appropriate response to a Heartbeat Request within ‘‘x’’ period of time, the Technical Disconnect Mechanism will automatically logoff the Permit Holder’s affected Client Application and automatically cancel all the Permit Holder’s MarketMaker quotes, if applicable, and open orders with a time-in-force of ‘‘day’’ resting in the Book (‘‘day orders’’), if the Permit Holder enables that optional service, posted through the affected Client Application. 22 15 U.S.C. 78f(b)(7). VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 any person seeking membership therein, the barring of any person from becoming associated with a member thereof, and the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange or a member thereof. C2 notes that proposed Rule 6.45(d) is not aimed at denying access to a particular Permit Holder, but rather making sure that C2 remains accessible to all other Permit Holders that do not threaten C2’s ability to conduct normal business operations. C2 notes that as soon as the President of C2 (or designee), working with the Permit Holder organization that poses a threat to C2, were able to confirm that the Permit Holder organization no longer posed such a threat, access to C2 would be restored to that Permit Holder. C2 believes that this is a fair result and is in the best interests of all market participants, investors, and the general public. C2 also believes that the proposed rule change promotes just and equitable principles of trade by adding detail and clarity to the Rules. The proposed rule change seeks to provide additional clarity to C2’s disaster recovery rules, putting all market participants on notice as to how C2 will function in case of significant systems disruption or other disaster situation. C2 is continuously updating the Rules to provide additional detail, clarity, and transparency regarding its operations and trading systems and regulatory authority. C2 believes that the adoption of detailed, clear, and transparent rules reduces burdens on competition and promotes just and equitable principles of trade. C2 also believes that adding greater detail to the Rules regarding C2’s ability to ensure the continuous operation of the market and preserve the ability to conduct business on C2 will increase confidence in the markets and encourage wider participation in the markets and greater investment. 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. Rather, the proposed rule change will help ensure that competitive markets remain operative in the event of a systems failure or other disaster event. C2 notes that the proposed rule change is designed to provide C2 with authority to require market participants to participate in, and provide necessary liquidity to, the market to ensure that C2 functions in a fair and orderly manner in the event of a significant systems PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 46557 failure, disaster, or other unusual circumstances. Accordingly, C2 believes that the proposed rule change is designed to ensure fair and competitive markets at time when they may be most needed. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others C2 neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: A. Significantly affect the protection of investors or the public interest; B. impose any significant burden on competition; and C. become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 23 and Rule 19b–4(f)(6) 24 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– C2–2017–025 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. 23 15 24 17 E:\FR\FM\05OCN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 05OCN1 46558 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices All submissions should refer to File Number SR–C2–2017–025. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–C2– 2017–025, and should be submitted on or before October 26, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–21405 Filed 10–4–17; 8:45 am] [Release No. 34–81774; File No. SR–NSCC– 2017–015] ethrower on DSK3G9T082PROD with NOTICES Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Amend and Clarify a Margin Charge Relating to CNS Fails Positions September 29, 2017. On August 11, 2017, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–NSCC–2017– CFR 200.30–3(a)(12). 19:52 Oct 04, 2017 A. The Required Deposit and the CNS Fails Charge NSCC collects Required Deposits from all Members in order to mitigate potential losses to NSCC associated with the liquidation of a Member’s portfolio, if NSCC ceases to act for such Member.7 In order to calculate each Member’s Required Deposit, NSCC uses a riskbased margin methodology comprised of a number of risk-based component charges, including the CNS Fails Charge.8 NSCC currently calculates and collects the CNS Fails Charge from Members with positions that did not settle on the applicable settlement date (‘‘Settlement Date’’) 9 (‘‘CNS Fails Positions’’).10 According to NSCC, NSCC imposes the CNS Fails Charge U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 81439 (August 18, 2017), 82 FR 40176 (August 24, 2017) (SR–NSCC–2017–015) (‘‘Notice’’). 4 Available at http://www.dtcc.com/en/legal/ rules-and-procedures. 5 A Member’s Required Deposit is the daily margin deposit that Members are required to make to NSCC’s clearing fund (‘‘Clearing Fund’’). Additional information on Required Deposits and the Clearing Fund can be found in NSCC’s Rules. Id. 6 Notice, 82 FR at 40176. 7 When NSCC restricts a Member’s access to services generally, NSCC is said to have ‘‘ceased to act’’ for the Member. Rule 46 (Restrictions on Access to Services) of the Rules sets out the circumstances under which NSCC may cease to act for a Member and the types of actions that NSCC may take. Rules, supra note 4. 8 Notice, 82 FR at 40176. 9 The Settlement Date refers to the standard settlement cycle, as set by the U.S. Securities and Exchange Commission, which is T+2. See Securities Exchange Act Release No. 80295 (March 22, 2017), 82 FR 15564 (March 29, 2017). 10 Notice, 82 FR at 40176. 2 17 SECURITIES AND EXCHANGE COMMISSION VerDate Sep<11>2014 I. Description of the Proposed Rule Change NSCC proposed to change its Rules & Procedures (‘‘Rules’’) 4 to (1) amend an existing fails charge (‘‘CNS Fails Charge’’) that applies to each NSCC member (‘‘Member’’) as part of each Member’s required deposit (‘‘Required Deposit’’) 5 to the NSCC Clearing Fund; and (2) clarify NSCC’s current practices with respect to the assessment and collection of the CNS Fails Charge.6 1 15 BILLING CODE 8011–01–P 25 17 015, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The proposed rule change was published for comment in the Federal Register on August 24, 2017.3 The Commission did not receive any comment letters on the proposed rule change. For the reasons discussed below, the Commission is granting approval of the proposed rule change. Jkt 244001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 based on the Member’s credit rating, as derived from NSCC’s internal credit risk analysis (i.e., the Credit Risk Rating Matrix or ‘‘CRRM’’),11 in order to reflect the potential increase in credit risk from Members with a higher risk of default.12 NSCC is exposed to credit and market risks when a Member does not satisfy its obligation to either pay its net settlement proceeds or deliver its securities due by the applicable Settlement Date.13 Such exposures generally increase when the Member’s risk of default increases, as reflected by the Member’s credit rating derived from the CRRM.14 Therefore, NSCC asserts that to reduce NSCC’s credit risk exposures and to incentivize Members to satisfy their obligations relating to their outstanding trades on Settlement Date, NSCC collects the CNS Fails Charge as part of each Member’s Required Deposit.15 This proposed rule change would amend the Rules regarding the CNS Fails Charge. Specifically, the proposed rule change would amend the Rules to add transparency and clarify NSCC’s current practices with respect to the assessment and collection of this existing daily margin charge.16 B. Calculation of the CNS Fails Charge Currently, for a Member with CNS Fails Positions, the CNS Fails Charge is calculated by multiplying the current market value of such Member’s aggregate CNS Fails Positions by a percentage determined by the Member’s CRRM rating.17 For a Member that is rated 1 through 4 on the CRRM, the CNS Fails Charge is 5 percent of the Member’s aggregate CNS Fails Positions.18 For a Member that is rated 5 or 6 on the CRRM, the CNS Fails Charge is 10 percent of the Member’s aggregate CNS Fails Positions.19 For a 11 The CRRM is a tool to help measure the credit risk that Members pose to NSCC. See Securities Exchange Act Release No. 80734 (May 19, 2017), 82 FR 24177 (May 25, 2017) (SR–FICC–2017–006). The CRRM produces a rating based on a scale from 1 (the strongest) to 7 (the weakest). Id. Members that fall within the weakest three rating categories (i.e., 5, 6, and 7) are placed on NSCC’s ‘‘Watch List’’ and may be subject to enhanced surveillance or additional margin charges. Id. The CRRM considers factors that are designed to collectively reflect the financial and operational condition of a Member. Id. These factors include (i) quantitative factors, such as capital, assets, earnings, and liquidity; and (ii) qualitative factors, such as management quality, market position/environment, and capital and liquidity risk management. Id. 12 Notice, 82 FR at 40176. 13 Id. 14 Id. 15 Id. 16 Id. 17 Id. 18 Id. 19 Id. E:\FR\FM\05OCN1.SGM 05OCN1

Agencies

[Federal Register Volume 82, Number 192 (Thursday, October 5, 2017)]
[Notices]
[Pages 46554-46558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81768; File No. SR-C2-2017-025]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Rule 6.45 Relating to Disaster Recovery

September 29, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 20, 2017, C2 Options Exchange, Incorporated (``Exchange'' 
or ``C2'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III, below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.45 relating to disaster 
recovery. The text of the proposed rule change is also available on the 
Exchange's Web site (http://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

[[Page 46555]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    C2 adopted Rule 6.45 in 2012 for the limited purpose of providing 
alternative means of operation in the event C2's trading system became 
inoperable or otherwise unavailable for use due to a disaster or other 
unusual circumstance. In particular, Rule 6.45, as originally adopted, 
was intended to allow C2 to operate a ``Disaster Recovery Facility'' 
(``DRF'') to continue to trade exclusively listed option classes until 
C2's main trading system was again available.\5\ C2 utilizes hardware 
located in the Chicago Board Options Exchange, Incorporated (``CBOE'') 
building in Chicago, IL, for the purposes of operating the DRF. C2's 
main trading engine is located on the East coast.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 67357 (July 5, 
2012), 77 FR 40928 (July 11, 2012) (Order Granting Approval of 
Proposed Rule Change to Implement a Disaster Recovery Facility) (SR-
C2-2012-011). C2 notes it no longer has any exclusively listed 
option products.
---------------------------------------------------------------------------

    In 2015, Rule 6.45 was amended to add greater detail to C2's 
disaster recovery rules and harmonize the disaster recovery rules with 
newly implemented disaster recovery-related regulatory imperatives of 
Regulation Systems Compliance and Integrity (``Regulation SCI''), which 
superseded and replaced the SEC's voluntary Automation Review 
Policy.\6\ In doing so, C2 made certain changes to Rule 6.45 to provide 
additional details regarding the Exchange's back-up trading systems, 
business continuity and disaster recovery plans, and testing and update 
its disaster recovery rules to ensure consistency with Regulation SCI.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 76300 (October 4, 
2015), 80 FR 68343 (October 28, 2015) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Amending Rule 6.45 
Relating to Disaster Recovery) (SR-C2-2015-030); see also Securities 
Exchange Act Release Nos. 73639 (November 19, 2014), 79 FR at 72252 
(December 5, 2014) (Regulation Systems Compliance and Integrity) 
(File No. S7-01-13); 27445 (November 16, 1989), 54 FR 48703 
(November 24, 1989) (Automated Systems of Self-Regulatory 
Organizations) (File No. S7-29-89); 29185 (May 9, 1991), 56 FR 22490 
(May 15, 1991) (Automated Systems of Self-Regulatory Organizations) 
(File No. S7-12-91).
---------------------------------------------------------------------------

    C2 now proposes to make additional changes to its disaster recovery 
rules to provide C2 the authority to take additional steps necessary to 
preserve the C2's ability to conduct business in the event that C2's 
primary and/or back-up data center(s) become inoperable or otherwise 
unavailable for use due to a significant systems failure, disaster or 
other unusual circumstances and make clear in the Rules the 
intermediary steps that C2 may take to disable certain systems and 
users' connectivity while continuing to operate its primary data 
center. C2 believes this authority serves the interests of all 
investors and the general public, because it helps C2 ensure its 
continuous operation and ability to maintain fair and orderly markets 
in the event of a significant systems failure or other unusual 
circumstance.
Proposal
    C2 proposes to amend Rule 6.45 relating to disaster recovery. 
Specifically, the Exchange proposes to make changes to Rule 6.45 to: 
(1) Allow C2 to establish certain additional temporary requirements 
applicable to particular Designated BCP/DR Participants \7\ during use 
of the back-up data center; (2) permit C2 to deactivate certain 
nonessential systems and systems functionalities in response to limited 
systems disruptions or malfunctions, security intrusions, systems 
compliance issues, or other unusual circumstances; and (3) permit C2 to 
restrict access of a Permit Holder or associated person to the System 
if such access poses a significant threat to C2's ability to operate 
systems essential to maintain a fair and orderly market.
---------------------------------------------------------------------------

    \7\ Under Rule 6.45(b)(iv)(A), C2 shall designate those Permit 
Holders that C2 reasonably determines are, taken as a whole, the 
minimum necessary for the maintenance of fair and orderly markets in 
the event of the activation of C2's business continuity and disaster 
recovery plans (``Designated BCP/DR Participants''). Designated BCP/
DR Participants will include all C2 Market-Makers and all C2 Permit 
Holders connected to the C2 primary data center and transacting non-
Participant customer business, unless a C2 Permit Holder, other than 
a C2 Market-Maker, can demonstrate ready access to the back-up data 
center through another C2 Permit Holder that is a designated 
participant. As further discussed below, temporary requirements may 
be imposed on C2 Market-Makers during use of the back-up data 
center.
---------------------------------------------------------------------------

    C2 proposes to add new Rule 6.45(b)(iv)(B) (Alternative BCP/DR 
Participant Obligations), which would provide that during the use of 
the back-up data center, C2 may, if necessary for the maintenance of 
fair and orderly markets, establish heightened quoting obligations for 
Designated BCP/DR Participants in a class in which the Designated BCP/
DR Participant is already an appointed Market-Maker up to the standards 
specified for Designated Primary Market-Makers (``DPMs'') in Rule 
8.17(a) \8\ and/or disallow the ability to deselect an appointment 
intraday in a class in which the Designated BCP/DR Participant is 
already an appointed Market-Maker.\9\ Proposed Rule 6.45(b)(iv)(B) 
would also provide that C2 would notify market participants of any such 
additional temporary requirements prior to implementation in a 
reasonable manner as determined by

[[Page 46556]]

C2.\10\ C2 believes this extended authority would afford C2 with 
necessary flexibility to address unexpected contingencies that may 
arise if a disaster or other unusual circumstances occur, causing C2 to 
use the back-up data center and help ensure that C2 operates a fair and 
orderly market in the event of a market emergency. C2 also proposes 
non-substantive changes to the lettering in paragraph (b)(iv) to 
accommodate the addition of new Rule 6.45(b)(iv)(B). Accordingly, 
current Rule 6.45(b)(iv)(B) would become Rule 6.45(b)(iv)(C), and 
current Rule 6.45(b)(iv)(C) would become Rule 6.45(b)(iv)(D).
---------------------------------------------------------------------------

    \8\ Currently, under Rule 8.17(a)(i), for example, DPMs must 
provide continuous quotes in at least the lesser of 99% of the non-
adjusted option series (as defined in Rule 8.5(a)(1)) or 100% of the 
non-adjusted option series minus one call-put pair with the term 
``call-put pair'' referring to one call and one put that cover the 
same underlying instrument and have the same expiration date and 
exercise price, and assure that its disseminated market quotations 
are accurate. This obligation does not apply to intra-day add-on 
series on the day during which such series are added for trading. 
For purposes of Rule 8.17(a)(1), ``continuous'' means 90% of the 
time. If a technical failure or limitation of the System prevents a 
DPM from maintaining, or from communicating to C2, timely and 
accurate quotes in a series, the duration of such failure shall not 
be considered in determining whether that DPM has satisfied the 90% 
quoting standard with respect to the series. C2 may consider other 
exceptions to this obligation based on demonstrated legal or 
regulatory requirements or other mitigating circumstances. 
Compliance with this quoting obligation applies to all of a DPM's 
allocated classes collectively. C2 will determine compliance by a 
DPM with this quoting obligation on a monthly basis. However, 
determining compliance with this obligation on a monthly basis does 
not relieve a DPM from meeting this obligation on a daily basis, nor 
does it prohibit C2 from taking disciplinary action against DPM for 
failing to meet this obligation each trading day. See Rule 
8.17(a)(1). Accordingly, under proposed Rule 6.45(b)(iv)(B), during 
use of the back-up data center, C2 could require that Market-Makers 
in AAPL provide continuous electronic quotes in up to 99% of the 
non-adjusted option series or 100% of the non-adjusted option 
serious minus one call-put pair.
    \9\ In accordance with Rule 1001(a)(2)(v) of Regulation SCI, C2 
maintains written policies and procedures reasonably designed to 
ensure that its trading systems (including with respect to both C2's 
primary and back-up data center trading systems), have levels of 
capacity, integrity, resiliency, availability, and security adequate 
to maintain C2's operational capability and promote the maintenance 
of fair and orderly markets, including, but not limited to business 
continuity and disaster recovery plans that are reasonably designed 
to achieve next two-hour resumption of its critical SCI systems, as 
defined in Rule 1000 of Regulation SCI. See Securities Exchange Act 
Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 
2014) (Regulation Systems Compliance and Integrity) (File No. S7-01-
13). Notably, C2 employs business continuity and disaster recovery 
standards reasonably designed to achieve two-hour resumption of all 
trading systems that are essential to conducting business on C2 and 
which C2 believes are reasonably designed to support resumption in a 
significantly shorter amount of time, including, but not limited to 
with respect to those systems that are essential to the trading of 
proprietary products and products exclusively licensed for trading 
on the Exchange.
    \10\ C2 would make these notifications on the Systems 
Notification page on C2's Web site, via an Exchange-used messaging 
service, and/or other reasonable notification mechanisms.
---------------------------------------------------------------------------

    C2 also proposes to add Rule 6.45(c) (Deactivation of Certain 
Systems), which would provide that in the event of a systems disruption 
or malfunction, security intrusion, systems compliance issue, or other 
unusual circumstances, C2 may, in accordance with the Rules or if 
necessary to maintain fair and orderly markets or to protect investors, 
temporarily deactivate certain systems or systems functionalities that 
are not essential to conducting business on C2. Many of the systems and 
systems functionalities described in the Rules are provided optionally 
by C2 to enhance participants' trading experience, but are not required 
to be active under the Rules and are not necessary for C2 to conduct 
business.\11\ As is described in the Rules, many of the C2's systems 
functionalities may be made available (or unavailable) by C2 on a 
class-by-class basis. Such systems and systems functionalities that are 
non-essential to conducting business on C2 include, but are not limited 
to, the Automated Improvement Mechanism (AIM) \12\ and the Solicitation 
Auction Mechanism (SAM).\13\
---------------------------------------------------------------------------

    \11\ See, e.g., Rules 6.10, 6.11, 6.13, 6.14, 6.17, 6.18, 6.51, 
and 6.52.
    \12\ See generally Rule 6.51.
    \13\ See generally Rule 6.52.
---------------------------------------------------------------------------

    In addition, the activation of other functionalities may not be 
described by the Rule, but could be suspended temporarily (e.g., until 
the earlier of the end of a trading session or until systems 
disruptions could be remedied) if disruption or malfunction of that 
functionality were to interfere with the C2's ability to conduct 
business in a fair and orderly manner. For example, if a certain order 
type were to cause a wider system malfunction or a certain complex 
order product could not be created without triggering widespread 
systems issues,\14\ C2 might announce, via its systems status page or 
otherwise, the suspension of the availability of that order type or 
complex product. If such an event impacts a non-essential system or 
system functionality, C2 may deem it necessary to maintain fair and 
orderly markets to deactivate that system or functionality until any 
issues are resolved to prevent any potential harm to investors. 
Proposed Rule 6.45(c) would also provide that C2 would notify market 
participants of any such deactivation, and subsequent reactivation, 
promptly and in a reasonable manner determined by the Exchange. C2 may 
make these notifications on the Systems Notification page on C2's Web 
site, via an Exchange-used messaging service such as SendWordNow,\15\ 
Regulatory Circular, and/or other reasonable notification mechanisms.
---------------------------------------------------------------------------

    \14\ For example, if the creation of a certain complex order 
product (e.g., the October/November calendar spread in class XYZ) 
were to cause significant trading disruptions in an entire class 
(e.g., trading in all of XYZ), C2 might determine to turn off 
calendar spreads or complex orders in general in the class in order 
to help ensure that regular trading (i.e., trading of simple orders) 
in the class remained available.
    \15\ See C2 Regulatory Circular RG15-036 RG (Send Word Now Smart 
Notification Services); see also C2 Regulatory Circular RG15-037.
---------------------------------------------------------------------------

    Finally, C2 proposes Rule 6.45(d) (Connectivity Restriction), which 
would permit C2 to temporarily restrict a Permit Holder's or associated 
person's access to the trading system if it is determined by the 
President (or senior-level designee) of C2, that because of a systems 
issue, such access threatens C2's ability to operate systems essential 
to the maintenance of fair and orderly markets.\16\ Such access would 
remain restricted until the end of the trading session or an earlier 
time if the President (or senior-level designee) of C2, in consultation 
with the affected Permit Holder(s), determines that lifting the 
restriction no longer poses a threat to C2's ability to operate systems 
essential to conducting business or continuing to maintain a fair and 
orderly market on C2 or to investors.\17\ In the current electronic 
trading environment, if a Permit Holder's systems malfunctions or is 
compromised, it could disrupt C2's systems or market or harm other 
investors. For example, software malfunctions may pose a risk to C2's 
systems, investors, and the general public without proper risk 
controls. Proposed Rule 6.45(d) would simply give C2 the authority to 
activate additional risk controls to stem the access of a Permit Holder 
that has experienced a systems disruption or malfunction, which poses 
undue risk to C2.
---------------------------------------------------------------------------

    \16\ In such cases, C2 would make efforts to contact the 
affected Permit Holder immediately before or contemporaneously with 
the restriction of access to the system to the extent possible while 
protecting C2's ability to operate systems essential to the 
maintenance of fair and orderly markets.
    \17\ In determining whether a Permit Holder's access threatens 
C2's ability to operate systems essential to the maintenance of fair 
and orderly markets and/or determining that lifting the restriction 
no longer poses a threat to C2's ability to operate systems 
essential to conducting business or continuing to maintain a fair 
and orderly market on the Exchange or to investors, a designee of 
the President of C2 would only be charged with making such 
determinations in the President of C2's absence. In such cases, the 
designee would be a senior executive (i.e. Vice President or above) 
of C2.
---------------------------------------------------------------------------

2. Statutory Basis
    C2 believes the proposed rule change is consistent with the Act and 
the rules and regulations thereunder applicable to C2 and, in 
particular, the requirements of Section 6(b) of the Act.\18\ 
Specifically, C2 believes the proposed rule change is consistent with 
the Section 6(b)(5) \19\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
C2 believes the proposed rule change is consistent with the Section 
6(b)(5) \20\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote C2's ability to 
ensure the continued operation of a fair and orderly market in the 
event of a systems failure, disaster, or other unusual circumstances 
that might threaten the ability to conduct business on C2. C2 
recognizes that switching operations to the back-up data center may 
occur in times of uncertainty or great volatility in the markets. It is 
at these times that the investors may have the greatest need for 
viable, trustworthy marketplaces. The proposed rule change seeks to 
ensure that such a marketplace will exist when most needed, and thus, 
C2 believes that the proposed rule protects investors in the most 
fundamental sense.

[[Page 46557]]

    In particular, C2 believes that proposed Rule 6.45(b)(iv)(B) 
allowing C2, during the use of the back-up data center to (1) establish 
heightened quoting obligations for Designated BCP/DR Participants in a 
class in which the Designated BCP/DR Participant is already an 
appointed Market-Maker up to the standards specified for DPMs specified 
in Rule 8.17(a) and/or (2) disallow the ability to deselect an 
appointment intraday in a class in which the Designated BCP/DR 
Participant is already an appointed Market-Maker would help ensure the 
maintenance of a fair and orderly market in the event of a disaster, 
which is in the interests of all market participants, investors, and 
the general public. C2 believes that adopting rules that help ensure 
that markets are open and available during times of turmoil and 
emergency is an important goal consistent with the Act. C2 also 
believes that deactivation of certain systems in proposed Rule 6.45(c), 
whether by rule or otherwise, in order to ensure that C2 is able to 
provide a fair and orderly market in the face of systems disruptions 
and malfunction is in the best interests of market participants, 
investors, and the general public.
    Similarly, C2 believes that the proposed connectivity restriction 
in proposed Rule 6.45(d) would help ensure that C2 remains open and 
available to all market participants. C2 notes that other connectivity 
restrictions are already in place on the Exchange.\21\ Furthermore, C2 
believes that proposed Rule 6.45(d) is consistent with Section 6(b)(7) 
\22\ of the Act, which requires C2 to adopt rules that provide a fair 
procedure for the disciplining of members and persons associated with 
members, the denial of membership to any person seeking membership 
therein, the barring of any person from becoming associated with a 
member thereof, and the prohibition or limitation by the exchange of 
any person with respect to access to services offered by the exchange 
or a member thereof. C2 notes that proposed Rule 6.45(d) is not aimed 
at denying access to a particular Permit Holder, but rather making sure 
that C2 remains accessible to all other Permit Holders that do not 
threaten C2's ability to conduct normal business operations. C2 notes 
that as soon as the President of C2 (or designee), working with the 
Permit Holder organization that poses a threat to C2, were able to 
confirm that the Permit Holder organization no longer posed such a 
threat, access to C2 would be restored to that Permit Holder. C2 
believes that this is a fair result and is in the best interests of all 
market participants, investors, and the general public.
---------------------------------------------------------------------------

    \21\ See, e.g., Rules 6.34 (Participant Electronic Connectivity) 
and 6.48 (Technical Disconnect). Under Rule 6.34(b), C2 may limit 
the number of messages sent by Participants accessing C2 
electronically in order to protect the integrity of the System. In 
addition, C2 may impose restrictions on the use of a computer 
connected through an application programming interface (``API'') if 
it believes such restrictions are necessary to ensure the proper 
performance of the system. Any such restrictions shall be 
objectively determined and submitted to the Commission for approval 
pursuant to a rule change filing under Section 19(b) of the Exchange 
Act. Under Rule 6.48(a), when a CBOE Application Server (``CAS'') 
loses communication with a Client Application such that a CAS does 
not receive an appropriate response to a Heartbeat Request within 
``x'' period of time, the Technical Disconnect Mechanism will 
automatically logoff the Permit Holder's affected Client Application 
and automatically cancel all the Permit Holder's Market-Maker 
quotes, if applicable, and open orders with a time-in-force of 
``day'' resting in the Book (``day orders''), if the Permit Holder 
enables that optional service, posted through the affected Client 
Application.
    \22\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    C2 also believes that the proposed rule change promotes just and 
equitable principles of trade by adding detail and clarity to the 
Rules. The proposed rule change seeks to provide additional clarity to 
C2's disaster recovery rules, putting all market participants on notice 
as to how C2 will function in case of significant systems disruption or 
other disaster situation. C2 is continuously updating the Rules to 
provide additional detail, clarity, and transparency regarding its 
operations and trading systems and regulatory authority. C2 believes 
that the adoption of detailed, clear, and transparent rules reduces 
burdens on competition and promotes just and equitable principles of 
trade. C2 also believes that adding greater detail to the Rules 
regarding C2's ability to ensure the continuous operation of the market 
and preserve the ability to conduct business on C2 will increase 
confidence in the markets and encourage wider participation in the 
markets and greater investment.

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. Rather, the proposed rule 
change will help ensure that competitive markets remain operative in 
the event of a systems failure or other disaster event. C2 notes that 
the proposed rule change is designed to provide C2 with authority to 
require market participants to participate in, and provide necessary 
liquidity to, the market to ensure that C2 functions in a fair and 
orderly manner in the event of a significant systems failure, disaster, 
or other unusual circumstances. Accordingly, C2 believes that the 
proposed rule change is designed to ensure fair and competitive markets 
at time when they may be most needed.

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

    C2 neither solicited nor received written comments on the proposed 
rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \23\ and 
Rule 19b-4(f)(6) \24\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-C2-2017-025 on the subject line.

Paper Comments

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


[[Page 46558]]


All submissions should refer to File Number SR-C2-2017-025. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-C2-2017-025, and should be 
submitted on or before October 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21405 Filed 10-4-17; 8:45 am]
 BILLING CODE 8011-01-P