[Federal Register Volume 76, Number 195 (Friday, October 7, 2011)]
[Notices]
[Pages 62491-62494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25960]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65471; File No. SR-C2-2011-026]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the C2 Fees Schedule

October 3, 2011.
    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 September 28, C2 Options Exchange, Incorporated (the 
``Exchange'' or ``C2'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Exchange has designated this proposal as one establishing 
or changing a due, fee, or other charge imposed by the Exchange under 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend its Fees Schedule as it relates 
to the SPXPM. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.c2exchange.com), at the Exchange's 
Office of the Secretary and at the Commission.

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

[[Page 62492]]

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
    On September 2, 2011, the Commission approved a proposed rule 
change filed by the Exchange to permit on a pilot basis the listing and 
trading on C2 of Standard & Poor's 500 Index (``S&P 500'') options with 
third-Friday-of-the-month (``Expiration Friday'') expiration dates for 
which the exercise settlement value will be based on the index value 
derived from the closing prices of component securities (``SPXPM'').\5\ 
The Exchange now proposes to adopt fees associated with the anticipated 
trading of SPXPM.
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    \5\ See Securities Exchange Act Release No. 34-65256 (September 
2, 2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008).
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    The Exchange proposes adopting standard transaction fees for SPXPM 
that are comparable to, if not effectively lower than, similar products 
available in the marketplace. The specific transaction fees proposed 
are as follows: Public customer transactions would be charged $0.44 per 
contract; voluntary professional, professional customer, and broker-
dealer transactions would be charged $0.40 per contract; \6\ OCC 
Clearing Trading Permit Holder Firm (``Firm'') proprietary transactions 
would be charged $0.25 per contract; and C2 Market-Maker transactions 
would be charged $0.17 per contract. These fee rates are comparable to 
rates in place on the Chicago Board Options Exchange, Incorporated 
(``CBOE'') for executions in SPX (the a.m.-settled S&P 500 index 
options contract). Further, the Exchange notes that because the 
contract size of SPXPM is ten times larger than the contract size of 
SPY ETF options (options on exchange traded funds based on the S&P 500 
index), transaction fees for SPXPM provide significant cost savings to 
investors when compared to SPY options where taker fees in the smaller 
SPY option contract can run as high as $0.45 per contract for customers 
(see NYSE Arca options fee schedule).
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    \6\ ``Professional'' and ``Voluntary Professional'' participant-
types are defined in C2 Rule 1.1.
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    Like with SPX traded on CBOE, a customer large trade discount would 
also apply to SPXPM traded on C2. Thus, transaction fees applicable to 
a customer order in SPXPM would be capped at 10,000 contracts per order 
(this cap only applies to public customer orders). For complex orders, 
the total contracts of an order (all legs) would be counted for 
purposes of calculating the fee cap. To qualify for the discount, the 
entire order quantity would need to be tied to a single order ID within 
the CBOEdirect \7\ system or in the front end system used to transmit 
the order, provided the Exchange is granted access to effectively audit 
such front end system. Thus, the order would need to be entered in its 
entirety into the Exchange's system or into the applicable front end 
system so that the Exchange could clearly identify the total size of 
the order. For an order entered via a PULSe Workstation \8\ or another 
front end system, to take advantage of the cap, a customer large trade 
discount request would need to be submitted to the Exchange within 
three business days of the transaction and would need to identify all 
necessary information, including the order ID and related details. The 
Exchange is requiring supporting information in order to ensure that 
the originating order was indeed for a size greater than 10,000 
contracts.
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    \7\ CBOEdirect is the technology platform that drives the C2 
trade engine.
    \8\ The PULSe Workstation is the exchange-provided front-end 
order entry system.
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    An aim of the customer large trade discount is to help attract 
customer users from the over-the-counter (OTC) market. The Exchange 
believes OTC S&P 500 transactions are typically large in size. 
Establishing the proposed cap at 10,000 contracts is the Exchange's 
attempt at further creating an appealing alternative for OTC users as 
well as other public customer users who effect large trades in 
exchange-listed S&P 500 derivatives.
    The Exchange also proposes to adopt a $0.10 per contract index 
license surcharge fee for executions in SPXPM in order to offset costs 
incurred by the Exchange in connection with its license with Standard 
and Poors. It is not uncommon for exchanges to license indexes from 
third parties for use in connection with derivative products (including 
exchange traded funds). An index license surcharge fee in a product 
helps offset the costs associated with the license. This fee would 
apply to all non-public customer transactions (i.e., C2 and non-Permit 
Holder market-maker, Clearing Participant and broker-dealer), including 
voluntary professionals. The proposed fee is the same as the index 
license surcharge fee in place at CBOE with respect to executions in 
SPX. Not applying the fee to public customer executions helps lower 
costs associated with public customer transactions. This is appropriate 
because not assessing the licensing surcharge fee to public customers 
offsets the higher transaction rates applicable to public customer 
executions. Additionally, the Exchange believes that waiver of the 
license surcharge fee will also help attract customer users from the 
OTC market.
    With regard to the proposed transaction fees, the Exchange notes 
that while it appears that public customer transactions are charged a 
higher rate than all other user types, because the index license 
surcharge fee would not be applied to public customer executions, 
public customers would actually be charged a lower total amount per 
contract than all other origin codes except the C2 Market-Maker and OCC 
Clearing TPH Proprietary (Firm) categories. Further, as mentioned 
above, only public customers would be eligible for the large trade 
discount. A lower transaction fee for C2 Market-Makers rewards 
dedicated liquidity provision and is consistent with index fee 
structures in place on other exchanges (e.g. on CBOE). A lower 
execution fee for C2 Market-Makers is justified and not unfairly 
discriminatory because C2 Market-Makers have obligations to the market 
that other market participants do not, and those obligations act to the 
benefit of all participants and to overall market quality on C2. The 
Exchange believes it is not unfairly discriminatory to reward C2 
Market-Makers with lower transaction fees in recognition of their 
obligations.
    The proposed Firm rate generally corresponds to a comparable fee in 
place at CBOE. The Exchange believes the proposed Firm rate is 
appropriate because it provides an incentive for OCC Clearing Trading 
Permit Holders to contribute capital to facilitate execution of 
customer orders, which in turn provides a deeper pool of liquidity on 
C2 which benefits the C2 market and its participants.
    The Exchange also proposes to adopt a new SPXPM Tier Appointment 
fee for Market-Maker Permit Holders that obtain an appointment in 
SPXPM. In addition to the current Market-Maker Permit access fee of 
$5,000, a SPXPM Tier Appointment of $4,000 would also be charged to any 
Market-Maker Permit holder that has an appointment (registration) in 
SPXPM at any time during a calendar month. The Exchange notes that, 
when combined, the $5,000 permit fee and $4,000 SPXPM Tier Appointment 
fees are comparable to the total Market Maker permit fee and SPX Tier 
Appointment costs on CBOE

[[Page 62493]]

(generally $6,000 and $3,000). The SPXPM Tier Appointment fee would be 
waived through November 2011. Even though it will be waived through 
November 2011, establishing the fee prior to the launch of SPXPM will 
provide an incentive for market making firms to seek an SPXPM market-
making permit while also alerting prospective Market-Makers that a 
SPXPM Tier Appointment fee will be charged in the future.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Securities Exchange Act of 1934 
(``Act''),\9\ in general, and furthers the objectives of Section 
6(b)(4) \10\ of the Act in particular, in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among C2 Permit Holders and other persons using Exchange 
facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is equitable to assess fees for 
transactions in P.M.-settled S&P 500 Index Options, just as the 
Exchange assesses fees for transactions in other option classes. The 
Exchange also believes it is reasonable to charge different fee amounts 
to different user types in the manner proposed because the proposed 
fees are consistent with the price differentiation that exists today at 
other options exchanges (for example, the proposed fees are comparable 
with fees for other index option products traded on CBOE -including 
index options on the S&P 500 index). Additionally, the Exchange 
believes that the establishment of a $0.17 per contract execution fee 
for C2 Market-Makers (as previously noted, an additional $0.10 per 
contract licensing surcharge fee would also be applied to each C2 
Market-Maker execution) is equitable and not unfairly discriminatory 
because C2 Market-Makers have obligations to the market that other 
market participants do not, and those obligations act to the benefit of 
all participants and to overall market quality on C2. Thus, the 
establishment of the proposed lower transaction fee for C2 Market-
Makers rewards dedicated liquidity provision that is important to the 
C2 marketplace. Similarly, the establishment of a $0.25 per contract 
execution fee for OCC Clearing TPH Proprietary users (as previously 
noted, an additional $0.10 per contract licensing surcharge fee would 
also be applied to each OCC Clearing TPH Proprietary execution) is 
reasonable because it corresponds to a comparable fee in place at CBOE 
for executions in SPX. The Exchange further believes that the proposed 
OCC Clearing TPH Proprietary rate is equitable and not unfairly 
discriminatory because OCC Clearing Trading Permit Holders contribute 
significant capital to facilitate execution of customer orders, which 
in turn provides a deeper pool of liquidity on C2 that benefits the C2 
market and its participants. The Exchange also believes the proposed 
transaction fees are reasonable and equitable because the proposed 
transaction fees for SPXPM would provide significant cost savings to 
investors when compared to SPY options where taker fees in the smaller 
SPY contract can run as high as $0.45 per contract for customers (see 
NYSE Arca options fee schedule). The customer large trade discount 
program is reasonable because it is substantially similar to a program 
in place on CBOE and the program will help attract business from the 
OTC market to the listed exchange marketplace, consistent with the 
objectives of the Dodd-Frank legislation. It is not unfairly 
discriminatory because it benefits the public customer participant type 
which already incurs the highest transaction fee rate.
    The proposed index license surcharge fee is reasonable and 
equitable because it corresponds to an identical fee in place on CBOE 
for executions in SPX and because it helps the Exchange offset costs 
incurred by the Exchange in connection with its license with Standard 
and Poors. Further, the proposed index license surcharge fee is not 
unfairly discriminatory because it applies evenly to all market 
participants except public customers and not assessing the license 
surcharge fee to public customers is appropriate because of the higher 
transaction rates applicable to public customer executions.
    The proposed SPXPM Tier Appointment cost is reasonable, equitable 
and not unfairly discriminatory because it applies to all C2 SPXPM 
Market-Makers equally and because it, when combined with the C2 Market-
Maker Permit fee, costs the same as the total cost of CBOE's Market-
Maker Permit fee plus CBOE's Tier Appointment fee for SPX.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The proposed rule change is designated by the Exchange as 
establishing or changing a due, fee, or other charge, thereby 
qualifying for effectiveness on filing pursuant to Section 
19(b)(3)(A)(ii) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4 
\12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 e-mail to [email protected]. Please include 
File Number SR-C2-2011-026 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2011-026. This file 
number should be included on the subject line if e-mail 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

[[Page 62494]]

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 on official business days 
between the hours of 10 a.m. and 3 p.m. Copies of such filing also will 
be available for inspection and copying at the principal offices 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-
2011-026, and should be submitted on or before October 28, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25960 Filed 10-6-11; 8:45 am]
BILLING CODE 8011-01-P