[Federal Register Volume 77, Number 33 (Friday, February 17, 2012)]
[Notices]
[Pages 9717-9719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3736]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66384; File No. SR-C2-2012-006]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing of a Proposed Rule Change Relating to Its Automated 
Improvement Mechanism

February 13, 2012.
    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 January 31, 2012, C2 Options Exchange, Incorporated (the 
``Exchange'' or ``C2'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its rules relating to its Automated 
Improvement Mechanism (``AIM''). 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's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 self-regulatory organization 
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
    The purpose of this proposed rule change is to amend C2 Rule 6.51 
to permit an Initiating Participant to elect to have last priority in 
AIM's order allocation. AIM allows a Participant to submit an Agency 
Order along with a contra-side second order (a principal order or a 
solicited order for the same size as the Agency Order) into an Auction 
where other participants could compete with the Initiating 
Participant's second order to execute against the Agency Order, which 
guarantees that the Agency Order will receive an execution.\3\ 
Initiating Participants must submit the Agency Order at the better of 
the NBBO or the Agency Order's limit price (if the order is a limit 
order).\4\ Once an Auction commences, the Initiating Participant cannot 
cancel it.\5\ Upon receipt of an Agency Order (and the Initiating 
Participant's second order), the Exchange will commence the Auction by 
issuing a Request For Response (``RFR'') detailing the side and size of 
the Agency Order. The RFR period will last for one (1) second.\6\ At 
the conclusion of an Auction, an Agency Order will be allocated at the 
best price(s) in accordance with the applicable matching algorithm 
rules for that class, subject to the allocation provisions of Rule 
6.51(b)(3).
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    \3\ See C2 Rule 6.51.
    \4\ See C2 Rule 6.51(a)(2). The Commission notes that if the 
Agency Order is for less than 50 contracts, the Initiating 
Participant must submit the Agency Order at the better of the NBBO 
price improved by one minimum price improvement increment, which 
increment shall be determined by the Exchange but may not be smaller 
than one cent; or the Agency Order's limit price (if the order is a 
limit order). See C2 Rule 6.51(a)(3).
    \5\ See C2 Rule 6.51(b)(1)(A).
    \6\ See C2 Rule 6.51(b)(1). Several types of events will cause 
an Auction to conclude. See C2 Rule 6.51(b)(2).
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    Under this proposal, when submitting an Agency Order to initiate an 
Auction against a single-price submission, the Initiating Participant 
will have the opportunity to elect to have last priority in AIM's order 
allocation. If the Initiating Participant makes this election, the 
Initiating Participant would be allocated only the amount of contracts 
remaining, if any, after the Agency Order is allocated to all other 
Auction participants willing to trade with the Agency Order at the 
single-price submission price.\7\ If it makes this election, the 
Initiating Participant may not be allocated any contracts, or may be 
allocated fewer contracts than it

[[Page 9718]]

would otherwise receive pursuant to Rule 6.51(b)(3)(F) (generally 40%).
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    \7\ The Exchange notes that Chapter V, Section 18(f)(v), The 
Price Improvement Period (``PIP''), of the Rules of the Boston 
Exchange Group, LLC includes a similar provision that permits an 
options participant initiating a PIP auction to designate a lower 
amount for which it will retain certain priority and trade 
allocation privileges upon the conclusion of the PIP auction than 
the 40% of the PIP order to which the initiating options participant 
is otherwise entitled pursuant to PIP's allocation order.
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    As an example, suppose an Initiating Participant submits to an 
Auction an Agency Order for 1,000 contracts and makes the election 
described above:
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 800 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating Participant will be allocated the 
remaining 200 contracts (or 20%) for execution against its contra-side 
order at its specified single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 600 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating Participant will be allocated the 
remaining 400 contracts (or 40%) for execution against its contra-side 
order at its specified single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with 400 of these contracts at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating Participant will be allocated 600 
contracts for execution against its contra-side order at its specified 
single price.
     If at the conclusion of the Auction, other Auction 
participants are willing to trade with the entire Agency Order at the 
single-price submission price or better price(s) resulting from the 
Auction, then the Initiating Participant will be allocated no 
contracts.
    Under this proposal, Agency Orders submitted to AIM will continue 
to be guaranteed execution at a price at least as good as the NBBO 
while providing the opportunity for execution at a price better than 
the NBBO.
    The Exchange believes this proposal will incent more Participants 
to initiate Auctions, because the additional flexibility encourages 
increased participation by Participants willing to trade with Agency 
Orders at the NBBO but not at a price better than the NBBO and by 
Participants willing to facilitate and stop a customer order at a 
particular price even when there is not a desire to trade against any 
or all of the customer order. Additionally, this proposal provides the 
possibility that other Participants may receive increased order 
allocations through AIM, which the Exchange believes could increase 
participation in Auctions. The Exchange believes that this proposal may 
ultimately provide additional opportunities for price improvement over 
the NBBO for its customers.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of the Securities Exchange Act of 1934 (the ``Act'') 
and the rules and regulations thereunder applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Act \8\. Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \9\ requirements 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes this proposed rule change is a 
reasonable modification designed to provide additional flexibility for 
Participants to obtain executions on behalf of their customers while 
continuing to provide meaningful, competitive Auctions. The Exchange 
also believes that the proposed rule change will increase the number of 
and participation in Auctions, which will ultimately enhance 
competition in the AIM Auctions and provide customers with additional 
opportunities for price improvement.

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 not necessary or appropriate in furtherance of 
the 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(A) By order approve or disapprove such proposed rule change, or (B) 
institute proceedings to determine whether the proposed rule change 
should be 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 [email protected]. Please include 
File Number SR-C2-2012-006 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-C2-2012-006. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal office of the Exchange. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-C2-2012-006, and should be submitted on 
or before March 9, 2012.


[[Page 9719]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3736 Filed 2-16-12; 8:45 am]
BILLING CODE 8011-01-P