[Federal Register Volume 78, Number 32 (Friday, February 15, 2013)]
[Notices]
[Pages 11252-11255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68897; File No. SR-C2-2013-007]


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

February 11, 2013.
    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 February 1, 2013, 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 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 Fees Schedule. The text of the 
proposed rule change [sic] available on the Exchange's Web site (http://www.c2exchange.com/Legal/), 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 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
    The Exchange proposes to amend its Fees Schedule. First, to 
correspond with other changes to equity options fees that the Exchange 
has proposed to take effect on February 1, 2013,\3\ C2 proposes to 
state that for all complex order transactions in equity options 
classes, all components of such transactions (including simple, non-
complex orders and/or quotes that execute against a complex order) will 
be assessed no fee (or rebate). In SR-C2-2013-004, the Exchange 
proposes to adopt equity options transaction fees that are based, in 
part, on the C2 BBO Market Width. Because it would be difficult to 
determine the C2 BBO Market Width for spread transactions (which 
involve complex orders), the Exchange is still in the process of 
determining how to assess fees for such transactions. As such, C2 
proposes, until making such determination, to assess no fees (or 
rebates) for all complex order transactions. The Exchange does not 
anticipate receiving many complex

[[Page 11253]]

orders in equity options in the near future.
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    \3\ See SR-C2-2013-004, available for viewing at http://www.c2exchange.com/Legal/RuleFilings.aspx.
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    In conjunction with C2's recent adoption of Designated Primary 
Market-Makers (``DPMs'') \4\ for equity options classes, the Exchange 
also proposes to amend its Fees Schedule to exclude Public Customer 
orders (in equity options classes) from the Linkage \5\ Routing Fee of 
$0.50 per routed contract in addition to applicable C2 taker fee. 
Instead, for Public Customer orders in equity options classes, C2 
proposes to pass through the actual transaction fee assessed by the 
exchange(s) to which the order was routed. Other exchanges that use the 
DPM/Specialist model, including Chicago Board Options Exchange, 
Incorporated (``CBOE'') and NYSE MKT LLC (``Amex''), pass through fees 
(with some modifications) for such customer order routing.\6\
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    \4\ See Securities Exchange Act Release No. 68070 (October 18, 
2012), 77 FR 65037 (October 24, 2012) (SR-C2-2012-024).
    \5\ ``Linkage'' is the commonly-used term that refers to the 
Options Order Protection and Locked/Crossed Market Plan.
    \6\ See CBOE Fees Schedule, table on Linkage Fees, and Amex 
Routing Surcharge.
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    The Exchange has determined to increase the quoting bandwidth 
allowance for a Market-Maker Permit in order to provide greater quoting 
capacity for Market-Makers. Currently, such allowance is the equivalent 
to 156,000,000 quotes over the course of a day. This allowance will be 
increased to 195,000,000 quotes over the course of a day.
    Because the registration cost for SPXPM is 1.0, a full Market-Maker 
Trading Permit (cost $5,000 per month) is required for an Exchange 
Trading Permit Holder (``TPH'') to act as a Market-Maker in SPXPM. As 
such, because the Exchange intends to cease the listing and trading of 
SPXPM options following the close of trading on Friday, February 15, 
2013, the Exchange proposes that, for any Market-Maker Permit used in 
February 2013 solely to act as a Market-Maker in SPXPM, C2 will credit 
back to the Market-Maker a pro-rated amount (corresponding to the 
portion of the month during which SPXPM is not listed on C2) of the 
Market-Maker Permit cost.
    The Exchange also proposes to eliminate the distinction between 
Sponsored Users and non-Sponsored Users as they relate to Connectivity 
Charges. Currently, Sponsored Users are charged twice the regular 
monthly fees for such charges, with the types and amounts of such fees 
described in the chart below:

------------------------------------------------------------------------
                                              Regular     Sponsored user
               Description                  monthly fee     monthly fee
------------------------------------------------------------------------
Network Access Port (1 Gbps)............            $500          $1,000
Network Access Port (10 Gbps)...........          $1,000          $2,000
CMI Login ID............................            $500          $1,000
FIX Login ID............................            $500          $1,000
------------------------------------------------------------------------

    Going forward, the Exchange proposes to assess to Sponsored Users 
and all other non-TPHs the same Connectivity Charges as are assessed to 
TPHs, and to state that all such fees apply to non-TPHs as well as 
TPHs. The purpose of the proposed change is to simplify the Exchange's 
fees structure for connectivity to the Exchange and have a standard set 
of connectivity fees that apply to both TPHs and non-TPHs.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\8\ which provides that 
Exchange rules may provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Trading Permit Holders and 
other persons using its facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    Assessing no fees for complex order executions in equity options 
classes is reasonable because market participants will not have to pay 
a fee for such executions. This change is equitable and not unfairly 
discriminatory because it would otherwise be difficult to determine the 
amount of fees for spread transactions (given the Exchange's new manner 
of determining equity options fees), and because all market 
participants will be assessed no fee for such transactions. Further, 
many exchanges (including C2) currently offer different pricing for 
complex orders than for simple orders.\9\
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    \9\ See Amex Fee Schedule and International Securities Exchange, 
LLC (``ISE'') Schedule of Fees, Section II and also C2 Fees 
Schedule, Section 1C.
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    Passing through Linkage Fees for Public Customer orders is 
reasonable because it will merely require Public Customers to pay the 
amount of fees assessed for the execution of their orders on the away 
market(s) on which such orders are executed. This change is equitable 
and not unfairly discriminatory because, while it allows Public 
Customers to avoid the $0.50 per contract fee (in addition to the 
applicable C2 taker fee) that is assessed to other market participants 
for Linkage orders, it may encourage Public Customers to send more 
orders to the Exchange (without worrying about the fees that would be 
incurred if such orders are sent to away markets). Thus, more Public 
Customer orders (some that do get sent to away markets, and some that 
do not) may be sent to the Exchange. This provides greater liquidity, 
which benefits all market participants. Further, there is a history 
within the options marketplace of providing different fee structures 
for Public Customers than for other market participants. Moreover, a 
number of other exchanges, including CBOE and Amex, pass through 
Linkage fees to Public Customers and assess different Linkage fees to 
Public Customers than to other market participants (indeed, C2's 
proposed pass-through of Public Customer Linkage Fees is favorable to 
that on Amex, which passes through the fee and adds an $0.11 per 
contract surcharge).\10\
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    \10\ See CBOE Fees Schedule, table on Linkage Fees, and Amex 
Routing Surcharge.
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    Increasing the quoting bandwidth allowance is reasonable because it 
will allow Market-Makers to quote more. This increase is equitable and 
not unfairly discriminatory because it will apply to all Market-Maker 
Permits. Further, the increase in quoting bandwidth allowance will 
allow Market-Makers to quote more, which will provide more trading 
opportunity for all market participants.
    Crediting back to a Market-Maker the pro-rated amount of the 
Market-Maker Permit fee for a Market-Maker Permit that is used solely 
for a TPH to act as

[[Page 11254]]

a Market-Maker in SPXPM during February 2013 is reasonable because 
SPXPM will only be listed and traded during a portion of the month of 
February 2013, so it makes sense to only assess the Market-Maker Permit 
fee for that portion of the month. This is equitable and not unfairly 
discriminatory because it will apply to all Market-Maker Permits that 
are used solely for a TPH to act as a Market-Maker in SPXPM during 
February 2013.
    Eliminating, for the purpose of Connectivity Charges, the 
distinction between Sponsored Users and stating that these fees apply 
to both TPHs and non-TPHs is reasonable because it will allow Sponsored 
Users and other non-TPHs to pay half the amount that Sponsored Users 
are currently assessed for such fees and ensure that TPHs and non-TPHs 
pay the same amounts in connectivity fees. The proposed change is 
equitable and not unfairly discriminatory because it will allow 
Sponsored Users and non-TPHs to be assessed the same amounts as TPHs.

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.
    C2 believes that assessing no fee for all complex order 
transactions in equity options classes will not impose any burden on 
intramarket competition because all market participants will be 
assessed no fee for such transactions. C2 believes that this will not 
impose a burden on intermarket competition, but to the extent that not 
assessing transaction fees on all complex order transactions in equity 
options classes may attract market participants on other exchanges to 
C2, such market participants can always elect to become C2 market 
participants.
    The Exchange believes that passing through an away market's 
transaction fees for Public Customer orders sent to such away market(s) 
will not impose an unfair burden on intramarket competition because, 
while it allows Public Customers to avoid the $0.50 per contract fee 
(in addition to the applicable C2 taker fee) that is assessed to other 
market participants for Linkage orders, it may encourage Public 
Customers to send more orders to the Exchange (without worrying about 
the fees that would be incurred if such orders are sent to away 
markets). Thus, more Public Customer orders (some that do get sent to 
away markets, and some that do not) may be sent to the Exchange. This 
provides greater liquidity, which benefits all market participants. 
Further, there is a history within the options marketplace of providing 
different fee structures for Public Customers than for other market 
participants. The Exchange believes that this will not impose an unfair 
burden on intermarket competition because a number of other exchanges, 
including CBOE and Amex, pass through Linkage fees to Public Customers 
and assess different Linkage fees to Public Customers than to other 
market participants (indeed, C2's proposed pass-through of Public 
Customer Linkage Fees is favorable to that on Amex, which passes 
through the fee and adds an $0.11 per contract surcharge).\11\ To the 
extent that this pass-through may be attractive to Public Customers to 
send orders to C2 instead of other markets, such Public Customers may 
elect to do so.
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    \11\ See CBOE Fees Schedule, table on Linkage Fees, and Amex 
Routing Surcharge.
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    The Exchange does not believe that increasing the quoting bandwidth 
allowance for Market-Maker Permits will cause an unfair burden on 
intramarket competition because this increase applies to only, and all, 
C2 Market-Makers (just as does the current lower quoting bandwidth 
allowance). Further, the increase in quoting bandwidth allowance will 
allow Market-Makers to quote more, which will provide more trading 
opportunity for all market participants. The Exchange does not believe 
that this increase will cause an unfair burden on intermarket 
competition because, to the extent that this increased quoting 
bandwidth allowance may be attractive to Market-Makers at other 
exchanges, such Market-Makers may register as Market-Makers on C2.
    The Exchange does not believe that crediting back to a Market-Maker 
the pro-rated amount of the Market-Maker Permit fee for a Market-Maker 
Permit that is used solely for a TPH to act as a Market-Maker in SPXPM 
during February 2013 will cause an unfair burden on intramarket 
competition because it only applies to Market-Makers using a Market-
Maker Permit solely to act as a Market-Maker in SPXPM, which is the 
only options class with a full 1.0 registration cost that the Exchange 
intends to cease listing and trading in the middle of February 2013. 
The Exchange does not believe that this will cause an unfair burden on 
intermarket competition because SPXPM is only traded on C2.
    The Exchange believes that eliminating, for the purpose of 
Connectivity Charges, the distinction between Sponsored Users and 
stating that these fees apply to both TPHs and non-TPHs will relieve 
any possible burden on intramarket competition because it will ensure 
that TPHs and non-TPHs will be paying the same fee amounts. The 
Exchange believes that the proposed change will not impose any burden 
on intermarket competition, or have an impact on intermarket 
competition, because the proposed changes apply merely to connections 
to C2, and each exchange has different manners and structures for 
connectivity. Further, to the extent that the elimination of separate 
higher fees for Sponsored Users and the statement that the regular fees 
apply to both TPHs and non-TPHs could attract market participants 
connecting to other exchanges to connect to C2, market participants 
trading on other exchanges can always elect to do so.
    The Exchange also notes that it operates in a highly-competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive. The proposed rule change reflects a competitive pricing 
structure designed to incent market participants to direct their order 
flow to the Exchange, and the Exchange believes that such structure 
will help the Exchange remain competitive with those fees and rebates 
assessed by other venues.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and paragraph (f) of Rule 19b-4 \13\ 
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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 11255]]

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-C2-2013-007 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-C2-2013-007. 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 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-C2-2013-007, and should be 
submitted on or before March 8, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03569 Filed 2-14-13; 8:45 am]
BILLING CODE 8011-01-P