[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Notices]
[Pages 43956-43958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17470]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69991; File No. SR-C2-2013-026]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to PULSe Workstation Functionality

July 16, 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 July 9, 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 Substance 
of the Proposed Rule Change

    C2 proposes to expand on the Exchange's past description of the 
routing functionality made available through the PULSe workstation. No 
changes to Exchange rule text are being proposed.

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 purpose of this proposed rule change is to expand on the 
Exchange's past description of the routing functionality made available 
through the PULSe workstation and to explain some new functionality. No 
changes to Exchange rule text are being proposed.
Background
    By way of background, the PULSe workstation is a front-end order 
entry system designed for use with respect to orders that may be sent 
to the trading systems of C2. In addition, the PULSe workstation 
provides a user with the capability to send options orders to other 
U.S. options exchanges and/or stock orders to other U.S. stock 
exchanges and trading centers \3\ (``away-market routing'').\4\ To use 
the away-market routing functionality, a C2 Trading Permit Holder 
(``TPH'') must either be a PULSe Routing Intermediary or establish a 
relationship with a third party PULSe Routing Intermediary. A ``PULSe 
Routing Intermediary'' is a C2 TPH that has connectivity to, and is a 
member of, other options and/or stock exchanges and other trading 
centers. If a TPH sends an order from the PULSe workstation, the PULSe 
Routing Intermediary will route that order to the designated market on 
behalf of the entering TPH. Among other things, the PULSe workstation 
also causes C2 and/or the Chicago Board Options Exchange, Incorporated 
(``CBOE'') to be the default destination exchange(s) for individually 
executed marketable option orders if C2 and/or CBOE is at the national 
best bid or offer (``NBBO''), regardless of size or time, but allows 
any user to manually override C2 and/or CBOE as the default destination 
on an order-by-order basis (the ``default destination function'').\5\ 
Similarly, the PULSe workstation may also be configured by the Exchange 
to cause the CBOE Stock Exchange, LLC

[[Page 43957]]

(``CBSX'') to be the default designation exchange for individually 
executed marketable stock orders if CBSX is at the NBBO, regardless of 
size or time, but will allow the user to manually override CBSX as the 
default destination on an order-by-order basis. Under the current Fees 
Schedule, the Exchange assesses, in relevant part: \6\
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    \3\ A ``trading center,'' as provided under Rule 600(b)(78) of 
Regulation NMS, 17 CFR 242.600(b)(78), means a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.
    \4\ For a more detailed description of the PULSe workstation and 
its other functionalities, see, e.g., Securities Exchange Act 
Release Nos. 63246 (November 4, 2010) 75 FR 69478 (November 12, 
2010) (SR-C2-2010-007), 65279 (September 7, 2011), 76 FR 56824 
(September 14, 2011) (SR-C2-2011-020), and 65482 (October 4, 2011), 
76 FR 62879 (October 11, 2011) (SR-C2-2011-028).
    \5\ Nothing about the PULSe order routing functionality would 
relieve any TPH that is using the PULSe workstation from complying 
with its best execution obligations. Specifically, just as with any 
customer order and any other routing functionality, a TPH would have 
an obligation to consider the availability of price improvement at 
various markets and whether routing a customer order through the 
PULSe functionality would allow for access to opportunities for 
price improvement if readily available. Moreover, a TPH would need 
to conduct best execution evaluations on a regular basis, at a 
minimum quarterly, that would include its use of the PULSe 
workstation.
    \6\ For a complete listing of PULSe workstation-related fees, 
please refer to the C2 Fees Schedule.
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     an Away-Market Routing fee to the entering TPH of $0.02 
per executed options contract (or equivalent share amount in the case 
of stock) for away-market routing of orders through the PULSe 
workstation;
     an Away-Market Routing Intermediary fee to a Routing 
Intermediary for utilizing the PULSe away-market routing technology of 
$0.02 per executed contract or share equivalent for the first 1 million 
contracts or share equivalent executed in a given month, and $0.03 per 
contract or share equivalent for each additional contract or share 
equivalent executed in the same month; \7\ and
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    \7\ This fee is assessed to Routing Intermediaries whether the 
Routing Intermediary is routing orders on behalf of itself as a TPH 
or as a third party Routing Intermediary for other TPHs. The fee is 
only applicable for away-market routing from any PULSe workstation. 
The fee rates are determined based on the aggregate level of 
transactions across all away-markets and across all PULSe 
workstations for which firm serves as the Routing Intermediary.
    The Exchange notes that the Away-Market Routing Intermediary fee 
is not applicable for routes to CBOE or CBSX to the extent that the 
C2 TPH submitting the order to C2 is also a CBOE TPH or a CBSX TPH. 
By way of background, the PULSe workstation offers the ability to 
route orders to any market, including C2 affiliates CBOE and CBSX. 
To the extent a C2 TPH that is also a CBOE/CBSX TPH obtains a PULSe 
workstation through C2, it is not necessary for that TPH to obtain a 
separate PULSe workstation through CBOE or CBSX to route orders to 
CBOE or CBSX, as applicable. It is also not necessary for that TPH 
to utilize the services of a Routing Intermediary to route orders to 
CBOE or CBSX, as applicable. As such, to the extent a C2 TPH is also 
a CBOE TPH or a CBSX TPH, a Routing Intermediary fee would not be 
applicable because the fee is only applicable for away-market 
routing through a Routing Intermediary. The TPH would not be routing 
away through a Routing Intermediary, but instead would be submitting 
orders directly to CBOE as a CBOE TPH, CBSX as a CBSX TPH or C2 as a 
C2 TPH, as applicable, where the TPH's activity would be subject to 
the transaction fee schedule of CBOE, CBSX or C2, respectively. To 
the extent a C2 TPH is not a CBOE TPH or CBSX TPH and utilizes the 
services of a third party Routing Intermediary to route orders to 
CBOE or CBSX, as applicable, the Routing Intermediary would be 
subject to the fee for the C2 TPH's executions on CBOE or CBSX, as 
applicable.
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     a C2 Routing fee to a TPH that makes the PULSe workstation 
available to non-TPHs. This fee is only applicable for routing to C2 
from such non-TPH PULSe workstations. The fee is $0.02 per contract or 
share equivalent for the first 1 million contracts or share equivalent 
executed in a month on C2 that originate from the non-TPH PULSe 
workstations made available by the TPH, and $0.03 per contract or share 
equivalent for each additional contract or share equivalent executed on 
C2 in the same month from the non-TPH PULSe workstations made available 
by the TPH.\8\
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    \8\ The Exchange notes that CBOE has a similar ``CBOE/CBSX 
Routing'' fee in the CBOE Fees Schedule that is applicable to CBOE 
TPHs and CBSX TPHs. To the extent that a C2 TPH making the non-TPH 
PULSe workstations available is not also a CBOE TPH or a CBSX TPH, 
routing from the non-TPH workstations to CBOE or CBSX is not 
considered ``CBOE/CBSX Routing'', and, therefore, is not subject to 
those fees (it would instead be considered ``away-market routing'' 
and subject to the Away-Market Routing and Away-Market Routing 
Intermediary fees described above). To the extent that a C2 TPH 
making the non-TPH PULSe workstations available is also a CBOE TPH 
or CBSX TPH, routing from the non-TPH workstations to CBOE or CBSX 
is considered ``CBOE/CBSX Routing,'' and therefore is subject to 
that fee.
    Example 1: Assume a C2 TPH that is not a CBOE TPH makes a PULSe 
workstation available to Non-TPH User A. To the extent that orders 
originating from Non-TPH User A's PULSe workstation are routed to 
C2, any resulting executions would be subject to the C2 Routing fee. 
To the extent that orders originating from Non-TPH User A's PULSe 
workstation are routed to CBOE, any resulting executions would be 
considered away-market routing and subject to the Away-Market 
Routing and Routing Intermediary fees (and not subject to the CBOE/
CBSX Routing fee).
    Example 2: Assume a C2 TPH that is also a CBOE TPH makes a PULSe 
workstation available to Non-TPH User A. To the extent that orders 
originating from Non-TPH User A's PULSe workstation are routed to 
C2, any resulting executions would be subject to the C2 Routing fee. 
To the extent that orders originating from Non-TPH User A's PULSe 
workstation are routed to CBOE, any resulting executions would be 
subject to the CBOE/CBSX Routing fee. (Given the C2 TPH's status as 
a CBOE TPH, such orders are not considered away-market routing and 
therefore are not subject to the Away-Market Routing and Routing 
Intermediary fees.)
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Proposal
    The Exchange is proposing to expand on its past description of the 
PULSe workstation routing functionality in various respects. First, 
with respect to the default destination function, the Exchange proposes 
to revise its past description of the function to note that, when the 
Exchange has finished building the functionality, besides allowing a 
user to manually override C2 and/or CBOE (CBSX) as the default 
destination exchange(s) (trading center) for individually executed 
marketable option (stock) orders if C2 and/or CBOE (CBSX) is at the 
NBBO on an order-by-order basis, users will be able to change the 
default destination setting to any other options exchange on a global 
basis (e.g., rather than defaulting to C2 or CBOE, a user could select 
another options exchange as the default exchange and a user will be 
able to determine to manually override that exchange as the default 
destination on an order-by-order basis). The Exchange notes that having 
the ability to change the default destination market will have no 
impact on the application of the current PULSe workstation-related 
fees.
    Second, the Exchange proposes to expand on its past description of 
a PULSe Routing Intermediary. The Exchange notes that, currently, TPHs 
may determine to utilize a Routing Intermediary that employs ``smart 
router'' functionality which, generally, is functionality that 
determines where to route an order based on pre-set algorithmic logic. 
Thus, in addition to a user having the ability to designate a 
destination market to which to a Routing Intermediary is to route an 
order received from a PULSe workstation, a user may direct a Routing 
Intermediary to use its smart router functionality to determine the 
destination options exchange(s) (trading center(s)) on the TPH's 
behalf. The Exchange further notes that users currently have the 
flexibility to determine when to route orders from PULSe to a Routing 
Intermediary's smart router, e.g., the determination could be made by 
default, on an order-by-order basis, etc. When it comes to the default 
destination function (described above), rather than defaulting to 
another options exchange (trading center) for individually executed 
marketable option (stock) orders if the default market is at the NBBO, 
a user will have the flexibility to instead to utilize a Routing 
Intermediary's smart router functionality as a default for determining 
where to route such orders on a global basis or as a manual override on 
an order-by-order basis if some other destination is configured for the 
default destination function. The Exchange notes that having the 
ability to route orders through a smart router will have no impact on 
the application of the current PULSe workstation-related fees.
    Finally, the third purpose of this proposed rule change is to 
expand on our past description of the PULSe workstation routing 
functionality to note that users will also have the capability to send 
orders between PULSe workstations. For example, a user will be able to 
send an order from a PULSe workstation located in New York to a PULSe 
workstation located in Chicago. The ability to send orders ``PULSe-to-
PULSe'' will be available for use within a TPH (and any Non-TPHs to 
whom the TPH makes the PULSe workstation available) and between TPHs 
that use the PULSe workstation. A TPH may establish a PULSe-to-PULSe 
connection with another TPH by contacting C2, who will permission the 
connection. Before setting up the

[[Page 43958]]

connection, both TPHs would need to acknowledge in writing (e.g., 
including via email) their agreement to establish the mutual 
connection. The Exchanges notes that there are no fees applicable to 
the sending of orders from one PULSe workstation to another. The 
Exchange also notes that the Away-Market Routing, Away-Market Routing 
Intermediary and C2 Routing fees (described above) apply to the TPH 
associated with the PULSe workstation that ultimately routes an order 
for execution.
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.\9\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ 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 
facilitation 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. 
Expanding on the Exchange's past description of the routing 
functionality made available through the PULSe workstation (for which 
the Exchange assesses Away-Market Routing, Away-Market Routing 
Intermediary, and C2 Routing fees) provides more information to the 
public about such functionality and confirmation of the application of 
applicable fees, and the availability of such information helps to 
perfect the mechanism of a free and open market and a national market 
system. Further, permitting PULSe workstation users to set their own 
default destinations, use smart router as a default, and send orders 
between PULSe workstations provides such users with more freedom in 
their uses of the PULSe workstations, which perfects the mechanism of a 
free and open market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    C2 does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the features and functionalities described 
in this expanded description apply to all PULSe workstation users. The 
Exchange does not believe that the proposed rule change will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed rule 
change does not make any changes to Exchange rules or the Exchange Fees 
Schedule, but merely expands on the Exchange's past description of the 
routing functionality made available through the PULSe workstation and 
confirms the application of applicable fees. To the extent the features 
and functionalities described in this expanded description of PULSe 
workstations make C2 a more attractive marketplace for market 
participants at other exchanges, such market participants may elect to 
become C2 market participants.

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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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, 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-C2-2013-026 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-C2-2013-026. 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 publicly available. All 
submissions should refer to File Number SR-C2-2013-026 and should be 
submitted on or before August 12, 2013.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17470 Filed 7-19-13; 8:45 am]
BILLING CODE 8011-01-P