[Federal Register Volume 78, Number 164 (Friday, August 23, 2013)]
[Notices]
[Pages 52591-52594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20570]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70229; File No. SR-C2-2013-031]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Change the Expiration Date for Most Options Contracts to the Third 
Friday of the Expiration Month Instead of the Saturday Following the 
Third Friday

August 19, 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 August 13, 2013, C2 Options Exchange, Incorporated 
(``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 self-
regulatory organization. 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

    The Exchange proposes to amend Exchange rules to change the 
expiration date for most option contracts to the third Friday of the 
expiration month instead of the Saturday following the third Friday. 
The text of the proposed rule change is available on the Exchange's Web 
site (http://www.c2exchange.com/Legal/), 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 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 Commission recently approved The Options Clearing Corporation 
(``OCC'') proposal to change the expiration date for most standard 
options contracts from Saturday to Friday.\3\ Subsequently, the Chicago 
Board Options Exchange, Incorporated (``CBOE'') filed an immediately 
effective rule change to conform its rules to the recently approved OCC 
rule.\4\ With this filing, C2 is proposing to adopt the same changes as 
the CBOE filing that are not inherently adopted in C2 Rules as more 
fully explained below.\5\
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    \3\ See Securities Exchange Act Release No. 69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013) (order approving SR-OCC-2013-
004).
    \4\ See Securities Exchange Act Release No. 70091 (August 1, 
2013), 78 FR 48212 (August 8, 2013) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change to Change the Expiration 
Date For Most Option Contracts to the Third Friday of the Expiration 
Month Instead of the Saturday Following the Third Friday) (SR-CBOE-
2013-073) (``CBOE Friday expirations filing'').
    \5\ SR-CBOE-2013-073 amended the rule text of CBOE Rules 
1.1(mmm), 23.5, and 24.9. As described in more detail below, CBOE 
Rule 24.9 is incorporated in its entirety into C2 Rules. CBOE Rule 
1.1 is not incorporated into C2 Rules, and as such, as described 
below in greater detail, C2 is proposing to amend C2 Rule 1.1. 
Finally, CBOE Rule 23 is not incorporated into C2 Rules, but because 
Interest Rate Option Contracts do not currently trade on C2, C2 is 
not proposing to make any conforming changes.
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    More specifically, C2 Chapter 24 (Index Options) was recently 
amended to change the expiration date for most option contracts to the 
third Friday of the expiration month instead of the Saturday following 
the third Friday. The purpose of this proposed rule change is to amend 
C2 Rule 1.1 (Definitions) by adding a definition for ``Expiration 
Date'' and replace any reference in the purpose section of any past 
Exchange rule filings or previously released circulars to any 
expiration date other than Friday for a standard options contract with 
the new Friday standard.
    CBOE Rules Incorporated by Reference into C2's Rules
    The majority of C2's rules are the same as CBOE rules and were 
adopted as part of the Securities and Exchange Commission's (``SEC or 
Commission'') order approving C2's application for registration as a 
national securities exchange.\6\ CBOE Rule 24.9 was recently

[[Page 52592]]

adopted to add language to these rules stating that any series expiring 
prior to February 1, 2015 will have a Saturday expiration date while 
any series expiring on or after February 1, 2015 will have a Friday 
expiration date.\7\ C2 Chapter 24 provides, ``[t]he rules contained in 
CBOE Chapter XXIV, as such rules may be in effect from time to time, 
shall apply to C2 and are hereby incorporated into this Chapter.'' 
Accordingly, Friday expiration dates are permitted on C2.
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    \6\ See Securities Exchange Act Release No. 61152 (December 10, 
2009), 74 FR 66699, 66709-10 (December 16, 2009) (In the Matter of 
the Application of C2 Options Exchange, Incorporated for 
Registration as a National Securities Exchange Findings, Opinion, 
and Order of the Commission (File No. 10-191). In the Order, the 
Commission granted C2's request for exemption, pursuant to Section 
36 of the Act, from the rule filing requirements of Section 19(b) of 
the Act with respect to the rules that C2 proposed to incorporate by 
reference. The exemption was conditioned upon C2 providing written 
notice to its members whenever CBOE proposes to change a rule that 
C2 has incorporated by reference. In the Order, the Commission 
stated its belief that ``this exemption is appropriate in the public 
interest and consistent with the protection of investors because it 
will promote more efficient use of Commission and SRO resources by 
avoiding duplicative rule flings [sic] based on simultaneous changes 
to identical rules sought by more than one SRO.''
    C2 satisfied this requirement with respect to the new Friday 
expiration dates by posting a copy of the CBOE rule filing to allow 
for Friday expirations (SR-CBOE-2013-073) on C2's rule filing Web 
site at the same time the CBOE rule filing was posted to the CBOE 
rule filing Web site. The C2 rule filing Web site is located at: 
http://www.c2exchange.com/Legal/RuleFilings.aspx. By posting CBOE 
rule filings to C2's rule filing Web site that amend C2's rule by 
reference, the Exchange provides its members with notice of the 
proposed rule change so that they have an opportunity to comment on 
it.
    \7\ See note 4 supra.
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    The Exchange is making this filing to harmonize its rules in 
connection with a recently approved rule filing made by OCC which made 
substantially similar changes.\8\ The Exchange believes that the 
industry must remain consistent in expiration dates, and, thus, is 
proposing to update its rules to remain consistent with those of OCC. 
In addition, the Exchange understands that other exchanges will be 
filing similar rules to effect this industry-wide initiative.
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    \8\ See note 3 supra.
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    Most option contracts (``standard expiration contracts'') currently 
expire at the ``expiration time'' (11:59 p.m. Eastern Time) on the 
Saturday following the third Friday of the specified expiration month 
(the ``expiration date'').\9\ With this filing, the Exchange is 
proposing to give advance notice to its Permit Holders that the 
expiration date for standard expiration contracts is changing to the 
third Friday of the expiration month.\10\ (The expiration time would 
continue to be 11:59 p.m. Eastern Time on the expiration date.) The 
change would apply only to standard expiration contracts expiring after 
February 1, 2015, and the Exchange, similar to OCC, does not propose to 
change the expiration date for any outstanding option contracts. The 
change will apply only to series of option contracts opened for trading 
after the effective date of the OCC rule change and having expiration 
dates later than February 1, 2015. Option contracts having non-standard 
expiration dates (``non-standard expiration contracts'') will be 
unaffected by this proposed rule change.
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    \9\ Examples of options with non-standard expiration contracts 
include: Volatility Index options (Rule 24.9(a)(5)), Quarterly Index 
expirations (Rule 24.9(c)), End of Week and End of Month expirations 
(Rule 24.9(e)), Quarterly Option Series (Rules 5.5(e) and 
24.9(a)(2)(B)) and Short Term Option Series (Rules 5.5(d) and 
24.9(a)(2)(A)).
    \10\ The Exchange has already given notice to Permit Holders 
regarding the anticipated change. See Exchange Regulatory Circular 
RG12-046 released on October 5, 2012.
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    In order to provide a smooth transition to the Friday expiration 
OCC has begun to move the expiration exercise procedures to Friday for 
all standard expiration contracts even though the contracts would 
continue to expire on Saturday.\11\ After February 1, 2015, virtually 
all standard expiration contracts will actually expire on Friday. The 
only standard expiration contracts that will expire on a Saturday after 
February 1, 2015 are certain options that were listed prior to the 
effectiveness of the OCC rule change, and a limited number of options 
that may be listed prior to necessary systems changes of the options 
exchanges, which are expected to be completed in August 2013. After 
these systems changes are made, C2 will not list any additional options 
with Saturday expiration dates falling after February 1, 2015. C2 
understands that the other exchanges are committed to the same listing 
schedule.
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    \11\ See SR-OCC-2013-04.
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    The Exchange notes that OCC, industry groups, clearing members and 
the other exchanges have been active participants in planning for the 
transition to the Friday expiration.\12\ In March, 2012, OCC began to 
discuss moving standard contract expirations to Friday expiration dates 
with industry groups, including two Securities Industry and Financial 
Markets Association (``SIFMA'') committees, the Operations and 
Technology Steering Committee and the Options Committee, and at two 
major industry conferences, the SIFMA Operations Conference and the 
Options Industry Conference.\13\ OCC also discussed the project with 
the Intermarket Surveillance Group and at an OCC Operations Roundtable. 
In each case, there was broad support for the initiative.\14\
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    \12\ Id.
    \13\ Id.
    \14\ Id.
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    Certain option contracts have already been listed with Saturday 
expiration dates as distant as December 2016 (which is the furthest out 
expiration as of the date of this filing). Additionally, until C2 
completes certain systems enhancements in August 2013, it remains 
possible that additional option contracts may be listed with Saturday 
expiration dates beyond February 1, 2015. For these contracts, 
transitioning to a Friday expiration for newly listed option contracts 
expiring after February 1, 2015 would create a situation under which 
certain options with open interest would expire on a Saturday while 
other options with open interest would expire on a Friday in the same 
expiration month.
    Clearing members have expressed a clear preference to not have a 
mix of options with open interest that expire on different days in a 
single month.\15\ Accordingly, OCC represented in its recently approved 
filing that it will not issue and clear any new option contract with a 
Friday expiration if existing option contracts of the same options 
class expire on the Saturday following the third Friday of the same 
month. However, Friday expiration processing will be in effect for 
these Saturday expiration contracts. As with standard expiration 
options during the transition period, exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time will continue to be processed without fines or 
penalties.
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    \15\ Id.
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    Thus, the Exchange is proposing to update its rules to reflect the 
above discussed change. Consistent with the OCC filing, the Exchange is 
proposing to add language to these rules stating that any series 
expiring prior to February 1, 2015 will have a Saturday expiration date 
while any series expiring on or after February 1, 2015 will have a 
Friday expiration date.\16\ The Exchange is also proposing, with this 
filing, to replace any reference in the purpose section of any past 
Exchange rule filings or previously released circulars to any 
expiration date other than Friday for a standard options contract with 
the new Friday standard. Essentially, the Exchange is now proposing to 
replace any historic references to expiration dates to be replaced with 
the proposed Friday expiration. As stated above, the Exchange believes 
the proposed change

[[Page 52593]]

will keep the Exchange consistent with the processing at OCC and will 
enable the Exchange to give effect to the industry-wide initiative. In 
addition, the Exchange understands that other exchanges will be filing 
similar rules, thus creating a uniform expiration date for standard 
options on listed classes.
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    \16\ With the exception of expirations that were listed prior to 
the effective date of the OCC filing and have open interest.
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    Chapter 1, however, to C2's rules does not incorporate CBOE's rules 
by reference. Accordingly, C2 proposes to add new paragraph to C2 Rule 
1.1 to define ``Expiration Date'' to be consistent with the revised OCC 
definition.\17\
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    \17\ See note 11 supra.
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    The Exchange plans to release another circular to Permit Holders to 
put Permit Holders on notice of this change prior to the implementation 
of the rule.
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.\18\ Specifically, the Exchange 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, the Exchange 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
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    In particular, the Exchange believes that keeping its rules 
consistent with those of the industry will protect all participants in 
the market by eliminating confusion. The proposed changes thus allow 
for a more orderly market by allowing all options markets, including 
the clearing agencies, to have the same expiration date for standard 
options. In addition, the proposed changes will foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by aligning a pivotal part of the options processing to 
be consistent industry wide. If the industry were to differ, investors 
would suffer from confusion and be more vulnerable to violate different 
exchange rules. The proposed changes do not permit unfair 
discrimination between any Permit Holders because they are applied to 
all Permit Holders equally. In the alternative, the Exchange believes 
that it helps all Permit Holders by keeping the Exchange consistent 
with OCC practices and those of other Exchanges.

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. Specifically, the Exchange does 
not believe the proposed rule change will impose a burden on 
intramarket competition because it will be applied to all Permit 
Holders equally. In addition, the Exchange does not believe the 
proposed rule change will impose any burden to intermarket competition 
because it will be applied industry wide and apply to all market 
participants. The proposed rule change is structured to enhance 
competition because the shift from an expiration date of the Saturday 
following the third Friday to the third Friday is anticipated to be 
adopted industry-wide and will apply to all multiply listed classes. 
This in turn will allow C2 to compete more effectively with other 
exchanges making similar rule changes.

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. The Exchange notes, however, that a favorable 
comment was submitted to the OCC filing.

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 \21\ and Rule 19b-
4(f)(6) \22\ thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
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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. 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 [email protected]. Please include 
File Number SR-C2-2013-031 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-C2-2013-031. 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;

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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-
2013-031 and should be submitted on or before September 13, 2013.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20570 Filed 8-22-13; 8:45 am]
BILLING CODE 8011-01-P