[Federal Register Volume 78, Number 180 (Tuesday, September 17, 2013)]
[Notices]
[Pages 57195-57198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22510]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70370; File No. SR-C2-2013-033]


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

September 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 August 30, 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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    \27\ 17 CFR 200.30-3(a)(12).
    \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 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 Exchange proposes to amend its Fees Schedule. Specifically, the 
Exchange proposes to adopt a set of fees for the Russell 2000 Index 
(``RUT''), both for simple and complex orders (and to specify that the 
current fees that apply to multiply-listed index, ETF and ETN options 
classes do not apply to RUT). For simple, non-complex RUT orders, the 
Exchange proposes to assess the following per-contract fees structure 
(rebates in parentheses):

------------------------------------------------------------------------
                                               Maker         Taker fee
------------------------------------------------------------------------
Public Customer.........................         ($.75)*            $.80
C2 Market-Maker.........................             .00             .80
All Other Origins (Professional                      .50             .80
 Customer, Firm, Broker/Dealer, non-C2
 Market-Maker, JBO, etc.)...............
Trades on the Open......................             .00             .00
------------------------------------------------------------------------

    As with simple, non-complex orders in other multiply-listed index, 
ETF and ETN options classes, rebates do not apply to orders that trade 
with Public Customer complex orders. In such a circumstance, there will 
be no fee or rebate (since Public Customer complex orders also receive 
rebates pursuant to the proposed changes). The Exchange believes that 
providing a rebate for Public Customer Maker orders, and assessing no 
fee for Market-Maker Maker orders, will incentivize the entry of such 
orders (which will provide more trading opportunities for all market 
participants wishing to Take such orders). Further, market participants 
often prefer to trade against Public Customer orders, and providing a 
rebate for Public Customer Maker orders will encourage Public Customers 
to enter such orders, giving other market participants more 
opportunities to Take these preferable orders. The Exchange's proposed 
Taker fee is intended to be competitive with other exchanges, which 
assess higher Taker fees for RUT,\3\ and which also assess a higher RUT 
License Surcharge fee than the amount the Exchange proposes to assess 
herein.\4\
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    \3\ See NYSE Arca, Inc. (``Arca'') Fee Schedule, Section titled 
``Trade-Related Charges for Standard Options'', Transaction Fee 
table describing Electronic Executions in Non Penny Pilot Issues.
    \4\ See Arca Fee Schedule, Royalty Fees table.
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    For complex orders in RUT, the Exchange proposes to assess the 
following per-contract fees structure (rebates in parentheses):

------------------------------------------------------------------------
                                            Maker fee/      Taker fee/
                                             (Rebate)        (Rebate)
------------------------------------------------------------------------
Public Customer.........................         ($.75)*         ($.75)*
C2 Market-Maker.........................             .85             .85
All Other Origins (Professional                      .85             .85
 Customer, Firm, Broker/Dealer, non-C2
 Market-Maker, JBO, etc.)...............
Trades on the Open......................             .00             .00
------------------------------------------------------------------------

    As with complex orders in other multiply-listed index, ETF and ETN 
options classes, a rebate will only apply to Public Customer complex 
orders that trade with non-Public Customer complex orders. In other 
circumstances, there will be no Maker or Taker fee or rebate. The 
Exchange believes that providing a rebate for Public Customer orders 
will incentivize Public Customers to execute such orders (which will 
provide more trading opportunities for all market participants wishing 
to trade with such orders). Further, market participants often prefer 
to trade against Public Customer orders, and providing a rebate for 
Public Customer orders will encourage Public

[[Page 57196]]

Customers to effect such orders, giving other market participants more 
opportunities to trade with these preferable orders. The Exchange's 
proposed Taker fee is intended to be competitive with other exchanges, 
which assess higher similar fees for RUT,\5\ and which also assess a 
higher RUT License Surcharge fee than the amount the Exchange proposes 
to assess herein.\6\
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    \5\ See Arca Fee Schedule, Section titled ``Electronic Complex 
Order Executions''. Note that RUT is a Non-Penny Pilot Issue.
    \6\ See Arca Fee Schedule, Royalty Fees table.
---------------------------------------------------------------------------

    As with both simple and complex orders in other multiply-listed 
index, ETF and ETN options classes, the Exchange proposes to not assess 
any fee for RUT Trades on the Open (either simple or complex).
    The Exchange also proposes to adopt a $0.30 per contract RUT Index 
License Surcharge Fee that will apply to all non-Public Customer 
transactions. The RUT Index License Surcharge Fee charged by the 
Exchange reflects the pass-through charges associated with the 
licensing of RUT. The proposed amount of the Index License Surcharge 
Fee for RUT of $0.30 per contract is a reflection of the cost the 
Exchange has incurred in securing a license agreement from the index 
provider. Absent the license agreement, the Exchange and its 
participants would be unable to trade RUT options and would lose the 
ability to hedge small cap securities with a large notional value, 
European-style cash-settled index option. Other exchanges assess a 
higher RUT surcharge fee than the Exchange.\7\ The Exchange proposes to 
exempt Public Customers from this fee because the Exchange believes 
that this will incentivize Public Customers to send RUT orders to the 
Exchange, and because other market participants prefer to trade with 
Public Customers. Therefore, this should provide increased volume and 
greater liquidity (benefitting all market participants), and more 
trading opportunities for these other market participants to trade with 
these Public Customer orders with which they prefer trading.
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    \7\ See SR-NYSEMKT-2013-65, which increased the NYSE MKT LLC 
(``AMEX'') Royalty Fee for RUT from $0.15 per contract to $0.40 per 
contract.
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    The proposed changes are to take effect on September 3, 2013.
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.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\9\ which requires that 
Exchange rules 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed Maker fees for RUT simple 
orders are reasonable because Public Customers will be able to receive 
a rebate instead of paying a fee, C2 Market-Makers will be able to 
avoid paying a fee, and orders from all other origins will be assessed 
a fee amount that is within the Exchange's normal range of fees, and is 
the same as the amount assessed by other exchanges.\10\ The Exchange 
believes it is equitable and not unfairly discriminatory to provide a 
rebate to Public Customers because the Exchange believes that this will 
incentivize Public Customers to send RUT orders to the Exchange, and 
because other market participants prefer to trade with Public 
Customers. Therefore, this should provide increased volume and greater 
liquidity (benefitting all market participants), and more trading 
opportunities for these other market participants to trade with these 
Public Customer orders with which they prefer trading. Further, there 
is a history within the options industry of providing preferential 
pricing for Public Customers, and this fact is evidenced in the fee 
schedules of many options exchanges, (including C2). The Exchange 
believes that assessing no fee for C2 Market-Maker RUT Maker orders is 
equitable and not unfairly discriminatory because this will incentivize 
C2 Market-Makers to execute RUT orders on the Exchange, thereby 
providing increased volume and greater liquidity, which benefits all 
market participants. Further, C2 Market-Makers undertake certain 
obligations, such as quoting obligations, that other market 
participants do not have. The Exchange believes that it is reasonable, 
equitable and not unfairly discriminatory to apply to simple Public 
Customer Maker RUT orders the clause that states that ``rebates do not 
apply to orders that trade with Public Customer complex orders. In such 
a circumstance, there will be no fee or rebate'' because these Public 
Customer orders will still not be assessed a fee, and because it would 
not be economically viable to provide a rebate on both sides of an 
order when no fee is being collected. Further, this clause applies to 
simple Public Customer Maker orders in all other multiply-listed index, 
ETF and ETN options classes. The Exchange believes that the proposed 
Taker fees for RUT simple orders are reasonable, equitable and not 
unfairly discriminatory because they are lower than those assessed by 
other exchanges \11\ and because they are equivalent for all market 
participants.
---------------------------------------------------------------------------

    \10\ See Arca Fee Schedule, Section titled ``Trade-Related 
Charges for Standard Options'', Transaction Fee table describing 
Electronic Executions in Non Penny Pilot Issues, which shows that 
Firms and Broker-Dealers are assessed a $0.50 Maker fee for RUT 
transactions.
    \11\ See Arca Fee Schedule, Section titled ``Trade-Related 
Charges for Standard Options'', Transaction Fee table describing 
Electronic Executions in Non Penny Pilot Issues.
---------------------------------------------------------------------------

    The Exchange believes that its proposed rebates for Public Customer 
complex RUT orders are reasonable because they will allow Public 
Customer to receive a rebate for such orders instead of paying a fee. 
The Exchange believes that it is reasonable, equitable and not unfairly 
discriminatory to apply to complex Public Customer RUT orders the 
clause that states that ``a rebate will only apply to Public Customer 
complex orders that trade with non-Public Customer complex orders. In 
other circumstances, there will be no Maker or Taker fee or rebate'' 
because these Public Customer orders will still not be assessed a fee, 
and this would prevent a situation in which a rebate would be given on 
both sides of an order when a fee is not assessed (such situations not 
being economically viable). Further, this clause applies to complex 
Public Customer orders in all other multiply-listed index, ETF and ETN 
options classes. The Exchange believes that its proposed fees for 
complex RUT orders originating from all other origins (including C2 
Market-Makers) are reasonable because they are the same amount of the 
fees assessed for complex RUT transactions to similar market 
participants at other exchanges.\12\ The Exchange believes that these 
fees are equitable and not unfairly discriminatory because they will be 
applied equally to all market participants who qualify for such fees. 
The Exchange believes that it is equitable and not unfairly 
discriminatory to provide rebates for complex Public Customer RUT 
orders because the Exchange believes that this will incentivize Public 
Customers to execute RUT orders to the Exchange, and because other 
market participants prefer to trade with Public Customers. Therefore, 
this should provide increased volume and greater liquidity (benefitting

[[Page 57197]]

all market participants), and more trading opportunities for these 
other market participants to trade with these Public Customer orders 
with which they prefer trading. Further, there is a history within the 
options industry of providing preferential pricing for Public 
Customers, and this fact is evidenced in the fee schedules of many 
options exchanges, (including C2).
---------------------------------------------------------------------------

    \12\ See Arca Fee Schedule, Section titled ``Electronic Complex 
Order Executions''. Note that RUT is a Non-Penny Pilot Issue.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to assess no fees for 
RUT Trades on the Open because this will allow all market participants 
to avoid paying fees for such trades. The Exchange believes that this 
is equitable and not unfairly discriminatory because it will apply to 
all market participants, and because the Exchange currently does not 
assess fees for Trades on the Open for other multiply-listed index, ETF 
and ETN options.
    The Exchange believes that the proposed RUT Index License Surcharge 
Fee is reasonable because Surcharge Fees charged by the Exchange 
reflect the pass-through charges associated with the licensing of 
certain products, including RUT. The proposed amount is therefore a 
direct result of the amount of the licensing fee charged to the 
Exchange by the index provider and the owner of the intellectual 
property associated with the index. This amount is equitable and not 
unfairly discriminatory because it will be assessed to all market 
participants to whom the RUT Surcharge Fee applies. Also, other 
exchanges have recently increased their RUT surcharge fees to an even 
greater amount than the Exchange's proposed amount.\13\ The Exchange 
believes that it is equitable and not unfairly discriminatory to exempt 
Public Customers from this fee because the Exchange believes that this 
will incentivize Public Customers to send RUT orders to the Exchange, 
and because other market participants prefer to trade with Public 
Customers. Therefore, this should provide increased volume and greater 
liquidity (benefitting all market participants), and more trading 
opportunities for these other market participants to trade with these 
Public Customer orders with which they prefer trading. Further, there 
is a history within the options industry of providing preferential 
pricing for Public Customers, and this fact is evidenced in the fee 
schedules of many options exchanges, (including C2).
---------------------------------------------------------------------------

    \13\ See SR-NYSEMKT-2013-65, which increased the AMEX Royalty 
Fee for RUT from $0.15 per contract to $0.40 per contract.
---------------------------------------------------------------------------

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

    C2 does not believe that the proposed fees structure for RUT will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. While there are 
circumstances wherein a Public Customer receives a rebate (or, in the 
case of the Index License Surcharge Fee, is exempt from such fee), the 
Exchange believes that this will incentivize Public Customers to 
execute RUT orders to the Exchange, and other market participants 
prefer to trade with Public Customers. Therefore, these rebates should 
provide increased volume and greater liquidity (benefitting all market 
participants), and more trading opportunities for these other market 
participants to trade with these Public Customer orders with which they 
prefer trading. Further, there is a history within the options industry 
of providing preferential pricing for Public Customers, and this fact 
is evidenced in the fee schedules of many options exchanges, (including 
C2). While there is also a place within the proposed RUT fees structure 
in which C2 Market-Makers are not assessed a fee while other market 
participants are, C2 Market-Makers must undertake certain obligations, 
such as quoting obligations, that other market participants may not 
have. Further, the Exchange believes that this will incentivize C2 
Market-Makers to execute RUT orders on the Exchange, thereby providing 
increased volume and greater liquidity, which benefits all market 
participants.
    C2 does not believe that the proposed fees structure for RUT will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Indeed, the 
Exchange's proposed fees structure for RUT is intended to increase 
competition in RUT. The Exchange believes that its pricing structure is 
competitive with, and better than, the pricing structure for RUT at 
other exchanges. For example, when factoring in the lower Index License 
Surcharge Fee at C2 (and indeed even when not factoring in this 
difference in some circumstances), the Exchange believes that its RUT 
pricing is preferable for market participants to that offered at Arca.

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 \14\ and paragraph (f) of Rule 19b-4 \15\ 
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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-C2-2013-033 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-C2-2013-033. 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

[[Page 57198]]

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-C2-2013-033, and should be 
submitted on or before October 8, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22510 Filed 9-16-13; 8:45 am]
BILLING CODE 8011-01-P