[Federal Register Volume 76, Number 188 (Wednesday, September 28, 2011)]
[Notices]
[Pages 60102-60103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-24867]
[[Page 60102]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65380; File No. SR-C2-2011-017]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Adopt a Market-Maker Trade Prevention Order
September 22, 2011.
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 September 15, 2011, 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 and II below, which Items have been prepared by the
Exchange. The Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a Market-Maker Trade Prevention
Order. The text of the proposed rule change is available on the
Exchange's Web site (http://www.cboe.org/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 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 those 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 parts 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 Exchange proposes to adopt a Market-Maker Trade Prevention
(``MMTP'') Order. The proposed MMTP Order is an immediate-or-cancel
order containing a designation that prevents incoming orders for a
Market-Maker from executing against resting quotes and orders for the
same Market-Maker.
The MMTP Order type designation is intended to prevent a Market-
Maker from trading on both sides of the same transaction. Orders would
be marked with the MMTP designation on an order-by-order basis. An
incoming MMTP Order cannot interact with interest resting on the book
from the same Market-Maker. An MMTP Order that would trade against a
resting quote or order for the same Market-Maker will be cancelled, as
will the resting quote or order. The MMTP Order will trade against
other tradable orders and quotes entered by or on behalf of another
market participant (other than those entered by or on behalf of the
same Market-Maker) in accordance with the execution process described
in Exchange Rule 6.12 (Order Execution and Priority).
However, if the MMTP is received while an order for the same
Market-Maker is subject to Rule 6.14, SAL, Rule 6.51, Automated
Improvement Mechanism (``AIM''), and Rule 6.52, Solicitation Auction
Mechanism (each an ``auction''), only the MMTP Order will be canceled.
The order being represented in the auction will not be cancelled. This
is because the order being represented in the auction will still be
able to execute via the auction mechanism against orders originating
from other market participants. As auctions are designed to achieve
price improvement, the Exchange does not want to interfere with the
auction process and cancel an order that is already up for auction,
since it can achieve price improvement with an order from another
market participant.
For example, assume the Exchange's best bid and offer is $1.00-
$1.20, 100 contracts on each side. A Market-Maker marks an order to buy
100 contracts at $1.20 with the MMTP distinction, making it an MMTP
Order. The MMTP Order is submitted to the Exchange and it would trade
with a resting quote from the same Market-Maker for 100 contracts
offered at $1.20, then both the order to buy and the resting offer
quote would be canceled. However, if the resting offer quote from the
same Market-Maker was for only 60 contracts, then 60 contracts from the
order to buy would be canceled (as would the resting quote), but the
other 40 contracts could trade with the resting offer interest of the
other market participants.
As another example, assume a sell order entered on behalf of a
Market-Maker is subject to a HAL auction. A Market-Maker marks an order
to buy with the MMTP distinction, making it an MMTP Order. If this
incoming MMTP Order is received while the auction is in progress and
the MMTP Order would otherwise trade with the order that is subject to
the HAL auction, then only the MMTP Order would be cancelled. The order
being represented in the auction would not be canceled.
At this time, the Exchange intends to identify an incoming MMTP
Order as being for the same Market-Maker if the MMTP Order and resting
quote or order share any of the following: (1) User acronym, (2) login
ID, or (3) sub-account code. Each Market-Maker is assigned its own
acronym (sometimes multiple acronyms). However, a Market-Maker may have
multiple different login IDs or sub-account codes. A login ID is the
session through which a Market-Maker routes orders to the Exchange. A
Market-Maker may elect to use different login IDs to route different
types of communications to the Exchange. For example, a Market-Maker
may choose to use login ID 1 for all orders it sends to the
Exchange and login ID 2 for all quotes it sends to the
Exchange. Or the Market-Maker may be much more specific, and use
different login IDs for different types of orders and quotes. A sub-
account code is simply a field on each order or quote that lists the
account into which a trade clears at the Options Clearing Corporation
(``OCC''). A Market-Maker may have different sub-account codes for each
trader it employs, so that the Market-Maker may track each trader's
activity. Finally, Market-Makers sometimes use different acronyms but
clear into the same accounts (thereby using the same sub-accounts
codes).
Allowing Market-Makers to designate orders as MMTP Orders is
intended to allow firms to better manage order flow and prevent
unwanted executions resulting from the interaction of executable buy
and sell trading interest for the same Market-Maker, as well as prevent
the potential for (or appearance of) ``wash sales'' that may occur as a
result of the velocity of trading in today's high speed marketplace.
When a Market-Maker is preparing to submit an order, the Market-Maker
may not know whether or not his order is going to trade against his own
resting quote.
[[Page 60103]]
Further, many Market-Makers have multiple connections into the Exchange
due to capacity- and speed-related demands. Orders routed by the same
Market-Makers via different connections may, in certain circumstances,
trade against each other. Finally, the Exchange notes that offering the
MMTP modifiers will streamline certain regulatory functions by reducing
false positive results that may occur on Exchange-generated wash
trading surveillance reports when orders are executed by the same
Market-Maker. For these reasons, the Exchange believes the MMTP Order
provides Market-Makers enhanced order processing functionality to
prevent potentially unwanted trades from occurring.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \5\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\6\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \7\ 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. The proposed rule change advances these objectives
by making available to Market-Makers a type of order that will assist
Market-Makers in preventing unwanted executions against themselves.
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\5\ 15 U.S.C. 78s(b)(1).
\6\ 15 U.S.C. 78f(b).
\7\ 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 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
The proposed rule change is filed for immediate effectiveness
pursuant to Section 19(b)(3)(A) \8\ of the Securities Exchange Act of
1934 and Rule 19b-4(f)(6) \9\ thereunder because it effects a change
that (i) Does not significantly affect the protection of investors or
the public interest; (ii) does not impose any significant burden on
competition; and (iii) by its terms, does not become operative for 30
days after the date of the filing, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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.
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 e-mail to [email protected]. Please include
File No. SR-C2-2011-017 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 No. SR-C2-2011-017. This file
number should be included on the subject line if e-mail 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
a.m. and 3 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 No. SR-C2-2011-017 and should be
submitted on or before October 19, 2011.
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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24867 Filed 9-27-11; 8:45 am]
BILLING CODE 8011-01-P