[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Notices]
[Pages 20961-20967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08089]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69268; File No. SR-C2-2013-017]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
to Amend the Fees Schedule
April 2, 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 March 26, 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. \3\ 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\ The Commission notes that the Exchange initially filed this
proposed rule change as SR-C2-2013-015 on March 18, 2013, withdrew
that filing on March 26, 2013, and re-filed the proposed rule change
as SR-C2-2013-017 on March 26, 2013.
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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 intends to commence the listing and trading of option
contracts overlying 10 shares of a security (``Mini-options,'' or
``Minis'').\4\ Because the regular per-contract unit of trading for the
five options classes (SPY, AAPL, GLD, GOOG, and AMZN) on which the
Exchange has proposed listing Minis is 100 shares, a Mini effectively
functions as 1/10 of a regular options contract (generally speaking).
The Exchange hereby proposes to adopt fees for the trading of Minis
(all fees referenced herein are per-contract unless otherwise stated).
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\4\ See Securities Exchange Act Release No. 68656 (January 15,
2013), 78 FR 4526 (January 22, 2013) (SR-CBOE-2013-001), in which
the Chicago Board Options Exchange, Inc. (``CBOE'') proposed to list
Mini Options on SPDR S&P 500 (``SPY''), Apple, Inc. (``AAPL''), SPDR
Gold Trust (``GLD''), Google Inc. (``GOOG'') and Amazon.com Inc.
(``AMZN'') (together, the ``Mini Classes''). SPY and GLD are
Exchange-Traded Funds (``ETFs'') and AAPL, AMZN and GOOG are equity
options. Chapter 5 to the C2 Rulebook provides that the rules
contained in CBOE Chapter V, as such rules may be in effect from
time to time, shall apply to C2 and that C2 participants shall
comply with CBOE Rule Chapter 5 as if such rules were part of the C2
Rules. Accordingly, when CBOE amended Rule 5.5 to provide for the
trading of mini-options, that filing resulted in a simultaneous
change to identical C2 rules. SR-C2-2013-014 expounds on the listing
and trading of Minis on C2.
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Minis have a smaller exercise and assignment value due to the
reduced number of shares they deliver as compared to standard option
contracts. As such, the Exchange is proposing generally lower per
contract fees as compared to standard option contracts, with some
exceptions to be fully described below. Despite the smaller exercise
and assignment value of a Mini, the cost to the Exchange to process
quotes and orders in Minis, perform regulatory surveillance and retain
quotes and orders for archival purposes
[[Page 20962]]
is the same as a for a standard contract. This leaves the Exchange in a
position of trying to strike the right balance of fees applicable to
Minis--too low and the costs of processing Mini quotes and orders will
necessarily cause the Exchange to either raise fees for everyone or
only for participants trading Minis; too high and participants may be
deterred from trading Minis, leaving the Exchange less able to recoup
costs associated with development of the product, which is designed to
offer investors a way to take less risk in high dollar securities. The
Exchange, therefore, believes that adopting fees for Minis that are in
some cases lower than fees for standard contracts, and in other cases
the same as for standard contracts, is appropriate, not unreasonable,
not unfairly discriminatory and not burdensome on competition between
participants, or between the Exchange and other exchanges in the listed
options marketplace.
The Exchange proposes to adopt a set of fees for simple, non-
complex orders in all multiply-listed index and ETF mini-options
classes. The Exchange proposes a Public Customer Mini Maker rebate of
$0.04, which is slightly more than 1/10th the $0.37 rebate for
standard-sized Public Customer simple, non-complex Maker orders in all
multiply-listed index and ETF options classes. The Exchange does not
wish to apply sub-penny transaction fees for multiply-listed index and
ETF mini options, and the slight increase over 1/10th the rebate for
standard-sized Public Customer simple, non-complex Maker orders in all
multiply-listed index and ETF options classes is intended to
incentivize Public Customers to send simple, non-complex orders in all
multiply-listed index and ETF mini-options classes to the Exchange. The
Exchange proposes a Public Customer Mini Taker fee of $0.04, which is
slightly less than 1/10th the $0.44 fee for standard-sized Public
Customer simple, non-complex Taker orders in all multiply-listed index
and ETF options classes. The slight decrease below 1/10th the fee for
standard-sized Public Customer simple, non-complex Taker orders in all
multiply-listed index and ETF options classes is intended to
incentivize Public Customers to send simple, non-complex orders in all
multiply-listed index and ETF mini-options classes to the Exchange.
The Exchange proposes to adopt a C2 Market-Maker Maker rebate of
$0.04 for simple, non-complex orders in all multiply-listed index and
ETF mini-options classes, which is 1/10th the amount of the rebate for
standard-sized C2 Market-Maker simple, non-complex Maker orders in all
multiply-listed index and ETF options classes. The Exchange proposes a
C2 Market-Maker Mini Taker fee of $0.05 for simple, non-complex orders
in all multiply-listed index and ETF mini-options classes, which is
slightly more than 1/10th the $0.45 fee for standard-sized C2 Market-
Maker simple, non-complex Taker orders in all multiply-listed index and
ETF options classes. As noted earlier, the cost to the Exchange to
process quotes, orders and trades in Minis is the same as for standard
options, and therefore, in some situations, the Exchange must assess a
Minis fee of more than 1/10th the amount assessed for standard options
transactions.
The Exchange proposes to adopt a Maker rebate of $0.03 for simple,
non-complex orders in all multiply-listed index and ETF mini-options
classes from all other origins (Professional Customer, Firm, Broker/
Dealer, non-C2 Market-Maker, JBO, etc.), which is slightly less than 1/
10th the amount of the rebate for standard-sized simple, non-complex
Maker orders in all multiply-listed index and ETF options classes from
all other origins. As noted earlier, the cost to the Exchange to
process quotes, orders and trades in Minis is the same as for standard
options, and therefore, in some situations, the Exchange cannot provide
a Minis rebate of equal to or greater than 1/10th the amount provided
for standard options transactions. The Exchange proposes a Taker fee of
$0.04 for simple, non-complex orders in all multiply-listed index and
ETF mini-options classes from all other origins, which is slightly less
than 1/10th the $0.45 fee for standard-sized simple, non-complex Taker
orders in all multiply-listed index and ETF options classes from all
other origins. The Exchange offers this slightly-lower-than-1/10th fee
in order to prevent the Exchange from having a difference of more than
$0.01 between the rebate offered and fee assessed for simple, non-
complex orders in all multiply-listed index and ETF mini-options
classes from all other origins.
On February 1, 2013, the Exchange instituted a new fee structure
for simple, non-complex orders in equity options classes that is based
on the following formula: \5\
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\5\ See Securities Exchange Act Release No. 68792 (January 31,
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004). For details
on this new structure, see C2 Fees Schedule, Section 1B.
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Fee = (C2 BBO Market Width at time of execution) x (Market
Participant Rate) x 50.
This new structure has a maximum fee of $0.85 per contract. Because
a Mini effectively functions as 1/10th of a standard options contract,
the Exchange proposes to state that, for mini-options, the multiplier
in the above formula will be 5 instead of 50, and the maximum fee will
be $0.085.
In conjunction with this new fee structure, the Exchange also
instituted a Public Customer Taker rebate for simple, non-complex
orders in equity options classes that is based on the following
formula: Rebate = (C2 BBO Market Width at time of execution) x (Order
Size Multiplier) x 50
This new structure has a maximum rebate of $0.75 per contract.
Because a Mini effectively functions as 1/10th of a standard options
contract, the Exchange proposes to state that, for mini-options, the
multiplier in the above formula will be 5 instead of 50, and the
maximum rebate will be $0.075.
The Exchange proposes to adopt a set of fees for complex orders in
all multiply-listed index and ETF mini-options classes. The Exchange
proposes a Public Customer rebate (for both Makers and Takers) for such
orders of $0.03, which is slightly less than 1/10th the amount of the
rebate for standard-sized complex Public Customer orders in all
multiply-listed index and ETF options classes. As noted earlier, the
cost to the Exchange to process quotes, orders and trades in Minis is
the same as for standard options, and therefore, in some situations,
the Exchange cannot provide a Minis rebate of equal to or greater than
1/10th the amount provided for standard options transactions. As with
standard-sized complex Public Customer orders in all multiply-listed
index and ETF options classes, no Maker or Taker fee or rebate will
apply to Public Customer Mini orders that trade with other Public
Customer Mini orders.
The Exchange proposes to adopt a Maker fee of $0.01 for C2 Market-
Maker complex orders in all multiply-listed index and ETF mini-options
classes and of $0.02 for complex orders in all multiply-listed index
and ETF mini-options classes from all other origins (except Public
Customers, who will be provided the rebate described above). These
amounts are exactly 1/10th the amounts of their respective
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes. The Exchange proposes to adopt a
Taker fee of $0.03 for complex orders in all multiply-listed index and
ETF mini-options classes from C2 Market-Makers and all other origins
(except Public Customers, who will be provided the
[[Page 20963]]
rebate described above). This amount is slightly less than 1/10rh [sic]
the corresponding fees for standard-sized complex orders in all
multiply-listed index and ETF options classes, but is being utilized in
order to maintain whole-penny fee rates and encourage trading of
complex orders in all multiply-listed index and ETF mini-options
classes.
As with orders (both simple and complex) in all standard-sized
multiply-listed index and ETF options classes, the Exchange proposes to
assess no fee (and provide no rebate) for orders in all multiply-listed
index and ETF mini-options classes that are Trades on the Open.
The Exchange proposes to not establish a separate set of Mini fees
for complex order transactions in equity options. Instead, Minis will
be encompassed within the current statement on the Exchange's Fees
Schedule 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 order to comply with the Options Order Protection and Locked/
Crossed Market Plan (the ``Linkage Plan''), the Exchange uses various
means of accessing better priced interest located on other exchanges
and assesses fees associated with the execution of orders routed to
other exchanges.\6\ For Public Customers, these fees involve, in some
circumstances, the passing-through of the actual transaction fee
assessed by the exchange(s) to which the order was routed, while in
others, and for non-Customers, a set amount is assessed. These fees are
designed to help recover the Exchange's costs in routing orders to
other exchanges. The Exchange believes that the Options Clearing
Corporation (``OCC'') and broker-dealers will be assessing the same
charges for Minis as are assessed to standard options. Further, the
Exchange's costs for routing Minis through to other exchanges will be
the same as the Exchange's costs for routing standard options to other
exchanges. As such, the Exchange intends apply to Mini options the same
Linkage Fees structure as applies to standard options. The Exchange
notes that participants can avoid the Linkage Fees in several ways.
First, they can simply route to the exchange with the best priced
interest. The Exchange, in recognition of the fact that markets can
move while orders are in flight, also offers participants the ability
to utilize order types that do not route to other exchanges.
Specifically, the Immediate-or-Cancel Order (``IOC Order'') is one such
order that would never route to another exchange. For all these
reasons, the Exchange believes it is reasonable to apply to Mini
options the same Linkage Fees structure as applies to standard options.
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\6\ See C2 Fees Schedule, Section 2.
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Currently, the Exchange assesses a $0.002 per contract Options
Regulatory Fee (``ORF'').\7\ The Exchange is proposing to charge the
same rate for transactions in Mini options, $0.002 per contract, since,
as noted, the costs to the Exchange to process quotes, orders, trades
and the necessary regulatory surveillance programs and procedures in
Minis are the same as for standard option contracts. As such, the
Exchange feels that it is appropriate to charge the ORF at the same
rate as the standard option contract. The Exchange also assesses a Firm
Designated Examining Authority Fee (the ``DEA Fee'') of $0.40 per
$1,000 of gross revenue.\8\ Any revenue that comes from Mini trading
would count towards the DEA Fee (as does other revenue).
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\7\ See C2 Fees Schedule, Section 8E.
\8\ See C2 Fees Schedule, Section 8A.
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Similarly, because, as noted, the costs to the Exchange to process
quotes, orders, trades and the necessary regulatory surveillance
programs and procedures in Minis are the same as for standard option
contracts, the Exchange will assess to Mini transactions the same PULSe
Workstation Away-Market Routing, Away-Market Routing Intermediary, and
C2 Routing fees (the ``PULSe Workstation Fees'') \9\ as are assessed to
standard options transactions.
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\9\ See C2 Fees Schedule, Section 11A.
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When the Exchange amended its Fees Schedule to institute a new fee
structure for simple, non-complex orders in equity options classes,\10\
this new fee structure was placed in Section 1B of the Fees Schedule,
and the fees that had previously been listed in Section 1B became
listed in Section 1C. However, the Exchange unintentionally failed to
update some of the references in Section 1C to reflect that re-
numbering. As such, two places in Section 1C reference ``this Section
1B'' even though that is now Section 1C. The Exchange hereby proposes
to amend those references so that they accurately refer to ``this
Section 1C''.
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\10\ See Securities Exchange Act Release No. 68792 (January 31,
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004). For details
on this new structure, see C2 Fees Schedule, Section 1B.
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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.\11\ Specifically, the Exchange believes the proposed rule change
is consistent with Section 6(b)(4) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposal to assess a Public Customer
Maker rebate of $0.04 for simple, non-complex orders in all multiply-
listed index and ETF mini-options classes is reasonable because this
provides Public Customer Makers with a rebate for such transactions
(instead of having to pay a fee). The Exchange believes this rebate is
equitable and not unfairly discriminatory because it is slightly more
than 1/10th the $0.37 rebate for standard-sized Public Customer simple,
non-complex Maker orders in all multiply-listed index and ETF options
classes. The Exchange does not wish to apply sub-penny transaction fees
for multiply-listed index and ETF mini options, and the slight increase
over 1/10th the rebate for standard-sized Public Customer simple, non-
complex Maker orders in all multiply-listed index and ETF options
classes is intended to incentivize Public Customers to send simple,
non-complex orders in all multiply-listed index and ETF mini-options
classes to the Exchange. The Exchange believes that its proposal to
assess a Public Customer Mini Taker fee of $0.04 is reasonable,
equitable and not unfairly discriminatory because it is slightly less
than 1/10th the $0.44 fee for standard-sized Public Customer simple,
non-complex Taker orders in all multiply-listed index and ETF options
classes. The slight decrease below 1/10th the fee for standard-sized
Public Customer simple, non-complex Taker orders in all multiply-listed
index and ETF options classes is intended to incentivize Public
Customers to send simple, non-complex orders in all multiply-listed
index and ETF mini-options classes to the Exchange.
The Exchange believes that its proposal to adopt a C2 Market-Maker
Maker rebate of $0.04 for simple, non-complex orders in all multiply-
listed index and ETF mini-options classes is
[[Page 20964]]
reasonable because it is 1/10th the amount of the rebate for standard-
sized C2 Market-Maker simple, non-complex Maker orders in all multiply-
listed index and ETF options classes. The Exchange believes that its
proposal to adopt a C2 Market-Maker Mini Taker fee of $0.05 for simple,
non-complex orders in all multiply-listed index and ETF mini-options
classes is reasonable, equitable and not unfairly discriminatory. While
it is slightly more than 1/10th the $0.45 fee for standard-sized C2
Market-Maker simple, non-complex Taker orders in all multiply-listed
index and ETF options classes, as noted earlier, the cost to the
Exchange to process quotes, orders and trades in Minis is the same as
for standard options, and therefore, in some situations, the Exchange
must assess a Minis fee of more than 1/10th the amount assessed for
standard options transactions. Further, the Exchange does not desire to
assess sub-penny transaction fees for simple, non-complex orders in all
multiply-listed index and ETF mini-options classes, and this amount
allows the Exchange to assess a Taker fee that is $0.01 more than the
Maker rebate for simple, non-complex C2 Market-Maker orders in all
multiply-listed index and ETF mini-options classes, and such a
difference is necessary for reasons of economic viability. The Exchange
believes that it is equitable and not unfairly discriminatory to assess
a higher Taker fee for simple, non-complex C2 Market-Maker orders in
all multiply-listed index and ETF mini-options classes than for
corresponding Taker orders in those classes that come from all other
origins (except Public Customers) because the Exchange is also
providing a higher Maker rebate to C2 Market-Makers for such orders.
The Exchange believes that its proposal to adopt a Maker rebate of
$0.03 for simple, non-complex orders in all multiply-listed index and
ETF mini-options classes from all other origins (Professional Customer,
Firm, Broker/Dealer, non-C2 Market-Maker, JBO, etc.) is reasonable,
equitable and not unfairly discriminatory. While this amount is
slightly less than 1/10th the amount of the rebate for standard-sized
simple, non-complex Maker orders in all multiply-listed index and ETF
options classes from all other origins, as noted earlier, the cost to
the Exchange to process quotes, orders and trades in Minis is the same
as for standard options, and therefore, in some situations, the
Exchange cannot provide a Minis rebate of equal to or greater than 1/
10th the amount provided for standard options transactions. The
Exchange believes that its proposal to adopt a Taker fee of $0.04 for
simple, non-complex orders in all multiply-listed index and ETF mini-
options classes from all other origins is reasonable, equitable and not
unfairly discriminatory because it is slightly less than 1/10th the
$0.45 fee for standard-sized simple, non-complex Taker orders in all
multiply-listed index and ETF options classes from all other origins.
The Exchange offers this slightly-lower-than-1/10th fee in order to
prevent the Exchange from having a difference of more than $0.01
between the rebate offered and fee assessed for simple, non-complex
orders in all multiply-listed index and ETF mini-options classes from
all other origins. Further, the offering of a Maker rebate that is
slightly lower than 1/10th that offered for standard options is offset
by the fact that the Exchange is offering a fee of slightly lower than
1/10th that assessed for standard options.
The Exchange believes that it is equitable and not unfairly
discriminatory to offer a fee and rebate structure for simple, non-
complex Public Customer orders in all multiply-listed index and ETF
mini-options classes that does not include a difference between the
Maker rebate and Taker fee (as opposed to simple, non-complex orders
from C2 Market-Makers and all other origins in all multiply-listed
index and ETF mini-options classes) because this is intended to
incentivize Public Customers to send simple, non-complex orders in all
multiply-listed index and ETF mini-options classes to the Exchange.
This is beneficial to all other participants on the Exchange who
generally seek to trade with Public Customer order flow and who benefit
from the increased volume and trading opportunities. Further, the
options marketplace has a history of offering preferential pricing to
Customers. The Exchange believes that it is equitable and not unfairly
discriminatory to assess to C2 Market-Makers a higher Taker fee for
simple, non-complex orders in all multiply-listed index and ETF mini-
options classes than that assessed to all other market participants
because the Exchange is also offering a higher Maker rebate to C2
Market-Makers for such orders than is being offered to orders from all
other origins (except Public Customers), and because this allows the
Exchange to maintain a $.01 difference between the C2 Market-Maker
Taker fee and Maker rebate (the same difference as is being maintained
between the Taker fee and Maker rebate for orders from all other
origins (except Public Customers)).
The Exchange believes that it is reasonable to assess no fees for
Mini 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 standard options.
The Exchange believes that the proposed Mini fee and rebate
structure (including maximum fees and rebates) for simple, non-complex
orders in equity options classes is reasonable, equitable and not
unfairly discriminatory because the proposed amounts are all 1/10th the
amounts of the fees and rebates (including maximum fees and rebates)
for simple, non-complex orders in standard-sized equity options
classes.
The Exchange believes that its proposal to set a Public Customer
rebate (for both Makers and Takers) for complex orders in all multiply-
listed index and ETF mini-options classes of $0.03 is reasonable,
equitable and not unfairly discriminatory. This amount is slightly less
than 1/10th the amount of the rebate for standard-sized complex Public
Customer orders in all multiply-listed index and ETF options classes.
Nonetheless, this is still a rebate (as opposed to a fee). Further, as
noted earlier, the cost to the Exchange to process quotes, orders and
trades in Minis is the same as for standard options, and therefore, in
some situations, the Exchange cannot provide a Minis rebate of equal to
or greater than 1/10th the amount provided for standard options
transactions. The Exchange believes that applying the statement that no
Maker or Taker fee or rebate will apply to Public Customer Mini orders
that trade with other Public Customer complex orders in all multiply-
listed index and ETF options classes to Minis is reasonable because it
would not be economically viable to give a rebate to both sides of an
order or to give to one side of an order if the other side was not
assessed a fee. This is equitable and not unfairly discriminatory
because this statement applies to Public Customer complex orders in all
multiply-listed index and ETF standard-sized options classes.
The Exchange believes the proposal to adopt a Maker fee of $0.01
for C2 Market-Maker complex orders in all multiply-listed index and ETF
mini-options classes and of $0.02 for complex orders in all multiply-
listed index and ETF mini-options classes from all other
[[Page 20965]]
origins is reasonable, equitable and not unfairly discriminatory. These
amounts are exactly 1/10th the amounts of their respective
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes. The Exchange believes the
proposal to adopt a Taker fee of $0.03 for complex orders in all
multiply-listed index and ETF mini-options classes from C2 Market-
Makers and all other origins is reasonable, equitable and not unfairly
discriminatory. This amount is slightly less than 1/10th the
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes and is intended to encourage
trading of complex orders in all multiply-listed index and ETF mini-
options classes.
The Exchange believes that it is equitable and not unfairly
discriminatory to offer rebates for both Maker and Taker complex Public
Customer orders in all multiply-listed index and ETF mini-options
classes (as opposed to complex orders from C2 Market-Makers and all
other origins in all multiply-listed index and ETF mini-options
classes) because this is intended to incentivize Public Customers to
send complex orders in all multiply-listed index and ETF mini-options
classes to the Exchange. This is beneficial to all other participants
on the Exchange who generally seek to trade with Public Customer order
flow and who benefit from the increased volume and trading
opportunities. Further, the options marketplace has a history of
offering preferential pricing to Customers. The Exchange believes that
it is equitable and not unfairly discriminatory to assess to C2 Market-
Makers a lower Maker fee for complex orders in all multiply-listed
index and ETF mini-options classes than that assessed to all other
market participants (excluding Public Customers) because C2 Market-
Makers take on obligations, such as quoting obligations, that other
market participants do not need to take on.
The Exchange believes that its proposal to encompass Minis within
the current statement on the Exchange's Fees Schedule 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) is reasonable because it will allow market participants trading
complex Mini equity options to avoid paying a fee for doing so. The
Exchange believes this is equitable and not unfairly discriminatory
because it applies to all market participants, and because this
statement currently applies to standard-sized complex equity options.
The Exchange believes that it is equitable and not unfairly
discriminatory to offer different fee and rebate structures for simple
and complex orders in Mini classes because the nature, incentives and
economics of trading for simple and complex orders can be very
different. Further, the Exchange currently offers different fee and
rebate structures for simple and complex orders in standard-sized
options classes,\13\ and the International Securities Exchange, LLC
(``ISE'') proposes to assess different fees and rebates for simple and
complex orders in Mini options.\14\ The Exchange believes that it is
equitable and not unfairly discriminatory to offer different fee and
rebate structures for multiply-listed index and ETF options and for
multiply-listed equity options because the nature, incentives and
economics of trading of index and ETF options and equity options can be
very different. Further, the Exchange currently offers different fee
and rebate structures for index and ETF options and equity options,\15\
as does the Chicago Board Options Exchange, Incorporated
(``CBOE'').\16\
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\13\ See C2 Fees Schedule, Section 1.
\14\ See SR-ISE-2013-24, available at http://www.ise.com/assets/
documents/OptionsExchange/legal/proposed_rule_changes/2013/SR-ISE-
2013-24$Proposed_Rule_Change_to_Establish_Fees_and_Rebates_
for_Mini_Options$20130314.pdf.
\15\ See C2 Fees Schedule, Section 1.
\16\ See CBOE Fees Schedule, page 1.
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The Exchange believes that subjecting Minis to the same amounts as
standard options for purposes of PULSe Workstation Fees is reasonable
because the costs of operating and maintaining the PULSe Workstations
for Mini transactions are the same as for standard options
transactions. This is equitable and not unfairly discriminatory because
the same fee amounts will be assessed for Minis as for standard
options, and because such fees will apply to all Mini transactions.
The Exchange believes that its proposal to treat Mini options the
same as standard options for purposes of the Linkage Fees is
reasonable, equitable and not unfairly discriminatory for the following
reasons. The Linkage Fees are designed to help recover the Exchange's
costs in routing orders to other exchanges. The Exchange believes that
the OCC and broker-dealers will be assessing the same charges for Minis
as are assessed to standard options. Further, the Exchange's costs for
routing Minis through to other exchanges will be the same as the
Exchange's costs for routing standard options to other exchanges. As
such, the Exchange believes that it makes sense apply to Mini options
the same Linkage Fees structure as applies to standard options. The
Exchange notes that participants can avoid the Linkage Fees in several
ways. First, they can simply route to the exchange with the best priced
interest. The Exchange, in recognition of the fact that markets can
move while orders are in flight, also offers participants the ability
to utilize order types that do not route to other exchanges.
Specifically, the IOC Order is one such order that would never route to
another exchange. For all these reasons, the Exchange believes it is
reasonable and equitable to apply to Mini options the same Linkage Fees
structure as applies to standard options. Further, the Exchange
believes that it is equitable and not unfairly discriminatory to treat
Mini options the same as standard options for purposes of the Linkage
Fees for that tautological reason; Mini options will be treated the
same as standard options for the purposes of Linkage Fees. Finally,
since the Linkage Fees will apply to all participants in Minis as they
apply for standard options, and because such Linkage Fees have not
previously been found to be unreasonable, inequitable or unfairly
discriminatory, the Exchange believes this to be the case for Minis as
well.
The Exchange believes that the proposal to assess the same ORF
amount to Minis as are assessed to standard options is reasonable
because, as noted, the costs to the Exchange to process quotes, orders,
trades and the necessary regulatory surveillance programs and
procedures in Minis are the same as for standard option contracts. As
such, the Exchange feels that it is appropriate to charge the ORF at
the same rate as the standard option contract. Further, the Exchange
notes that the cost to perform surveillance to ensure compliance with
various Exchange and industry-wide rules is no different for a Mini
option than it is for a standard option contract. Reducing the ORF for
Mini options could result in a higher ORF for standard options. As
such, the Exchange currently believes that the appropriate approach is
to treat both Minis and standard options the same with respect to the
amount of the ORF that is being charged. The proposed ORF for Minis is
equitable and not unfairly discriminatory because the same ORF amount
is currently assessed to standard options. Further, all Minis will be
assessed the ORF. The Exchange believes that it is reasonable,
equitable and not unfairly discriminatory to count
[[Page 20966]]
revenue from Mini trading towards the DEA Fee because revenue from Mini
trading is revenue, and other revenue counts towards the DEA Fee. The
Exchange also believes that this is equitable and not unfairly
discriminatory because it will apply to all market participants to whom
the DEA Fee apply.
The Exchange believes that the proposed change to correct the
references in Section 1C of the Fees Schedule is consistent with the
Section 6(b)(5) \17\ 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. Correcting
the references prevents confusion, thereby removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, and, in general, protecting investors and the public
interest.
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\17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 proposed change designed
to provide greater specificity and precision within the Fee Schedule
with respect to the fees applicable to Minis.
The Exchange believes that adopting fees for Minis that are in some
cases lower than for standard contracts, but in other cases the same as
for standard contracts, strikes the appropriate balance between fees
applicable to standard contracts versus fees applicable to Minis, and
will not impose a burden on competition among various market
participants on the Exchange not necessary or appropriate in
furtherance of the purposes of the Act. To the extent that the Exchange
proposes assessing different fee amounts to different Exchange market
participants, the Exchange believes that such differing assessments
will not impose an unnecessary burden on intramarket competition due to
the different natures of such market participants and different
obligations imposed on such market participants (as described above).
Further, in the cases in which some market participants are assessed
lower fee amounts than others, the Exchange often does so with the
intention of attracting greater trading from those market participants,
and the increased volume and trading opportunities benefits all market
participants.
The Exchange believes that the proposed fees structure for Mini
options will not impose an unnecessary burden on intermarket
competition. The Exchange believes that its proposed fees structure for
Minis is competitive with those being offered by other exchanges. As
such, the Exchange believes that the proposed fees structure for Minis
will increase intermarket competition, which benefits all market
participants. To the extent that market participants on other exchanges
may be attracted to trade on C2 by the proposed fees structure for Mini
options, they are always welcome to become market participants on C2.
As Minis are a new product being introduced into the listed options
marketplace, the Exchange is unable at this time to absolutely
determine the impact that the fees and rebates proposed herein will
have on trading in Minis. That said, however, the Exchange believes
that the rates proposed for Minis would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.
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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR [sic] 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-C2-2013-017 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 Number SR-C2-2013-017. 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;
[[Page 20967]]
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-
2013-017, and should be submitted on or before April 29, 2013.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08089 Filed 4-5-13; 8:45 am]
BILLING CODE 8011-01-P