[Federal Register Volume 78, Number 80 (Thursday, April 25, 2013)]
[Notices]
[Pages 24456-24458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-09766]
[[Page 24456]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69420; File No. SR-C2-2013-018]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Amending C2 Rules Governing Letters of Guarantee and Authorization
April 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 April 11, 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.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See also Securities Exchange Act Release No. 68879 (February
8, 2013), 78 FR 11249 (February 15, 2013) (CBOE-2012-124) (order
approving a proposed rule change to amend various CBOE rules
governing letters of guarantee and authorization).
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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 C2 rules governing letters of
guarantee and authorization. The text of the proposed rule change is
available on the Exchange's Web site (http://www.c2exchange.com/Legal/)
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Permit Holders that have trading functions on the Exchange, are
required to submit a letter of guarantee or authorization \4\ for that
Permit Holder's trading activities on the Exchange from a Clearing
Participant.\5\ The purpose of this proposal is to amend various
Exchange rules governing letters of guarantee and authorization to:
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\4\ A letter of guarantee is typically provided to C2 by a
Clearing Participant guaranteeing any trades made by one of its TPH
customers, e.g., a Market-Maker. The Commission notes that ``TPH''
refers to ``Trading Permit Holder,'' which is defined in CBOE Bylaws
Article I, Section 1.1(f) (the term ``Trading Permit Holder'' means
any ``individual, corporation, partnership, limited liability
company or other entity authorized by the Rules that holds a Trading
Permit* * *'').
\5\ C2 Rule 1.1 defines ``Clearing Participant'' as a ``Permit
Holder that has been admitted to membership in the Clearing
Corporation pursuant to the provisions of the Rules of the Clearing
Corporation.''
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Give the Exchange the ability to prevent access to its
marketplace if a Permit Holder does not have an effective letter of
guarantee or authorization on file with the Exchange;
Provide that any written revocation of a letter of
guarantee or authorization will be given effect as quickly as the
Exchange can process it;
Give the Exchange the ability to take any action necessary
to give effect to actions by the Clearing Corporation,\6\ such as
restricting the activities of a Clearing Participant or suspending a
Clearing Participant; and
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\6\ The Options Clearing Corporation (``OCC'') is currently the
only Clearing Corporation of C2.
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Automatically terminate the trading permit(s) and Permit
Holder status of a Permit Holder if the Permit Holder does not have a
required letter of guarantee or authorization in place for ninety
consecutive days.
The changes proposed in this filing are intended to clarify and
codify existing and well-established principles regarding activities
permitted by Clearing Participants. While elementary, the Exchanges
believes that it is important to specifically provide in its rules that
a Permit Holder must have a valid letter of guarantee or authorization
in order to engage in trading activities and, if one is not in place,
the Exchange is permitted to prevent connectivity and access to the
Exchange by that Permit Holder. Similarly, the definition of a Clearing
Participant requires that a Permit Holder be admitted to membership in
the OCC.\7\ If the OCC restricts the activities of a Clearing
Participant or terminates a Clearing Participant's membership in the
OCC, that Permit Holder no longer meets the definition of a ``Clearing
Participant.'' As a result, the Exchange believes it is appropriate to
codify its ability to take action, as necessary, to give effect to any
restriction or suspension issued by the OCC. Finally, the Exchange is
proposing to provide that if a Permit Holder does not have a required
letter of guarantee or authorization in place for ninety consecutive
days, the Permit Holder's status and trading permit(s) will
automatically terminate (in addition to previous action by the Exchange
not to allow the Permit Holder to have access and connectivity to the
Exchange without a required guarantee which would occur following the
revocation of a guarantee). If a Permit Holder no longer has a valid
letter of guarantee and authorization, that Permit Holder presents risk
to the marketplace and the Exchange believes it is appropriate to
terminate trading, access and connectivity and then Permit Holder
status in this situation.
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\7\ See C2 Rule 1.1.
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The Exchange is proposing to amend C2 Rule 3.10 so that it will
govern letters of guarantee and authorization (currently Rule 3.10 is
limited to letters of guarantee). The Exchange is proposing to add new
paragraphs (b) through (g) to Rule 3.10 to expressly provide the
Exchange with remedial powers in the event the OCC restricts or
suspends a Clearing Participant. The Exchange is also proposing to add
new paragraph (h) to Rule 3.10 to govern the termination of Permit
Holder status when a Permit Holder is without a required letter of
guarantee or authorization for a ninety consecutive day period.
First, the Exchange is proposing to provide that a Permit Holder
may not engage in any trading activities on the Exchange if an
effective letter of guarantee or authorization required to engage in
those activities is not on file with the Exchange. If a Permit Holder
does not have an effective letter of guarantee or authorization on file
with the Exchange, the Exchange will be permitted to prevent access and
connectivity to the Exchange by that Permit Holder.
Second, the Exchange is proposing to provide that letters of
guarantee and authorization filed with the Exchange will remain in
effect until a written notice of revocation has been filed with the
Permit Holder Department and the revocation becomes effective or the
letter of guarantee or authorization otherwise becomes invalid pursuant
to Exchange rules. A written notice of
[[Page 24457]]
revocation will become effective as soon as the Exchange is able to
process the revocation. A revocation will in no way relieve a Clearing
Participant of responsibility for transactions guaranteed prior to the
effectiveness of the revocation.
Third, the Exchange is proposing to provide that if the OCC
restricts the activities of a Clearing Participant or suspends a
Clearing Participant as a Clearing Member of the OCC, the Exchange will
be permitted to take action as necessary to give effect to the
restriction or suspension. For example, if the OCC restricts
transactions cleared by a Clearing Participant to ``closing only''
transactions, the Exchange will be similarly able to restrict
transactions on the Exchange for clearance by that Clearing Participant
as a Clearing Member of the OCC to ``closing only'' transactions.
Similarly, if the OCC suspends a Clearing Participant, the Exchange
will be similarly able to prevent access and connectivity to the
Exchange by the suspended Clearing Participant.
Fourth, the Exchange is proposing to provide that if a Clearing
Participant's status as a Clearing Member of the OCC is terminated or
if a Clearing Participant's status as a C2 Permit Holder is terminated,
all letters of guarantee and authorization on file with the Exchange
from that Clearing Participant will no longer be valid effective as
soon as the Exchange is able to process the invalidation of these
letters of guarantee and authorization.
Fifth, the Exchange is proposing to provide that if a Clearing
Participant has been suspended as a Clearing Member of the OCC or as a
C2 Permit Holder, all existing letters of guarantee and authorization
from that Clearing Participant will be invalid during the period of the
suspension effective as soon as the Exchange is able to process the
invalidation of those letters of guarantee and authorization.
Sixth, the Exchange is proposing to provide that the invalidation
of a letter of guarantee or authorization will in no way relieve the
Clearing Participant that issued the letter of guarantee or
authorization of responsibility from transactions guaranteed prior to
the effectiveness of the invalidation.
Seventh, the Exchange is proposing to provide that if a Permit
Holder does not have a required letter of guarantee or authorization
for period of ninety consecutive days, the Permit Holder's trading
permit(s) and status as a Permit Holder shall automatically be
terminated.
A revocation of a letter of guarantee or authorization will not
occur immediately upon receipt of the revocation by the Permit Holder
Department because it takes time for the Exchange to process and
effectuate the revocation. For example, there are changes that must be
input into the Exchange's systems in order to systematize and
effectuate a revocation. Also Exchange staff may be occupied with other
matters when a revocation is received and may not immediately be able
to process the revocation. Accordingly, the revocation and invalidation
of letters of guarantee and authorization under proposed Rules 3.10(c)
and 3.10(f) shall become effective as soon as the Exchange is able to
process the revocation or invalidation. The Exchange will endeavor to
process revocations and invalidations in a timely manner under the
circumstances but makes no guarantees in this respect.
If a Permit Holder has a letter of guarantee or authorization that
is revoked or invalidated, that Permit Holder's orders and quotes will
be rejected after the revocation or invalidation after the revocation
or invalidation becomes effective unless and until the Trading Permit
has another effective letter of guarantee or authorization in place and
on file with the Exchange. This means that a Trading Permit without an
effective letter of guarantee or authorization will not be able to
continue to trade on the Exchange.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (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 the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitation
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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In particular, expressly permitting the Exchange to take action as
needed to give effect to a restriction or suspension issued by the OCC
will protect the integrity of the Exchange's marketplace by limiting
trading to only those Permit Holders with effective and unrestricted
letters of guarantee and authorization. A key purpose for having
Clearing Participants is to reduce the risk of market participants
failing to honor executed trades. By requiring that Permit Holders have
an effective and unrestricted letters of guarantee, the Exchange is
advancing this purpose. Additionally, the Exchange believes that the
proposed rule change is designed 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
in that it will allow the Exchange to take actions to give effect to
restrictions or suspensions issued by the OCC. The ability to take
action is designed to prevent the execution of trades on the Exchange
which may not be able to be ultimately cleared and settled if access to
the Exchange's marketplace is not restricted in tandem with a
restriction or suspension issued by the OCC. Also, preventing access
and connectivity to the Exchange by a Permit Holder if that Permit
Holder's Clearing Participant revokes the Permit Holder's letter of
guarantee or authorization is beneficial to the marketplace and serves
to protect investors since it prevents trading by a Permit Holder
without a financial guarantee for that trading. If a Permit Holder no
longer has a valid letter of guarantee or authorization, that Permit
Holder presents risk to the marketplace and the Exchange believes it is
appropriate to prevent access and connectivity to the Exchange by that
Permit Holder in this situation. The Exchange also believes that having
the ability to terminate the Permit Holder status and trading permit(s)
of a Permit Holder that does not have a required letter of guarantee or
authorization for ninety consecutive days is desirable since it allows
the Exchange to appropriately manage and control access to its
marketplace by limiting access only to those with a financial guarantee
which thereby serves to protect investors by ensuring that
counterparties to trades have such a guarantee.
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The Exchange believes the proposed rule change is also consistent
with the Section 6(b)(7) \11\ requirements that the rules of an
exchange provide a fair procedure for the denial of membership to any
person seeking membership therein and the prohibition or limitation by
an exchange of any person with respect to access to services offered by
the exchange.
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\11\ 15 U.S.C. 78f(b)(7).
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Specifically, with respect to the proposed automatic termination
provision when a Permit Holder does not have a required letter of
guarantee or authorization for ninety consecutive days, the Exchange
believes that that provision establishes a fair procedure because it
strikes the appropriate balance between giving a deficient Permit
Holder an adequate amount of time to cure the deficiency of not having
a required letter of guarantee or authorization and allowing the
Exchange to appropriately limit access to its marketplace only to those
Permit Holders with a financial guarantee. Furthermore, the automatic
termination provision does not prohibit or limit a previously
terminated Permit Holder from seeking to gain access again to the
Exchange by applying to become a Permit Holder subsequent to the
termination if the Permit Holder is able to again acquire the required
letter of guarantee and authorization.
B. Self-Regulatory Organization's Statement on Burden on Competition
C2 does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believes
the proposed rule change will pose any burden on intramarket
competition because it is applied to all TPHs equally as all will have
the same requirements with respect to letters of guarantee.
Additionally, the Exchange does not believe the proposed rule change
will pose any burden on intermarket competition because the proposed
rule change merely allows the Exchange to clarify and codify existing
and well-established principles regarding activities permitted by
Clearing Participants. Therefore, there would be no further impact on
intermarket competition.
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
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. Impose any significant burden on competition; and
C. 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 \12\
and Rule 19b-4(f)(6) \13\ 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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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
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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-C2-2013-018 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-C2-2013-018. 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 the 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-C2-2013-018 and should be
submitted on or before May 16, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-09766 Filed 4-24-13; 8:45 am]
BILLING CODE 8011-01-P