[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60947-60950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23999]
[[Page 60947]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70508; File No. SR-C2-2013-034]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Message Types, Connectivity and Bandwidth Allowance
September 26, 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 September 16, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to codify certain definitions, practices and
requirements related to System connectivity, message types and
bandwidth allowance to promote transparency and maintain clarity in the
rules. 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
C2 proposes to codify certain definitions, practices and
requirements related to System connectivity, message types and
bandwidth allowance to promote transparency and maintain clarity in the
rules. Specifically, the Exchange is proposing to (i) amend Rule 1.1
(Definitions) to define ``API'' and ``Order''; (ii) amend Rule 6.34
(Participant Electronic Connectivity) to clarify that authorized market
participants connect electronically to the Exchange via an
``Application Programming Interface'' (``API'') and specify which APIs
are available; (iii) amend Rule 6.35 (Message Packets) to clarify that
a Trading Permit shall entitle the holder to a maximum number of orders
and quotes per second(s) as determined by the Exchange and that the
Exchange may expand bandwidth limitations in certain situations; and,
adopt new Rule 6.19 (Types of Order Formats) to describe the types of
order formats available to Permit Holders to facilitate order entry.
C2 first proposes to define ``Application Programming Interface''
(``API'') and ``Order'' in its rules. While there are various
references to these two terms throughout the C2 Rules, nowhere in the
rules are the definitions codified. Therefore, C2 believes it would be
useful to explicitly define these terms within the rule text to reduce
confusion. First, C2 proposes to define ``API'' as a computer interface
that allows market participants with authorized access to interface
electronically with C2. This proposed definition is substantially
similar to the definition of API previously adopted by the Chicago
Board Options Exchange, Incorporated (``CBOE'') and the CBOE Stock
Exchange, LLC (``CBSX'').\3\ Additionally, C2 will define the term
``order'' as a firm commitment to buy or sell option contracts. The
proposed definition of the term ``order'' is similar to the definition
previously adopted by CBOE.\4\
---------------------------------------------------------------------------
\3\ See CBSX Rule 50.1 (Definitions) and CBOE Rule 1.1
(Definitions).
\4\ See CBOE Rule 1.1 (Definitions).
---------------------------------------------------------------------------
Next, C2 believes it would be useful to codify how authorized
market participants may access the C2 System. Specifically, the
Exchange will make clear that authorized market participants access C2
via an API. Currently, C2 offers two APIs: (1) CBOE Market Interface
(``CMi'') and (2) Financial Information eXchange (``FIX'') Protocol.
Multiple versions of each API may exist and be made available to all
authorized market participants. Authorized market participants may
select which of the available APIs they would like to use to connect to
the System. C2 believes it is important to provide market participants
with this flexibility so that they can determine the API that will be
most compatible with their systems and maximize the efficiency of their
interface. Connection to the System allows authorized market
participants to engage in order and quote entry, as well as auction
participation.
C2 believes that while information relating to connectivity and
available APIs for C2 is already widely available to all market
participants via technical specifications, codifying this information
within the rule text will provide additional transparency.
C2 also seeks to codify and describe the types of order formats
that are available for order entry in new Rule 6.19 (Types of Order
Formats). Order formats are message types that are used to send new
orders into CBOE Command \5\ through a user's selected API. C2
currently offers one order format, C2 Order Format 1 (``OF1''). In
addition to C2 OF1, C2 seeks to make another order format available to
Permit Holders, namely, C2 Order Format 2 (``C2 OF2'').\6\ C2 will
announce the implementation date of the proposed rule change as it
relates to the availability of C2 OF2 in a Regulatory Circular to be
published no later than 90 days following the effective date of this
rule filing. The implementation date will be no later than 180 days
following the effective date of this rule filing. Once C2 Of2 is
available, Permit Holders may elect to use either order format,
provided that the order format selected supports the given order type.
The Exchange believes it is important to provide market participants
with this flexibility so that they can determine the order format that
will be most compatible with their needs.
---------------------------------------------------------------------------
\5\ CBOE Command is the trading engine platform for CBOE, C2,
CBSX and CBOE Futures Exchange (``CFE''). CBOE Command incorporates
both order handling and trade processing on the same platform.
\6\ C2 Order Format 2 was previously offered and available to
all C2 Permit Holders.
---------------------------------------------------------------------------
Orders using the C2 OF1 format must pass through various processes,
including validation checks which occur in the trade engine. Examples
of such validation checks include validating an order's origin code or
contingency type. C2 OF1 supports all
[[Page 60948]]
order types, including auction responses.
Orders using the C2 OF2 format will also be subject to various
processes, including validation checks similar to C2 OF1 validation
checks (e.g., validating an order's origin code). These validation
checks will occur in the trade engine. Additionally, fewer fields will
be required for order entry using C2 OF2 compared to using C2 OF1. The
utilization of fewer fields results in a smaller message size, thereby
increasing efficiency. C2 OF2 will support only Immediate-Or-Cancel,
ISO, ISO-Book and C2-Only orders. Accordingly, orders using the C2 OF2
format will not route to other market centers.
Although C2 OF1 is currently offered by C2 and is detailed in
technical specifications available to all Permit Holders, it has never
been codified in the C2 rules.\7\ Therefore, C2 is proposing to
introduce new C2 Rule 6.19 to make it absolutely clear that C2 OF1 and
C2 OF2 will be available to users and to provide transparency and
certainty with respect to how orders using these order formats are
processed.
---------------------------------------------------------------------------
\7\ The Exchange notes that C2 Order Format 2 was previously
available to all Permit Holders and was detailed in technical
specifications which were available to all Permit Holders.
---------------------------------------------------------------------------
The Exchange next proposes to amend Rule 6.35 (Message Packets).
Rule 6.35 currently provides that a Trading Permit shall entitle the
holder to a maximum number of orders and quotes per second as
determined by the Exchange, that only Market-Makers may submit quotes,
and that Participants seeking to exceed that number of messages per
second may purchase additional message packets at prices set forth in
the Exchange's Fees Schedule.\8\ The Exchange first seeks to amend Rule
6.35 to clarify that a Trading Permit shall entitle the holder to a
maximum number of orders and quotes per second(s) (i.e., bandwidth is
set at x messages per 1 second or over the course of multiple seconds).
C2 next proposes to provide that C2 may set a different maximum number
of orders per second(s) for each of the available order formats under
proposed Rule 6.19. Next, C2 seeks to provide that C2 shall, upon
request and where good cause is shown, temporarily increase a Permit
Holder's order entry bandwidth allowance at no additional cost. All
determinations to temporarily expand bandwidth allowances will be made
in a non-discriminatory manner and on a fair and equal basis. C2 also
seeks to provide that no bandwidth limits shall be in effect during the
pre-opening prior to 8:15 a.m. CT, which shall apply to all Permit
Holders. Finally, C2 seeks to amend Rule 6.35 to provide that C2 may
determine times periods for which there shall temporarily be no
bandwidth limits in effect for all Permit Holders. Any such
determination shall be made in the interest of maintaining a fair and
orderly market. C2 shall notify all Permit Holders of any such
determination.
---------------------------------------------------------------------------
\8\ See C2 Rule 6.35.
---------------------------------------------------------------------------
C2 does not have unlimited system bandwidth capacity to support an
unlimited number of order and quote entry per second. For this reason,
C2 limits each Trading Permit to a maximum number of messages per
second(s). C2 however, also recognizes that different Permit Holders
have different needs and affords any Permit Holder the opportunity to
purchase additional bandwidth packets at prices set forth in C2's Fee
Schedule. C2 first seeks to amend Rule 6.35 to clarify that a Trading
Permit shall entitle the holder to a maximum number of orders and
quotes per second(s). For example, C2 notes that a Permit Holder may
have the option of choosing to have its bandwidth set at x orders per 1
second or 5x orders per 5 seconds. Currently, all Permit Holders may
choose to have its bandwidth set at x orders per one second or 5x
orders per 5 seconds for C2 OF1 orders only. Bandwidth for C2 OF2
orders will be set at x orders per one second. To illustrate, if the
maximum number of orders per second is 5 orders, a user may choose to
have its bandwidth set for C2 OF1 orders so that it may send in 5
orders per 1 second, or send in 25 orders over the course of 5 seconds.
Additionally, continuing with the above illustration (i.e., ``x''
equals 5), if a Permit Holder purchased one (1) additional Order Entry
bandwidth packet, pursuant to the current Fees Schedule, the Permit
Holder would have the ability to submit, depending on how its bandwidth
is set, either a total of 10 C2 OF1 or OF2 orders per 1 second or a
total of 50 C2 OF1 orders over the course of 5 seconds. As for quotes,
a Permit Holder is limited to x quote messages (``blocks'') per 1
second. C2 notes that each block is limited to a maximum number of
quotes. Additionally, C2 has set a maximum number of total quotes per 3
seconds. For example, if the Exchange limited each Trading Permit to
100 quotes per 1 block, 10 blocks per 1 second and 200 quotes per 3
seconds, then a user cannot, for example, enter 11 blocks per 1 second.
The Exchange will reject the entire block of quotes that puts the user
over the threshold. If a user in the above example were to enter, 10
blocks comprised of 10 quotes (i.e., total of 100 quotes) in the first
second and 5 blocks comprised of 20 quotes (i.e., total of 100 quotes)
in the following second, then the user would not be able to enter any
more blocks (and therefore quotes) in the third second, as the user
would exceed the 200 quotes per 3 second threshold. C2 believes that
adding ``(s)'' to the end of ``per second'' will clarify that a Trading
Permit entitles the holder to a maximum number of orders and quotes per
1 second or per multiple seconds.
C2 next proposes to provide that it may set a different maximum
number of orders per second(s) for each of the order formats discussed
above. As noted above, C2 OF2 will utilize fewer fields resulting in a
smaller message size and increased efficiency. The System can therefore
better accommodate increased bandwidth capacity due to this smaller
message size. Accordingly, the Exchange may implement a higher maximum
number of orders per second for orders using C2 OF2 as compared to C2
OF1. C2 proposes to increase the maximum numbers of orders per second
for all orders submitted using message format C2 OF2. Any Permit Holder
sending orders using C2 OF2 would be entitled to this increased
bandwidth allowance for C2 OF2 orders only. To illustrate, C2 may
determine to set the maximum number of orders per second for C2 OF1
orders at 5 (i.e., 5 OF1 orders per 1 second or 25 OF1 orders per 5
seconds) and the maximum number of orders per second for C2 OF2 orders
at 15 (i.e., 15 OF2 orders per 1 second). Additionally, continuing with
the illustration, if a Permit Holder purchased one (1) additional Order
Entry bandwidth packet, the Permit Holder would have the ability to
submit, depending on how its bandwidth is set, a total of 10 OF1 orders
per 1 second or a total of 50 OF1 orders over the course of 5 seconds
and 30 OF2 orders per 1 second. The Exchange notes that each Permit
Holder will be subject to the same maximum number of orders per
second(s) set for each order format. Additionally, any change to the
maximum number of orders per second(s) for any order format will be
applicable to all Permit Holders.
The Exchange next seeks to amend Rule 6.35 to make clear that under
certain circumstances and upon request, C2 may determine to temporarily
waive the maximum number of orders per second(s) and expand the
bandwidth settings at no additional cost to the requesting Permit
Holder. One such example in which bandwidth may be temporarily
increased is in situations where a Permit Holder's system is
experiencing technical problems,
[[Page 60949]]
resulting in a large order queue. Once the problem is resolved, the
queue has to be drained. In these instances, it may be necessary to
temporarily expand the bandwidth limits for that particular Permit
Holder to accommodate the accumulation of orders in its system and to
drain the queue of orders. Another example is when another exchange
declares a trading halt and a Permit Holder that has orders resting at
that exchange redirects that order flow to C2. The redirected order
flow may at times consist of thousands of orders. To enter such a large
quantity of orders, the Permit Holder's bandwidth allowance would
require a temporary expansion, which, upon request and demonstrated
need, C2 could provide at no additional charge.
All determinations to temporarily expand bandwidth allowances shall
be made in a non-discriminatory manner and on a fair and equal basis.
Additionally, all Permit Holders who make such request and demonstrate
a need shall be entitled to a temporary expansion. C2 shall document
all requests for a temporary expansion of bandwidth, including whether
each request was granted or denied, along with the reasons for each
grant or denial. Also, temporary increases of bandwidth generally are
in effect for not longer than a few seconds or for as long as is
necessary to accommodate an order queue.
Next, C2 notes that no bandwidth limits shall be in effect for any
Permit Holder during pre-opening, prior to 8:15 a.m. CT. This allows
Permit Holders to release, and C2 to absorb, order flow that has
accumulated overnight and pre-opening. C2 also notes that prior to the
opening of trading, such bandwidth restrictions are unnecessary. C2 may
also determine times periods for which there shall temporarily be no
bandwidth limits in effect for any Permit Holder. Any such
determination shall be made in the interest of maintaining a fair and
orderly market. C2 shall notify all Permit Holders of any such
determination and shall keep a record of any such notification.
C2 finally notes that the proposed changes to Rule 6.35 are based
off a substantially similar rule previously adopted on CBOE.
Specifically, CBOE recently adopted Rule 6.23B (Bandwidth Packets),
which provides that a Trading Permit shall entitle the holder to a
maximum number of orders and quotes per second(s) as determined by
CBOE, that only Market-Makers may submit quotes, and that a Trading
Permit Holder seeking to exceed that number of messages per second may
purchase additional message packets at prices set forth in the CBOE's
Fees Schedule. Additionally, CBOE Rule 6.23B provides that CBOE shall,
upon request and where good cause is shown, temporarily increase a
Trading Permit Holder's order entry bandwidth allowance at no
additional cost and that all such determinations will be made in a non-
discriminatory manner and on a fair and equal basis. CBOE Rule 6.23B
also provides that no bandwidth limits shall be in effect during the
pre-opening prior to 8:25 a.m. CT, which shall apply to all Trading
Permit Holders. Finally, CBOE Rule 6.23B may determine times periods
for which there shall temporarily be no bandwidth limits in effect for
all Trading Permit Holders and that any such determination shall be
made in the interest of maintaining a fair and orderly market.\9\
---------------------------------------------------------------------------
\9\ See CBOE Rule 6.23B.
---------------------------------------------------------------------------
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) \10\ of
the Act. Specifically, the Exchange believes the proposed rule change
is consistent with the requirements under Section 6(b)(5) \11\ 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
First, clearly defining in the rules two key terms (i.e., API and
Order) informs market participants. Next, codifying in the rules how
authorized market participants access C2 electronically and specifying
the manner in which inbound orders are submitted and processed provides
additional transparency in the rules and provides market participants
an additional avenue to easily understand the system and processes C2
offers. C2 believes additional transparency removes a potential
impediment to and perfecting the mechanism for a free and open market
and a national market system, and, in general, protecting investors and
the public interest. Additionally, C2 believes that the order formats
being codified in proposed Rule 6.19 allows C2 to receive from Permit
Holders information in a uniform format, which aids C2's efforts to
monitor and regulate C2's markets and Permit Holders and helps prevent
fraudulent and manipulative practices.
C2 also believes that the proposed rule changes are designed to not
permit unfair discrimination among market participants. For example,
under proposed Rule 6.34(a), all authorized market participants may
access C2 via an available API of their choosing. Additionally, under
proposed C2 Rule 6.35, all holders of a Trading Permit are limited to
maximum number of orders and quotes per second(s) and all holders of
Trading Permits are afforded the opportunity to exceed that number by
purchasing additional message packets. Any determinations to
temporarily expand bandwidth allowances would also be made on a non-
discriminatory basis. Finally, proposed Rule 6.19 is applicable to all
Permit Holders and provides that any Permit Holder may elect to use
either one of the two available order formats.
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. Specifically, C2 believes the proposed rule
change will not impose any burden because C2 is merely harmonizing its
Rules with current functionalities and practices. Therefore, the
proposed rule change promotes transparency in the rules without adding
any burden on market participants.
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,
[[Page 60950]]
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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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-C2-2013-034 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-C2-2013-034. 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; 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 referto File Number SR-C2-2013-034, and should be
submitted on or before October 23, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23999 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P