80 FR 45259 - Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Price Check Parameters

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 145 (July 29, 2015)

[Federal Register Volume 80, Number 145 (Wednesday, July 29, 2015)]
[Notices]
[Pages 45259-45264]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-18540]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75516; File No. SR-C2-2015-021]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Price Check Parameters

July 23, 2015.
    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 July 17, 2015, 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 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.
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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 Rules 6.13 and 6.17 relating to 
price check parameters on the Exchange. The text of the proposed rule 
change is provided in Exhibit 5 and is also available on the Exchange's 
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 
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.

[[Page 45260]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under Rule 6.17, C2 does not automatically execute eligible orders 
that are marketable if (i) the width between the national best bid and 
offer (the ``NBBO'') is not within an acceptable price range (as 
established by the Exchange on a series by series basis for market 
orders and/or marketable limit orders within certain parameters and 
announced to Trading Permit Holders (``TPHs'') via Regulatory Circular) 
(the ``market width parameter''), or (ii) the execution would follow an 
initial partial execution on the Exchange and would be at a subsequent 
price that is not within an acceptable tick distance (``ATD'') from the 
initial execution (as determined by the Exchange on a series by series 
and premium basis for market order and/or marketable limit orders and 
announced to TPHs by Regulatory Circular) (the ``drill through 
parameter'').
    The purpose of this proposed rule change is, first, to codify 
another price reasonability check within Rule 6.17. The reasonability 
check is currently in use but not expressly covered in the rules. 
Specifically, under this reasonability check, referred to as the 
``limit order price parameter,'' the Exchange will not accept for 
execution eligible limit orders if (i) prior to the opening (including 
before a series is opened following a halt),\3\ the order is to buy are 
at more than an acceptable tick distance above the Exchange's previous 
day's close or the order is to sell are at more than an acceptable tick 
distance below the Exchange's previous day's close (such ATD will be as 
determined by the Exchange on a series by series and premium basis and 
announced to TPHs by Regulatory Circular); \4\ or, (ii) once a series 
has opened, the order is to buy are at more than an acceptable tick 
distance above the disseminated Exchange offer or the order to sell are 
at more than an acceptable tick distance below the disseminated 
Exchange bid (such ATD will be as determined by the Exchange on a 
series by series and premium basis and announced to TPHs by Regulatory 
Circular).\5\ The Exchange will not apply pre-opening limit order price 
parameters to limit orders of Exchange Market-Makers or away Market-
Makers, or to Intermarket Sweep Orders (``ISOs'') as such cannot be 
entered prior to the opening on the System.\6\ Once a series has 
opened, limit order price parameters will be applied to ISOs in all 
classes in which the limit order price parameter is activated.\7\ The 
Exchange may determine on a class by class basis and announce via 
Regulatory Circular whether to apply the parameters in (i) and/or (ii) 
above to immediate-or-cancel orders if doing so would be necessary or 
appropriate in furtherance of the interests of investors and the 
promotion of fair and orderly markets.\8\
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    \3\ This includes halts that may occur at any time after the 
opening of trading on a particular trading day. The Exchange notes 
that this is the manner in which the limit order price parameter 
functionality currently operates. The Exchange believes that this 
functionality provides an additional safeguard to consider the 
reasonableness of limit order pricing prior to a re-opening 
following a trading halt.
    \4\ This parameter for limit orders received prior to the 
opening (including before a series is opened following a halt) is 
not applicable to limit orders of Exchange Market-Makers and away 
Market-Makers. The Exchange believes that Market-Makers actively 
evaluate the pre-opening market and utilize their own risk 
management parameters when entering, maintaining and cancelling 
orders prior to the opening, minimizing the likelihood of a Market-
Maker order resulting from an error from being entered and 
continuing to rest prior to the opening of trading. In that regard, 
while the Exchange believes that the application of its limit order 
price parameters serve to promote a fair and orderly market, the 
parameters are not a substitute for a broker-dealer's compliance 
with Rule 15c3-5 under the Act, 17 CFR 240.15c3-5 (commonly referred 
to as the ``Market Access Rule'').
    \5\ The Exchange notes that with respect to simple orders, limit 
order price parameters will be applied [sic] a series by series 
basis with ATDs to be applied to the series that is the subject of 
the simple order execution as only one series is involved in a 
simple order execution. With respect to complex orders, limit order 
price parameters will be applied on a class by class basis with ATDs 
to be applied to both (each) of the individual legs of both (each) 
series comprising the complex order as well as the net derived 
premium price (``net premium basis'') of the complex order as a 
whole. These parameters will be applied on a class by class basis 
for complex orders as multiple series in a class are involved in a 
complex order execution. The Exchange notes that the ATDs determined 
by the Exchange on a series by series and premium basis (i.e. simple 
order executions) and class by class and net premium basis (i.e. 
complex order executions) under Rules 6.17 and 6.13 will be 
announced via Regulatory Circular at least one day in advance.
    \6\ Under Rule 1.1, the term ``System'' means the automated 
trading system used by the Exchange for the trading of options 
contracts.
    \7\ For all classes where the limit order price parameter is 
activated, it is currently applied to ISOs. ISOs are oftentimes used 
to capture size on the Exchange that is not available on other 
markets. As a result, ISOs tend to be large orders and thus, the 
consequences of order entry errors may be great. In an effort to 
protect market participants from the consequences of such order 
entry errors and prevent market disruptions that may be caused by 
erroneously placed orders, the Exchange has determined to apply 
limit order price parameters to ISOs on the Exchange. The Exchange 
believes that applying limit order price parameters to ISOs serves 
to protect investors and is consistent with Section 6(b) of the Act. 
The Exchange has in place rules and surveillances to ensure that 
ISOs are used in an appropriate manner consistent with the Options 
Order Protection and Locked/Crossed Market Plan, C2 Rules, and 
Federal Securities laws. See Section E of Chapter 6 (incorporating 
by reference CBOE's rules relating to the Options Order Protection 
and Locked/Crossed Market Plan), relating to Intermarket Linkage and 
corresponding Chicago Board Options Exchange, Incorporated 
(``CBOE'') Rule 6.80(8) defining an ISO as a Limit Order for an 
options series that, simultaneously with the routing of the ISO, one 
or more additional ISOs, as necessary, are routed to execute against 
the full displayed size of any Protected Bid, in the case of a limit 
order to sell, or any Protected Offer, in the case of a limit order 
to buy, for the options series with a price that is superior to the 
limit price of the ISO and noting that a Trading Permit Holder may 
submit an ISO to the Exchange only if it has simultaneously routed 
one or more additional ISOs to execute against the full displayed 
size of any Protected Bid, in the case of a limit order to sell, or 
Protected Offer, in the case of a limit order to buy, for an options 
series with a price that is superior to the limit price of the ISO. 
Should the Exchange, in the future, determine that, in the interests 
of fair and orderly markets or, in furtherance of the objectives of 
the Options Order Protection and Locked/Crossed Market Plan, limit 
order price parameters should be applied to ISOs (or another order 
type) in a different manner as other order types, the Exchange may 
determine to widen or narrow the ATDs with respect to ISOs (or 
another order type), which would be announced via Regulatory 
Circular. Should the Exchange, in the future, determine that, in the 
interests of fair and orderly markets or, in furtherance of the 
objectives of the Options Order Protection and Locked/Crossed Market 
Plan, limit order price parameters should not apply to ISOs, a 
further rule filing would be required.
    \8\ For all classes where the limit order price parameter is 
activated, it is not currently applied to immediate-or-cancel 
orders. Immediate-or-cancel orders are oftentimes used by Market-
Makers and sophisticated investors to hit existing books as orders 
become available. Although the Exchange also believes that there is 
less of a need to protect Market-Makers and sophisticated investors 
from potential order entry errors, the Exchange is interested in the 
protection of all market participants from unintended order entry 
errors. As a result, in furtherance of the interests of investors 
and the promotion of fair and orderly markets, the Exchange is 
considering applying limit order price parameters to immediate-or-
cancel orders in the future. Any such determination would be made 
pursuant to proposed Rules 6.13.04(g) and 6.17(b) and announced via 
Regulatory Circular [sic].
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    For purposes of this limit order price parameter: An ``acceptable 
tick distance'' or ``ATD'' \9\ is to be determined by the Exchange on a 
series by series and premium basis and shall be no less than five 
minimum increment

[[Page 45261]]

ticks.\10\ The senior official in the Help Desk might widen or 
inactivate the limit order price parameters on an intra-day basis in 
the interest of a fair and orderly market.\11\ The limit order price 
parameter takes precedence over another parameter to the extent that 
both are applicable to an incoming limit order.\12\
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    \9\ The Exchange notes that, for a given series, the applicable 
ATDs for the limit order price parameters (which may not be less 
than five minimum increment ticks) may differ from the ATDs for the 
drill through parameters (which may not be less than two minimum 
increment ticks). For example, the Exchange may determine that the 
drill through ATD for all series of a given class trading in $0.01 
increments is $0.02 and the limit order price ATD settings for the 
same class are as described in note 8, infra [sic]. The settings may 
differ because the limit order price parameters and the drill 
through parameters are intended to provide reasonability checks that 
address various trading scenarios (e.g., marketable orders that 
would otherwise drill through multiple price points and limit orders 
that are priced significantly through the disseminated Exchange bid/
offer or the prior day's close). The Exchange believes use of 
multiple reasonability checks helps to prevent the entry and 
execution of orders at potentially erroneous prices, which should 
promote a fair and orderly market.
    \10\ For example, currently the Exchange has determined for all 
classes where the limit order price parameter is activated that the 
Exchange would not accept the following limit orders for execution: 
(i) If the market quote is less than or equal to $3, limit orders to 
buy priced more than $0.50 above the offer and limit orders to sell 
priced more than $0.50 below the bid; (ii) if the market quote is 
greater than $3 and less than or equal to $10, limit orders to buy 
priced more than $1.00 above the offer and limit orders to sell 
priced more than $1.00 below the bid; (iii) if the market quote is 
greater than $10 and less than or equal to $30, limit orders to buy 
priced more than $1.50 above the offer and limit orders to sell 
priced more than $1.50 below the bid; (iv) if the market quote is 
greater than $30 and less than or equal to $50, limit orders to buy 
priced more than $2.00 above the offer and limit orders to sell 
priced more than $2.00 below the bid; or (v) if the market quote is 
equal to or greater than $50, limit orders to buy priced more than 
$3.00 above the offer and limit order to sell priced more than $3.00 
below the bid. See C2 Regulatory Circular RG13-059, which is 
available at http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf. For the same classes, the Exchange has determined that 
limit orders received before a series is in opened will be checked 
against the previous trading day's closing price using the same 
parameters noted above. Exchange Market Maker and away Market Maker 
orders received pre-open are excluded from this pre-open limit order 
price parameter. The foregoing limit order price parameters are in 
effect in all classes except options on Apple Inc. (AAPL). There are 
no limit order price parameters currently activated for option class 
AAPL. See id. According to the Exchange, volume for options class 
AAPL is higher and trading is more volatile, while the price of the 
underlying stock is higher (e.g., Apple Inc. closed at $125.69 on 
July 7, 2015). The Exchange believes that application of the limit 
order price parameter in these circumstances may serve as more of a 
hindrance to the orderly processing orders (e.g., application of the 
parameter may result in an inordinate number of orders being 
excepted from automated process and instead routing for manual 
handling) and, as a result, has determined to not apply the 
parameters to option class AAPL for the time being. However, the 
Exchange may evaluate whether to apply the parameters to the option 
class and any determination to do so would be announced via 
Regulatory Circular.
    \11\ For example, if an underlying stock is high priced or 
volatile and is experiencing significant price movement and the 
existing parameters would result in an inordinate number of limit 
orders not being accepted, the senior official in the Help Desk may 
determine to widen the parameters on an intra-day basis in the 
overlying or related options series. See C2 Rule 6.17(B); see also 
C2 Regulatory Circular RG13-059, which is available at http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf. As another 
example, if the overall market is experiencing significant 
volatility, the senior official in the Help Desk may determine to 
widen the limit order price parameters for a series. In that regard, 
the Exchange has determined that on any trading day where the front-
month E-mini S&P 500 Futures (symbol ES/1) are trading more than 20 
points above or below the previous day's closing values by 8:00 a.m. 
(all times noted are Central Time), the Exchange will widen the 
limit order price parameter levels from $0.50, $1.00, $1.50, $2.00 
and $3.00 as set out in note 10, supra, to $1.00, $2.00, $3.00, 
$4.00 and $6.00, respectively, for the trading day for all series 
where the limit order price parameter is activated (referred to 
herein as the ``Standing Intraday Relief Condition''). See C2 
Regulatory Circular C2 RG13-059. The next trading day, the limit 
order price parameter levels would revert back to the normal 
setting, unless the E-mini S&P 500 Future is more than 20 points 
above or below the previous day's closing values by 8:00 a.m.
    Example of Standing Intraday Relief Condition: If on Monday the 
E-mini S&P 500 Futures close at 1700 and by 8:00 a.m. on Tuesday the 
E-mini S&P 500 Future is trading at 1730 (30 points above the prior 
day's close of 1700), then the Exchange would adjust the limit order 
price parameters to the wider levels noted above. If the E-mini S&P 
500 Futures close on Tuesday at 1725 and by 8:00 a.m. on Wednesday 
are trading at 1720 (only 5 points below the prior day's close of 
1725), then the limit order price parameter settings would revert 
back to the levels that were in place on Monday. However, if by 8:00 
a.m. on Wednesday the E-mini S&P 500 Futures are trading at 1700 (25 
points below the prior day's close of 1725), then the limit order 
price parameter settings would remain at the levels that were in 
place on Tuesday.
    The Exchange notes that these examples are non-exhaustive and 
for illustrative purposes only. The Exchange also notes that it may 
determine for the parameters to differ among series and between pre-
open and intra-day.
    \12\ For example, assume the Exchange has established drill 
through and limit order price ATD settings as prescribed in notes 10 
and 11 [sic], supra. If the market quote in a given series is $2.15-
$2.55 and an incoming limit order to buy is priced at $3.50 (more 
than $0.50 above the offer), the limit order price ATD will be 
triggered and the Exchange will not accept the limit order for 
execution. The drill through parameter would not apply (the drill 
through ATD parameter would only be considered if the limit order 
price ATD parameter is not triggered).
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    The Exchange is also proposing to codify a limit order price 
parameter for complex orders within Rule 6.13 under proposed 
Interpretation and Policy .04(g). This limit order price parameter, 
which is comparable to the limit order price parameters applicable to 
simple orders described above, is not currently in use. Under this 
complex order limit order price parameter the Exchange will return a 
limit priced complex order to the order entry firm where the order is 
(i) prior to the opening (including before a series is opened following 
a halt), priced at a net debit that is more than an acceptable tick 
distance above the derived net market using the Exchange's previous 
day's close in the individual series legs comprising the complex order 
or priced at a net credit that is more than an acceptable tick distance 
below the derived net market using the Exchange's previous day's close 
in the individual series legs comprising the complex order (such ATD 
will be as determined by the Exchange on a class by class and net 
premium basis and announced via Regulatory Circular); or (ii) once a 
series has opened, priced at a net debit that is more than an 
acceptable tick distance above the opposite side derived net market 
using the Exchange's best bid or offer in the individual series legs 
comprising the complex order or priced at a net credit that is more 
than an acceptable tick distance below the opposite side derived net 
market using the Exchange's best bid or offer in the individual series 
legs comprising the complex order (such ATD will be as determined by 
the Exchange on a class by class and net premium basis and announced 
via Regulatory Circular).\13\ Similar to simple orders, this parameter 
for limit priced complex orders received prior to the opening would not 
be applicable to limit orders of Exchange Market-Makers or away Market-
Makers, or to ISOs as such cannot be entered prior to the opening on 
the System. Once a series has opened, limit order price parameters will 
be applied to ISOs in all classes in which the limit order price 
parameter is activated.\14\ The Exchange may determine on a class by 
class basis and announce via Regulatory Circular whether to apply the 
parameters in (i) and/or (ii) above to immediate-or-cancel complex 
orders (similar to the discussion above for simple orders). The 
Exchange also notes that the limit order price parameter will not be 
applicable to stock-option orders.\15\ The Exchange also proposes 
several non-substantive changes within Interpretation and Policy .04 to 
Rule 6.13 to abbreviate the terms ``acceptable price range'' and 
``acceptable tick distance'' where appropriate for consistency 
purposes.
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    \13\ In accordance with the existing provisions of Rule 6.13.01, 
all pronouncements regarding determinations by the Exchange pursuant 
to proposed Rule 6.13.04(g) will be announced via Regulatory 
Circular.
    \14\ Should the Exchange, in the future, determine that, in the 
interests of fair and orderly markets or, in furtherance of the 
objectives of the Options Order Protection and Locked/Crossed Market 
Plan, limit order price parameters should be applied to ISOs (or 
another order type) in a different manner as other order types, the 
Exchange may determine to widen or narrow the ATDs with respect to 
ISOs (or another order type), which would be announced via 
Regulatory Circular. Should the Exchange, in the future, determine 
that, in the interests of fair and orderly markets or, in 
furtherance of the objectives of the Options Order Protection and 
Locked/Crossed Market Plan, limit order price parameters should not 
apply to ISOs, a further rule filing would be required.
    \15\ Stock-options orders are excluded from the calculation 
because the individual component stock leg is not traded on the 
Exchange and, as a result, calculation of a derived net market by 
the Exchange's automated system would be a more complicated 
function. If in the future the Exchange would decide to enhance the 
limit order price parameter functionality to address stock-option 
orders, the Exchange would file a rule change to address stock-
option orders.
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    Similar to simple orders, the ATD for the limit order price 
parameter for complex orders will be no less than 5

[[Page 45262]]

minimum net price increment ticks (where the ``minimum net price 
increment'' is the minimum increment for net priced bids and offers for 
the given complex order strategy). For example, if the minimum net 
price increment for complex orders in a given series in a class is 
$0.01, then the ATD would be no less than $0.05 (5 x $0.01). If the 
minimum net price increment is $0.05, then the ATD would be no less 
than $0.25 (5 x $0.05). Also similar to simple orders, the Exchange 
might widen or inactivate limit order price parameter for complex 
orders for one or more classes on an intra-day basis in the interest of 
a fair and orderly market.\16\ The limit order price parameter will 
take precedence over another complex order parameter to the extent that 
both are applicable to an incoming limit order.\17\
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    \16\ See also note 11, supra.
    \17\ Rule 6.13.04 sets forth various price check parameters 
applicable to complex orders. For each price check parameter that 
may be applicable to incoming limit orders--except the market width 
parameter--the system will not accept or will return the order back 
to the order entry firm if the parameter is triggered. If the market 
width parameter is triggered, an incoming (or resting) marketable 
limit order will be held in the system, displayed in the complex 
order book if applicable, and not be eligible for automatic 
execution until the market width condition is resolved. See Rule 
6.13.04. In the instance where both the limit order price parameter 
and another parameter are applicable, the limit order price 
parameter takes precedence (i.e., is applied first) before the other 
parameter is applied.
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    The Exchange is also proposing a miscellaneous change to Rule 
6.13.04 to specifically identify the price check parameters that are 
not applicable to stock-option orders in the introductory text to this 
provision. The particular parameters to which stock-option orders may 
be subjected are already identified within the rule text. This proposed 
change is simply to include a list of those parameters which are not 
applicable to stock-option orders in the introductory paragraph for 
ease of reference.\18\
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    \18\ Specifically, paragraphs (b) (credit-to-debit parameters), 
(c) (same expiration strategy parameters), (e) (percentage distance 
parameters) and proposed paragraph (g) (limit order price 
parameters) of Rule 6.13.04 are not applicable to stock-option 
orders.
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    The Exchange notes that the limit order price parameter for simple 
and complex is intended to protect market participants from executions 
of limit orders at prices that are significantly through the Exchange's 
market (i.e., no less than five minimum increment ticks for simple 
orders and no less than five minimum net price increment ticks for 
complex orders). The Exchange believes that TPHs that submit orders on 
C2 generally intend to receive executions of their orders at or near 
the Exchange's market. A limit order that is priced significantly 
through the Exchange's market could be indicative of an error (e.g., 
mistake in intended price, series, put/call) and could result in 
executions occurring at prices that have little or no relation to the 
theoretical price of the option. Accordingly, the Exchange believes the 
limit order price parameter is a mechanism that will help prevent the 
entry of erroneous orders, dramatic price swings and, potentially, 
executions qualifying as obvious errors \19\ on C2. The Exchange also 
believes that orders that are significantly priced through the market 
have the potential to create market volatility by trading at different 
price levels until executed in their entirety. As such, the Exchange 
believes the limit order price parameter may also help limit 
volatility.
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    \19\ See C2 Rule 6.15.
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    Second, the Exchange is proposing various miscellaneous changes to 
the existing text in Rule 6.17. In particular, the Exchange is 
proposing to include a title for each type of price check parameter 
within the rule text (i.e., for the existing market width parameters, 
the existing drill through parameters, and the proposed limit order 
price parameters). The addition of these titles is non-substantive and 
is intended for ease of reference only. In addition, the Exchange is 
proposing to replace the ``class-by-class basis'' reference in proposed 
Rule 6.17(c) with ``series by series and premium basis'' to provide 
consistency within the Rules and reflect the fact that the APR for a 
simple order will apply on a series by series basis to the single 
series involved in the order and be determined on a premium basis in 
relation to the bid-ask differential in that series. For the same 
reasons, the Exchange proposes to add the term ``and premium'' to 
proposed Rule 6.17(a)(1) regarding market width parameters. The 
Exchange is also renumbering Rule 6.17 and clarifying existing 
references to APR and ATD as references to the existing market width 
APR and drill through ATD for ease of reference.
    The existing text of Rule 6.17 also provides that the senior 
official in the Help Desk may grant intra-day relief by widening the 
APR or ATD settings for one or more option series and that notification 
of intraday relief will be announced via message to Trading Permit 
Holders that request to receive such messages. The Exchange is 
proposing to amend this provision to add that such intra-day relief may 
be granted in the interest of a fair and orderly market. The Exchange 
is also proposing to amend this provision to make clear that the senior 
official in the Help Desk can grant relief by widening or inactivating 
the applicable APR and/or ATD setting. The Exchange believes including 
the reference to inactivating the applicable settings is not 
substantive because an applicable APR or ATD parameter could be widened 
to such a level that it would be in effect inactive. The Exchange is 
also proposing to provide within the rule text that the intra-day 
relief granted by the senior official in the Help Desk will not extend 
beyond the trade day on which it is granted, unless a determination to 
extend such relief if announced to TPHs via Regulatory Circular.\20\ 
The Exchange is also proposing to provide within the rule text that the 
Exchange will make and keep records to document all determinations to 
grant intra-day relief under Rule 6.17, and shall maintain those 
records in accordance with Rule 17a-1 under the Act.\21\ The rule text 
will also provide that the Exchange will periodically review 
determinations to grant intra-day relief for consistency with the 
interest of a fair and orderly market. Finally, the Exchange notes that 
the same intra-day relief provisions are proposed to apply to the limit 
order price parameter provisions for complex orders in proposed Rule 
6.13.04(g).
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    \20\ The Exchange notes that conditions when the Standing 
Intraday Relief will be instituted and the particular form of relief 
have been announced via Regulatory Circular. See note 11, supra. The 
announcement of the pre-established conditions and relief is 
intended to serve the circular notification requirement and, as 
such, a separate circular would not be issued if this relief is 
instituted over multiple days. However, if the Exchange would 
determine to modify the conditions for Standing Intraday Relief, 
then the Exchange would announce those changes by issuing another 
Regulatory Circular.
    \21\ 17 CFR 240.17a-1. The Exchange notes that determinations to 
grant intra-day relief under Rule 6.17 will be made in compliance 
with the provisions of the Act and the rules thereunder, including, 
but not limited to, the requirements in Section 6(b)(5) of the Act, 
15 U.S.C. 78f(b), that the rules of a national securities exchange 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\22\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \23\ in particular, which requires 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 of a free and open market and a national market

[[Page 45263]]

system, and, in general, to protect investors and the public interest.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change furthers the 
objective of Section 6(b)(5) of the Act in that it permits the Exchange 
to address the entry of simple and complex limit orders that are priced 
significantly away from the market that are likely to have resulted 
from human or operational error.\24\ By being able to quickly and 
efficiently reject orders that likely resulted from such error, the 
proposed use of the limit order price parameter would promote a fair 
and orderly market. Additionally, by having the flexibility to 
determine the series or classes where the limit order price parameter 
would be applied (or not applied) and the levels at which the ATD 
settings would be applied, and to grant relief on an intra-day basis, 
the Exchange is able to effectively structure and efficiently react to 
particular option characteristics and market conditions--including 
(without limitation) price, volatility, and significant price 
movements--which contributes to its ability to maintain a fair and 
orderly market. Accordingly, the Exchange believes that this proposal 
is designed to promote just and equity principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open 
market.\25\
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    \24\ The Exchange believes that these principles are equally 
applicable to ISOs. In an effort to protect market participants from 
the consequences of such order entry errors and prevent market 
disruptions that may be caused by erroneously placed orders, the 
Exchange has determined to apply limit order price parameters to 
ISOs on the Exchange. The Exchange believes that applying limit 
order price parameters to ISOs serves to protect investors and is 
consistent with Section 6(b) of the Act.
    \25\ The Exchange notes that limit order price parameters are in 
effect in all classes except options on Apple Inc. (AAPL). There are 
no limit order price parameters currently activated for option class 
AAPL. See C2 Regulatory Circular RG13-059, which is available at 
http://www.c2exchange.com/publish/RegCir_C2/C2RG13-059.pdf. 
According to the Exchange, volume for options class AAPL is higher 
and trading is more volatile, while the price of the underlying 
stock is higher (e.g., Apple Inc. closed at $125.69 on July 7, 
2015). The Exchange believes that application of the limit order 
price parameters in these circumstances may serve as more of a 
hindrance to the orderly processing orders (e.g., application of the 
parameter may result in an inordinate number of orders being 
excepted from automated process and instead routing for manual 
handling) and, as a result, has determined to not apply the 
parameters to option class AAPL for the time being. The Exchange 
believes that because of these factors different treatment of the 
AAPL class is warranted. However, the Exchange may evaluate whether 
to apply the parameters to the option class and any determination to 
do so would be announced via Regulatory Circular.
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    The Exchange also believes that the other proposed changes to Rule 
6.17 (e.g., to include titles for the various price check parameters; 
to change a reference from class by class to series by series; to make 
clear that intra-day relief may be granted in the interest of a fair 
and orderly market and may include widening or inactivating the 
applicable APR and/or ATD; and to include provisions indicating that 
intra-day relief may not extend beyond the trade day on which it is 
granted, unless a determination to extend such relief is announced to 
Trading Permit Holders via Regulatory Circular, and that the Exchange 
will make and keep records to document determinations to grant intra-
day relief under Rule 6.17) should also serve to further these 
objectives by more clearly and fully describing certain aspects of the 
operation of these price check parameters and addressing determinations 
to modify the operation of the price check parameters on an intra-day 
basis as provided within Rule 6.17. For the same reason, Exchange 
believes the substantially similar intra-day relief provisions for 
complex orders in proposed Rule 6.13.04(g) should also serve to further 
these objectives. The Exchange also believes that the proposed change 
to the introductory paragraph to Rule 6.13.04 to specifically identify 
the price check parameters that are not applicable to stock-option 
orders should also serve to further these objectives by making the rule 
easier to read and navigate.

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 Exchange believes that 
the proposed rule change will promote competition in that the limit 
order price parameters provide market participants with additional 
protection from anomalous trading. Thus, the Exchange does not believe 
the proposal creates any significant impact on competition.
    The price check parameter features are intended to prevent 
executions at potentially erroneously prices, which should serve to 
promote a fair and orderly market and promote trading activity on the 
Exchange to the benefit of the Exchange, its TPHs, and market 
participants. The Exchange notes that the limit order price parameters 
are applied equally to all eligible limit orders, with the limited 
exception that the parameters do not apply to limit orders for Exchange 
Market-Makers and away Market-Makers entered prior to the opening. The 
Exchange believes this does not place an undue burden on competition as 
the Exchange believes that Market-Makers actively evaluate the pre-
opening market and utilize their own risk management parameters when 
entering, maintaining (and cancelling) orders prior to the opening, 
minimizing the likelihood of a Market-Maker order resulting an error 
from being entered and continuing to rest prior to the opening of 
trading.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \28\ and Rule 19b-
4(f)(6) thereunder.\29\
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    \26\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately. According to the 
Exchange, the proposed rule change will provide additional protections 
against the execution of limit orders that are priced significantly 
away from the market as a result of human or

[[Page 45264]]

operational error. In addition, C2's proposed changes to allow 
flexibility in setting the ATD for a particular option class or series 
and to grant intra-day relief in the interest of a fair and orderly 
market should provide the Exchange with the ability to address 
particular option characteristics and markets conditions. Accordingly, 
the Commission finds that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby designates the proposal operative upon filing.\32\
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    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-C2-2015-021 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2015-021. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal offices 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-C2-2015-021, and should be 
submitted on or before August 19, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12), (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-18540 Filed 7-28-15; 8:45 am]
BILLING CODE 8011-01-P