81 FR 52498 - Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Adopting a Principles-Based Approach To Prohibit the Misuse of Material Nonpublic Information by Market-Makers and Designated Primary Market-Makers (“DPMs”)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 152 (August 8, 2016)

Page Range		52498-52502
FR Document		2016-18702
Federal Register, Volume 81 Issue 152 (Monday, August 8, 2016)
[Federal Register Volume 81, Number 152 (Monday, August 8, 2016)]
[Notices]
[Pages 52498-52502]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18702]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78461; File No. SR-C2-2016-015]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Adopting a Principles-Based Approach To Prohibit the Misuse 
of Material Nonpublic Information by Market-Makers and Designated 
Primary Market-Makers (``DPMs'')

August 2, 2016.
    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 28, 2016, 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 delete Rules 8.9 and 8.21 related to 
information barriers. The text of the proposed rule change is 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.

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

1. Purpose
    The Exchange proposes to adopt a principles-based approach to 
prohibit the misuse of material, nonpublic information by Market-Makers 
and DPMs by deleting Rule 8.9 and Rule 8.21. In so doing, the Exchange 
would harmonize its rules related to the preventing the misuse of 
material, nonpublic information for every Trading Permit Holder 
(``TPH''). The Exchange believes that Rule 8.9 and Rule 8.21 are no 
longer necessary because all TPHs, including Market-Makers and DPMs, 
are subject to the Exchange's general principles-based requirements 
governing the protection against misuse of material, nonpublic 
information, pursuant to Chapter 4 and incorporated therin [sic] CBOE 
Rule 4.18 \3\ (Prevention of the Misuse of Material, Nonpublic 
Information), which obviates the need for separately prescribed 
requirements for a subset of market participants on the Exchange.
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    \3\ Chapter 4 of the CBOE rulebook has been incorporated into 
Chapter 4 of the C2 Rules. CBOE Rule 4.18, as incorporated in the C2 
Rules, will hereafter be referenced as ``Rule 4.18.''
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Background
    Pursuant to Rule 8.1, TPHs registered as Market-Makers have certain 
rights and bear certain responsibilities beyond those of other TPHs. 
All Market-Makers are subject to the requirements of Rule 8.5, which 
sets forth the obligations of Market-Makers, including providing 
continuous electronic quotes.
    Rule 8.17 outlines the obligations of DPMs, which must fulfill a 
number of increased obligations in addition to the Market-Maker 
obligations of Rule 8.5, including providing continuous

[[Page 52499]]

electronic quotes in a larger percentage of series.\4\
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    \4\ Compare Rule 8.17(a)(1) (``[Each DPM shall] provide 
continuous electronic quotes . . . in at least the lesser of 99% of 
the non-adjusted options series (as defined in Rule 8.5(a)(1)) or 
100% of the non-adjusted option series minus one call-put pair . . 
.'') with Rule 8.5(a)(1) (``During trading hours a Market-Maker must 
maintain a continuous two-sided market in 60% of the non-adjusted 
option series of each registered class that have a time to 
expiration of less than nine months.'').
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    Pursuant to Rule 8.19, the Exchange may establish participation 
entitlements for DPMs appointed pursuant to the aforementioned Rules. 
DPMs must meet specific obligations prior to being awarded a 
participation entitlements.
    All Market-Makers and DPMs have access to the same information in 
the Book that is available to all other market participants. Moreover, 
none of the Exchange's Market-Makers have agency obligations to the 
Book.
    Despite the fact that Market-Makers and DPMs have access to the 
same trading information as all other market participants on the 
Exchange, the Exchange has distinct rules governing how Market-Makers 
and DPMs may operate. Rule 8.9 states that a Market-Maker shall 
maintain information barriers that are reasonably designed to prevent 
the misuse of material, nonpublic information with any affiliates that 
may conduct a brokerage business in option classes allocated to the 
Market-maker or that may act as a specialist or market-maker in any 
security underlying options allocated to the Market-Maker. Rule 8.21 
states that a DPM shall maintain information barriers that are 
reasonably designed to prevent the misuse of material, nonpublic 
information with any affiliates that may conduct a brokerage business 
in option classes allocated to the DPM or act as a specialist or 
market-maker in any security underlying options allocated to the DPM. 
Rule 8.21 also requires a DPM provide its information barriers to the 
Exchange and obtain prior written approval.
Proposed Rule Change
    The Exchange believes that Rule 4.18 governing the misuse of 
material, nonpublic information provides for an appropriate, 
principles-based approach to prevent the type of market abuses Rules 
8.9 and 8.21 are designed to address. Specifically, Rule 4.18 requires 
every TPH to establish, maintain and enforce written policies and 
procedures reasonably designed, taking into consideration the nature of 
such TPH's business, to prevent the misuse, in violation of the 
Securities Exchange Act of 1934 (the ``Act'') and Exchange Rules, of 
material, nonpublic information by such TPH or persons associated with 
such TPH. For the purposes of Rule 4.18, conduct constituting the 
misuse of material, nonpublic information in violation of the Act and 
Exchange Rules includes, but is not limited to, the following:
    (a) Trading in any securities issued by a corporation, partnership, 
Trust Issued Receipts or Units (as defined in Exchange Rules) or a 
trust or similar entities, or in any related securities or related 
options or other derivative securities, or in any related non-U.S. 
currency options, futures or options on futures on such currency, or 
any other derivatives based on such currency, or in any related 
commodity, related commodity futures or options on commodity futures or 
in any related commodity derivatives, while in possession of material, 
nonpublic information concerning that corporation, partnership, Trust 
Issued Receipts, or those Units, or that trust or similar entities;
    (b) Trading in an underlying security or related options or other 
derivative securities, or in any related non-U.S. currency, non-U.S. 
currency options, futures or options on futures on such currency, or in 
any related commodity, related commodity futures or options on 
commodity futures or any other related commodities derivatives, or any 
other derivatives based on such currency while in possession of 
material nonpublic information concerning imminent transactions in the 
above; and
    (c) Disclosing to another person or entity any material, nonpublic 
information involving a corporation, partnership, Trust Issued 
Receipts, or Units or a trust or similar entities whose shares are 
publicly traded or an imminent transactions in an underlying security 
or related securities or in the underlying non-U.S. currency of any 
related non-U.S. currency options, futures or options on futures on 
such currency, or any other derivatives based on such currency, or in 
any related commodity, related commodity futures or options on 
commodity futures or any other related commodity derivatives, for the 
purpose of facilitating the possible misuse of such material, nonpublic 
information.
    Because Market-Makers and DPMs are already subject to the 
requirements of Rule 4.18, the Exchange does not believe that it is 
necessary to require all Market-Makers and DPMs to explicitly maintain 
information barriers. Deleting Rules 8.9 and 8.21 would provide Market-
Makers and DPMs with the flexibility to adapt their policies and 
procedures as appropriate to reflect changes to their business model, 
business activities, or the securities market in a manner similar to 
how other TPHs on the Exchange currently operate consistent with Rule 
4.18.
    Neither the obligations nor the entitlements associated with 
Market-Makers and DPMs provide different or greater access to nonpublic 
information than any other market participant on the Exchange. 
Specifically, neither Market-Makers nor DPMs on the Exchange have 
access to trading information provided by the Exchange, either at, or 
prior to, the point of execution, that is not made available to all 
other market participants on the Exchange in a similar manner. Further, 
as noted above, Market-Makers and DPMs on the Exchange do not have any 
agency responsibilities for orders in the Book. Accordingly, because 
Market-Makers and DPMs do not have any trading advantages at the 
Exchange due to their market roles, the Exchange believes that they 
should be subject to the same rules regarding the prevention of the 
misuse of material, nonpublic information, specifically Rule 4.18.\5\
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    \5\ The Exchange notes that by deleting Rules 8.9 and 8.21, the 
Exchange would no longer require information barriers for Market-
Makers or DPMs or, with respect to DPMs, require pre-approval of any 
information barriers that a DPM would erect for purposes of 
protecting against the misuse of material nonpublic information. 
However, information barriers of new entrants, including new Market-
Makers and DPMs, would be subject to review as part of a new firm 
application. Moreover, the policies and procedures of Market-Makers 
and DPMs, including those relating to information barriers, would be 
subject to review by FINRA, on behalf of the Exchange, pursuant to a 
Regulatory Services Agreement.
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    The Exchange notes that its proposed approach to use a principles-
based approach to protecting against the misuse of material nonpublic 
information for all of its registered Market-Makers is consistent with 
recently filed rule changes for the Chicago Board Options Exchange, 
Incorporated (``CBOE''), NYSE MKT, LLC on behalf of NYSE Amex Options, 
International Securities Exchange, LLC (``ISE''), BOX Options Exchange, 
LLC (``BOX''), BATS Exchange, Inc. (``BATS'') on behalf of BATS Options 
Market (``BATS Options''), NASDAQ OMX PHLX, LLC (``PHLX''), and NASDAQ 
BX, Inc. (``BX Options'') \6\ The

[[Page 52500]]

proposed approach is also consistent with approved rule changes for 
NYSE Arca Equities Inc. (``NYSE Arca''), BATS, and New York Stock 
Exchange, LLC (``NYSE'') rules governing cash equity Market-Makers on 
those respective exchanges.\7\ Except for prescribed rules relating to 
floor-based designated Market-Makers on the NYSE, who have access to 
specified nonpublic trading information, each of these exchanges have 
moved to a principles-based approach to protecting against the misuse 
of material, nonpublic information. In connection with approving those 
rule changes, the Securities and Exchange Commission (the 
``Commission'') found that, with adequate oversite [sic] by the 
exchanges of their members, eliminating redundant information barrier 
requirements should not reduce the effectiveness of exchange rules 
requiring its members or participants to establish and maintain systems 
to supervise the activities of its members, including written 
procedures reasonably designed to ensure compliance with applicable 
federal securities law and regulations, and with the rules of the 
applicable exchange.\8\
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    \6\ See Securities Exchange Act Release Nos. 77081 (February 8, 
2016), 81 FR 7609 (February 12, 2016) (SR-CBOE-2016-007) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Adopting a Principles-Based Approach to Prohibit the 
Misuse of Material Nonpublic Information by Designated Primary 
Market-Makers (``DPMs'') and Lead Market-Makers (``LMM's'')); 75432 
(July 13, 2015), 80 FR 42597 (July 17, 2015) (Order Approving 
Adopting a Principles-Based Approach to Prohibit the Misuse of 
Material Nonpublic Information by Specialists and e-Specialists by 
Deleting Rule 927.3NY and Section (f) of Rule 927.5NY); 75792 
(August 31, 2015), 80 FR 53606 (September 4, 2015) (SR-ISE-2015-26) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Adopting a Principles-Based Approach to Prohibit the Misuse 
of Material, Non-public Information by Market Makers by Deleting 
Rule 810); 75916 (September 14, 2015), 80 FR 56503 (September 18, 
2015) (SR-BOX-2015-31) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change to Adopt a Principles-based Approach to 
Prohibit the Misuse of Material Nonpublic Information by Market 
Makers); 76327 (November 2, 2015), 80 FR 68884 (November 6, 2015) 
(SR-BATS-2015-093) (Notice of Filing and Immediate Effectiveness of 
a Proposed Rule Change To Delete Rule 22.10, Limitations on 
Dealings); 76687 (December 18, 2015), 80 FR 80403 (December 24, 
2015) (SR-PHLX-2015-85) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Delete Sections (e) Through 
(h) of Exchange Rule 1020, Registration and Functions of Options 
Specialists); 77461 (March 28, 2016), 81 FR 18907 (April 1, 2016) 
(SR-BX-2016-018) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Delete From the Exchange's Rulebook Section 
10, Limitations on Dealings, of Chapter VII, Market Participants).
    \7\ See Securities Exchange Act Release Nos. 60604 (Sept. 2, 
2009), 76 FR 46272 (Sept. 8, 2009) (SR-NYSEArca-2009-78) (Order 
approving elimination of NYSE Arca rule that required market makers 
to establish and maintain specifically prescribed information 
barriers, including discussion of NYSE Arca and Nasdaq rules) 
(``Arca Approval Order''); 61574 (Feb. 23, 2010), 75 FR 9455 (Mar. 
2, 2010) (SR-BATS-2010-003) (Order approving amendments to BATS Rule 
5.5 to move to a principles-based approach to protecting against the 
misuse of material, nonpublic information, and noting that the 
proposed change is consistent with the approaches of NYSE Arca and 
Nasdaq) (``BATS Approval Order''); and 72534 (July 3, 2014), 79 FR 
39440 (July 10, 2014) (SR-NYSE-2014-12) (Order approving amendments 
to NYSE Rule 98 governing designated market makers to move to a 
principles-based approach to prohibit the misuse of material 
nonpublic information) (``NYSE Approval Order'').
    \8\ See, e.g., BATS Approval Order, supra note 4 at 9458.
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    The Exchange notes that even with this proposed rule change, 
pursuant to Rule 4.18, a Market-Maker or DPM would still be obligated 
to ensure that its policies and procedures reflect the current state of 
its business and continue to be reasonably designed to prevent the 
misuse of material, nonpublic information. While information barriers 
would not specifically be required under the proposal, Rule 4.18 
already requires that a TPH consider the nature of the TPH's business 
in structuring its policies and procedures, which may dictate that an 
information barrier or a functional separation be part of the 
appropriate set of policies and procedures that would be reasonably 
designed to achieve compliance with applicable securities law and 
regulations, and with applicable Exchange rules.
    The Exchange is not proposing to change what is considered to be 
material, nonpublic information and, thus, does not expect there to be 
any changes to the types of information that an affiliated brokerage 
business of a Market-Maker or DPM could share with such Market-Maker or 
DPM. In that regard, the proposed rule change will not permit the 
brokerage unit of a TPH firm to have access to any nonpublic order or 
quote information of an affiliated Market-Maker or DPM, including 
hidden or undisplayed orders and quotes on the Exchange. TPHs do not 
expect to receive any additional order or quote information as a result 
of this proposed rule change.
    Further, the Exchange does not believe that there will be any 
material change to TPH information barriers as a result of removal of 
the Exchange's pre-approval requirements for DPMs. In fact, the 
Exchange anticipates that eliminating the pre-approval requirement 
should facilitate implementation of changes to TPH information barriers 
as necessary to protect against the misuse of material, nonpublic 
information. The Exchange also suggests that the pre-approval 
requirement is unnecessary because DPMs do not have agency 
responsibilities to the Book. However, information barriers of new 
entrants would be subject to review as part of a new firm application. 
Moreover, the policies and procedures of Market-Makers and DPMs, 
including those relating to information barriers, would be subject to 
review by FINRA, on behalf of the Exchange, pursuant to a Regulatory 
Services Agreement.
    The Exchange further notes that under Rule 4.18, a TPH would be 
able to provide for its options Market-Makers or DPMs, as applicable, 
to be structured with its equities and customer-facing businesses, 
provided that any such structuring would be done in a manner reasonably 
designed to protect against the misuse of material, nonpublic 
information. For example, pursuant to Rule 4.18, a Market-Maker or DPM 
on the Exchange could be in the same independent trading unit, a 
defined in Rule 200(f) of Regulation SHO,\9\ as an equities Market-
Maker and other trading desks within the firm, including options 
trading desks, so that the firm could share post-trade information to 
better manage its risk across related securities. The Exchange believes 
it is appropriate, and consistent with Rule 4.18 and Section 15(g) of 
the Act \10\ for a firm to share options position and related hedging 
position information (e.g., equities, futures, and foreign currency) 
within a firm to better manage risk on a firm-wide basis. The Exchange 
notes, however, that if so structured, a firm would need to have 
appropriate policies and procedures, including information barriers as 
applicable, to protect against the misuse of material nonpublic 
information, and specifically customer information consistent with Rule 
4.18. The Exchange further notes that federal rules supersede Exchange 
rules in the event of any conflicts regarding the misuse of material 
nonpublic information.
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    \9\ 17 CFR part 242.200(f).
    \10\ 15 U.S.C. 78o(g).
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    The Exchange believes that the proposed reliance on the principles-
based Rule 4.18 would ensure that a TPH that operates a Market-Maker or 
DPM would be required to protect against the misuse of any material 
nonpublic information. As noted above, Rule 4.18 already requires that 
firms refrain from trading while in possession of material nonpublic 
information concerning imminent transactions in a security or related 
product. The Exchange believes that moving to a principles-based 
approach based on Rule 4.18 would still provide TPHs operating Market-
Makers or DPMs with appropriate tools to better manage risk across a 
firm, including integrating options positions with other positions of 
the firm or, as applicable, by the respective independent trading unit. 
Specifically, the Exchange believes that it is appropriate for risk 
management purposes for a TPH operating a Market-Maker or DPM to be 
able to consider

[[Page 52501]]

both Market-Maker or DPM traded-positions for the purposes of 
calculating net positions consistent with Rule 200 of Regulation 
SHO,\11\ calculating intra-day net capital positions, and managing risk 
both generally as well as in compliance with Rule 15c3-5 under the Act 
(the ``Market Access Rule'').\12\ The Exchange notes that any risk 
management operations would need to operate consistent with the 
requirement to protect against the misuse of material nonpublic 
information.
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    \11\ 17 CFR part 242.200.
    \12\ 17 CFR part 240.15c3-5.
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    The Exchange further notes that if options Market-Makers or DPMs 
are integrated with other Market-Making operations, they would be 
subject to existing rules that prohibit TPHs from disadvantaging their 
customers or other market participants by improperly capitalizing of a 
TPH organization's access to the receipt of material nonpublic 
information. As such, a TPH organization that integrates its options 
Market-Making or DPM operations together with equity Market-Making, 
would need to protect customer information consistent with existing 
obligations to protect such information. The Exchange has rules 
prohibiting TPHs from disadvantaging their customers or other market 
participants by improperly capitalizing on the TPH's access to or 
receipt of material nonpublic information. For example, Rule 4.24(e) 
requires Each TPH shall establish, maintain, and enforce written 
supervisory procedures reasonably designed to prevent and detect 
violations of applicable securities laws and regulations, and 
applicable Exchange rules. Additionally Rule 6.9(e) prevents a TPH or 
person associated with a TPH, who has knowledge of all material terms 
and conditions of an original order and a solicited order, including a 
facilitation order, to enter, based on such knowledge, an order to buy 
or sell an option of the same class as an option that is the subject of 
the original order, or an order to buy or sell the security underlying 
such class, or an order to buy or sell any related instrument unless 
certain circumstances are met.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\13\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \14\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \15\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the Exchange believes that the proposed rule change 
would remove impediments to and perfect the mechanism of a free and 
open market by adopting a principles-based approach to permit a TPH 
operating a Market-Maker or DPM to maintain and enforce policies and 
procedures to, among other things, prohibit the misuse of material 
nonpublic information. The proposed rule change would further eliminate 
restrictions on how a TPH structures its Market-Maker or DPM 
operations. The Exchange notes that the proposed rule change is based 
on an approved rule of the Exchange to which Market-Makers and DPMs are 
already subject (Rule 4.18) and harmonizes the rules governing Market-
Makers, DPMs, and other market participants. Moreover, TPHs operating 
Market-Makers and DPMs would continue to be subject to federal and 
Exchange requirements for protecting material nonpublic order 
information.\16\ The Exchange believes that the proposed rule change 
would remove impediments to and perfect the mechanism of a free and 
open market because it would harmonize the Exchange's approach to 
protecting against the misuse of material nonpublic information and no 
longer subject Market-Makers and DPMs to redundant requirements. The 
Exchange does not believe that the existing requirements applicable to 
Market-Makers and DPMs are narrowly tailored to their respective roles 
because neither market participant has access to Exchange trading 
information in a manner different from any other market participant on 
the Exchange and they do not have agency responsibilities to the Book.
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    \16\ See 15 U.S.C. 78o(g) and Rule 4.18.
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    The Exchange further believes the proposal is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade because existing rules make clear to all 
TPHs the type of conduct that is prohibited by the Exchange. While the 
proposal eliminates certain requirements relating to the misuse of 
material nonpublic information, Market-Makers, DPMs and all other TPHs 
would remain subject to existing Exchange Rules requiring them to 
establish and maintain systems to supervise their activities, and to 
create, implement, and maintain written procedures that are reasonably 
designed to comply with applicable securities laws and Exchange Rules, 
including the prohibition on the misuse of material nonpublic 
information.
    The Exchange notes that the proposed rule change would still 
require that TPHs operating Market-Makers and DPMs maintain and enforce 
policies and procedures designed to ensure compliance with applicable 
federal securities laws and regulations and with Exchange Rules. Even 
thought there would no longer be pre-approval of DPM information 
barriers, both Market-Maker and DPM written policies and procedures 
would continue to be subject to oversight by the Exchange and therefore 
the elimination of the pre-approval requirements should not reduce the 
effectiveness of the Exchange rules to protect against the misuse of 
material nonpublic information. Market-Makers and DPMs will be able to 
utilize a flexible, principles-based approach to modify their policies 
and procedures as appropriate to reflect changes to their business 
model, business activities, or to the securities market itself. 
Moreover the Exchange notes that a TPH's business model or business 
activities may dictate that an information barrier or functional 
separation be part of the appropriate set of policies and procedures 
that would be reasonably designed to achieve compliance with applicable 
securities laws and regulations, and with applicable Exchange Rules. 
The Exchange therefore believes that the proposed rule change will 
maintain the existing protection of investors and the public interest 
that is currently applicable to Market-Makers and DPMs, while at the 
same time removing impediments to and perfecting a free and open market 
by moving to a principles-based approach to protect against the misuse 
of material nonpublic information.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not

[[Page 52502]]

necessary or appropriate in furtherance of the purposes of the Act. To 
the contrary, the Exchange believes that the proposal will enhance 
competition by allowing Market-Makers and DPMs to comply with 
applicable Exchange Rules in a manner best suited to their business 
models, business activities and the securities markets, thus reducing 
regulatory burdens while still ensuring compliance with applicable 
securities laws and regulations and Exchange rules. The Exchange 
believes that the proposal will foster a fair and orderly marketplace 
without being overly burdensome upon Market-Makers and DPMs.
    Moreover, the Exchange believes that the proposed rule change would 
eliminate a burden on competition for TPHs that currently exists as a 
result of disparate rule treatment between the options and equities 
markets regarding how to protect against the misuse of material, 
nonpublic information. For those TPHs that are also members of equities 
exchanges, their respective equity Market-Maker operations are now 
subject to a principles-based approach to protecting against the misuse 
of material nonpublic information. The Exchange believes it would 
remove a burden on competition to enable TPHs to similarly apply a 
principles-based approach to protecting against the misuse of material 
nonpublic information in the options space. To this end, the Exchange 
notes that Rule 4.18 still requires a TPH, which operates as a Market-
Maker or DPM on the Exchange, to evaluate its business to assure that 
its policies and procedures are reasonably designed to protect against 
the misuse of material, nonpublic information. However, with this 
proposed rule change, a TPH that trades equities and options could look 
at its firm more holistically to structure its operations in a manner 
that provides it with better tools to manage risks across multiple 
security classes, while at the same time protecting against the misuse 
of material nonpublic information.

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.\17\
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    \17\ 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 pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to 
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 proposal 
may become operative immediately upon filing. Waiver of the 30-day 
operative delay would help facilitate the harmonization of information 
barrier rules across options exchanges. The Exchange represents that 
Exchange rules still require a Market Maker to evaluate its business to 
assure that its policies and procedures are reasonably designed to 
protect against the misuse of material nonpublic information. Further, 
the Exchange states that the proposed rule change is designed to 
provide more flexibility to market participants, while not decreasing 
the protections against the misuse of material, non-public information. 
Based on the foregoing, the Commission believes the waiver of the 
operative delay is consistent with the protection of investors and the 
public interest.\18\ The Commission hereby grants the waiver and 
designates the proposal operative upon filing.
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    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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-C2-2016-015 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-C2-2016-015. 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-C2-2016-015 and should be 
submitted on or before August 29, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18702 Filed 8-5-16; 8:45 am]
 BILLING CODE 8011-01-P
52498 Federal Register / Vol. 81, No. 152 / Monday, August 8, 2016 / Notices

shorter time as designated by the the Commission does not edit personal II. Self-Regulatory Organization’s
Commission. identifying information from Statement of the Purpose of, and
At any time within 60 days of the submissions. You should submit only Statutory Basis for, the Proposed Rule
filing of the proposed rule change, the information that you wish to make Change
Commission summarily may available publicly. All submissions
temporarily suspend such rule change if should refer to File Number SR– In its filing with the Commission, the
it appears to the Commission that such BatsEDGX–2016–36 and should be Exchange included statements
action is: (1) Necessary or appropriate in submitted on or before August 29, 2016. concerning the purpose of and basis for
the public interest; (2) for the protection the proposed rule change and discussed
For the Commission, by the Division of
of investors; or (3) otherwise in any comments it received on the
Trading and Markets, pursuant to delegated
furtherance of the purposes of the Act. proposed rule change. The text of these
authority.9
If the Commission takes such action, the statements may be examined at the
Commission shall institute proceedings Robert W. Errett, places specified in Item IV below. The
to determine whether the proposed rule Deputy Secretary. Exchange has prepared summaries, set
should be approved or disapproved. [FR Doc. 2016–18701 Filed 8–5–16; 8:45 am] forth in sections A, B, and C below, of
IV. Solicitation of Comments BILLING CODE 8011–01–P the most significant aspects of such
statements.
Interested persons are invited to
submit written data, views, and SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
arguments concerning the foregoing, COMMISSION Statement of the Purpose of, and
including whether the proposed rule Statutory Basis for, the Proposed Rule
change is consistent with the Act. Change
[Release No. 34–78461; File No. SR–C2–
Comments may be submitted by any of
2016–015] 1. Purpose
the following methods:
Electronic Comments Self-Regulatory Organizations; C2 The Exchange proposes to adopt a
Options Exchange, Incorporated; principles-based approach to prohibit
• Use the Commission’s Internet the misuse of material, nonpublic
comment form (http://www.sec.gov/ Notice of Filing and Immediate
Effectiveness of a Proposed Rule information by Market-Makers and
rules/sro.shtml); or DPMs by deleting Rule 8.9 and Rule
• Send an email to rule-comments@ Change Relating to Adopting a
Principles-Based Approach To Prohibit 8.21. In so doing, the Exchange would
sec.gov. Please include File Number SR–
the Misuse of Material Nonpublic harmonize its rules related to the
BatsEDGX–2016–36 on the subject line.
Information by Market-Makers and preventing the misuse of material,
Paper Comments Designated Primary Market-Makers nonpublic information for every Trading
• Send paper comments in triplicate (‘‘DPMs’’) Permit Holder (‘‘TPH’’). The Exchange
to Secretary, Securities and Exchange believes that Rule 8.9 and Rule 8.21 are
August 2, 2016. no longer necessary because all TPHs,
Commission, 100 F Street NE.,
Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the including Market-Makers and DPMs, are
All submissions should refer to File Securities Exchange Act of 1934 (the subject to the Exchange’s general
Number SR–BatsEDGX–2016–36. This ‘‘Act’’),1 and Rule 19b–4 thereunder,2 principles-based requirements
file number should be included on the notice is hereby given that on July 28, governing the protection against misuse
subject line if email is used. To help the 2016, C2 Options Exchange, of material, nonpublic information,
Commission process and review your Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) pursuant to Chapter 4 and incorporated
comments more efficiently, please use filed with the Securities and Exchange therin [sic] CBOE Rule 4.18 3
only one method. The Commission will Commission (the ‘‘Commission’’) the (Prevention of the Misuse of Material,
post all comments on the Commission’s proposed rule change as described in Nonpublic Information), which obviates
Internet Web site (http://www.sec.gov/ Items I and II below, which Items have the need for separately prescribed
rules/sro.shtml). Copies of the been prepared by the Exchange. The requirements for a subset of market
submission, all subsequent Commission is publishing this notice to participants on the Exchange.
amendments, all written statements solicit comments on the proposed rule
change from interested persons. Background
with respect to the proposed rule
change that are filed with the I. Self-Regulatory Organization’s Pursuant to Rule 8.1, TPHs registered
Commission, and all written Statement of the Terms of Substance of as Market-Makers have certain rights
communications relating to the the Proposed Rule Change and bear certain responsibilities beyond
proposed rule change between the those of other TPHs. All Market-Makers
Commission and any person, other than The Exchange proposes to delete are subject to the requirements of Rule
those that may be withheld from the Rules 8.9 and 8.21 related to 8.5, which sets forth the obligations of
public in accordance with the information barriers. The text of the Market-Makers, including providing
provisions of 5 U.S.C. 552, will be proposed rule change is available on the continuous electronic quotes.
available for Web site viewing and Exchange’s Web site (http:// Rule 8.17 outlines the obligations of
printing in the Commission’s Public www.cboe.com/AboutCBOE/ DPMs, which must fulfill a number of
Reference Room, 100 F Street NE.,
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CBOELegalRegulatoryHome.aspx), at increased obligations in addition to the
Washington, DC 20549, on official the Exchange’s Office of the Secretary, Market-Maker obligations of Rule 8.5,
business days between the hours of and at the Commission’s Public including providing continuous
10:00 a.m. and 3:00 p.m. Copies of such Reference Room.
filing will also be available for 3 Chapter 4 of the CBOE rulebook has been
inspection and copying at the principal 9 17 CFR 200.30–3(a)(12). incorporated into Chapter 4 of the C2 Rules. CBOE
office of the Exchange. All comments 1 15 U.S.C. 78s(b)(1).
Rule 4.18, as incorporated in the C2 Rules, will
received will be posted without change; 2 17 CFR 240.19b–4. hereafter be referenced as ‘‘Rule 4.18.’’

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electronic quotes in a larger percentage such TPH or persons associated with business activities, or the securities
of series.4 such TPH. For the purposes of Rule market in a manner similar to how other
Pursuant to Rule 8.19, the Exchange 4.18, conduct constituting the misuse of TPHs on the Exchange currently operate
may establish participation entitlements material, nonpublic information in consistent with Rule 4.18.
for DPMs appointed pursuant to the violation of the Act and Exchange Rules Neither the obligations nor the
aforementioned Rules. DPMs must meet includes, but is not limited to, the entitlements associated with Market-
specific obligations prior to being following: Makers and DPMs provide different or
awarded a participation entitlements. (a) Trading in any securities issued by greater access to nonpublic information
All Market-Makers and DPMs have a corporation, partnership, Trust Issued than any other market participant on the
access to the same information in the Receipts or Units (as defined in Exchange. Specifically, neither Market-
Book that is available to all other market Exchange Rules) or a trust or similar Makers nor DPMs on the Exchange have
participants. Moreover, none of the entities, or in any related securities or access to trading information provided
Exchange’s Market-Makers have agency related options or other derivative by the Exchange, either at, or prior to,
obligations to the Book. securities, or in any related non-U.S. the point of execution, that is not made
Despite the fact that Market-Makers currency options, futures or options on available to all other market participants
and DPMs have access to the same futures on such currency, or any other on the Exchange in a similar manner.
trading information as all other market derivatives based on such currency, or Further, as noted above, Market-Makers
participants on the Exchange, the in any related commodity, related and DPMs on the Exchange do not have
Exchange has distinct rules governing commodity futures or options on any agency responsibilities for orders in
how Market-Makers and DPMs may commodity futures or in any related the Book. Accordingly, because Market-
operate. Rule 8.9 states that a Market- commodity derivatives, while in Makers and DPMs do not have any
Maker shall maintain information possession of material, nonpublic trading advantages at the Exchange due
barriers that are reasonably designed to information concerning that to their market roles, the Exchange
prevent the misuse of material, corporation, partnership, Trust Issued believes that they should be subject to
nonpublic information with any Receipts, or those Units, or that trust or the same rules regarding the prevention
affiliates that may conduct a brokerage similar entities; of the misuse of material, nonpublic
business in option classes allocated to (b) Trading in an underlying security information, specifically Rule 4.18.5
the Market-maker or that may act as a or related options or other derivative The Exchange notes that its proposed
specialist or market-maker in any securities, or in any related non-U.S. approach to use a principles-based
security underlying options allocated to currency, non-U.S. currency options, approach to protecting against the
the Market-Maker. Rule 8.21 states that futures or options on futures on such misuse of material nonpublic
a DPM shall maintain information currency, or in any related commodity, information for all of its registered
barriers that are reasonably designed to related commodity futures or options on Market-Makers is consistent with
prevent the misuse of material, commodity futures or any other related recently filed rule changes for the
nonpublic information with any commodities derivatives, or any other Chicago Board Options Exchange,
affiliates that may conduct a brokerage derivatives based on such currency Incorporated (‘‘CBOE’’), NYSE MKT,
business in option classes allocated to while in possession of material LLC on behalf of NYSE Amex Options,
the DPM or act as a specialist or market- nonpublic information concerning International Securities Exchange, LLC
maker in any security underlying imminent transactions in the above; and (‘‘ISE’’), BOX Options Exchange, LLC
options allocated to the DPM. Rule 8.21 (c) Disclosing to another person or (‘‘BOX’’), BATS Exchange, Inc.
also requires a DPM provide its entity any material, nonpublic (‘‘BATS’’) on behalf of BATS Options
information barriers to the Exchange information involving a corporation, Market (‘‘BATS Options’’), NASDAQ
and obtain prior written approval. partnership, Trust Issued Receipts, or OMX PHLX, LLC (‘‘PHLX’’), and
Units or a trust or similar entities whose NASDAQ BX, Inc. (‘‘BX Options’’) 6 The
Proposed Rule Change
shares are publicly traded or an
The Exchange believes that Rule 4.18 imminent transactions in an underlying 5 The Exchange notes that by deleting Rules 8.9
governing the misuse of material, security or related securities or in the and 8.21, the Exchange would no longer require
nonpublic information provides for an underlying non-U.S. currency of any information barriers for Market-Makers or DPMs or,
appropriate, principles-based approach related non-U.S. currency options, with respect to DPMs, require pre-approval of any
to prevent the type of market abuses information barriers that a DPM would erect for
futures or options on futures on such purposes of protecting against the misuse of
Rules 8.9 and 8.21 are designed to currency, or any other derivatives based material nonpublic information. However,
address. Specifically, Rule 4.18 requires on such currency, or in any related information barriers of new entrants, including new
every TPH to establish, maintain and commodity, related commodity futures Market-Makers and DPMs, would be subject to
enforce written policies and procedures review as part of a new firm application. Moreover,
or options on commodity futures or any the policies and procedures of Market-Makers and
reasonably designed, taking into other related commodity derivatives, for DPMs, including those relating to information
consideration the nature of such TPH’s the purpose of facilitating the possible barriers, would be subject to review by FINRA, on
business, to prevent the misuse, in misuse of such material, nonpublic behalf of the Exchange, pursuant to a Regulatory
violation of the Securities Exchange Act Services Agreement.
information. 6 See Securities Exchange Act Release Nos. 77081
of 1934 (the ‘‘Act’’) and Exchange Rules, Because Market-Makers and DPMs are (February 8, 2016), 81 FR 7609 (February 12, 2016)
of material, nonpublic information by already subject to the requirements of (SR–CBOE–2016–007) (Notice of Filing and
Rule 4.18, the Exchange does not Immediate Effectiveness of a Proposed Rule Change
4 Compare Rule 8.17(a)(1) (‘‘[Each DPM shall] Relating to Adopting a Principles-Based Approach
believe that it is necessary to require all
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provide continuous electronic quotes . . . in at to Prohibit the Misuse of Material Nonpublic
least the lesser of 99% of the non-adjusted options
Market-Makers and DPMs to explicitly Information by Designated Primary Market-Makers
series (as defined in Rule 8.5(a)(1)) or 100% of the maintain information barriers. Deleting (‘‘DPMs’’) and Lead Market-Makers (‘‘LMM’s’’));
non-adjusted option series minus one call-put pair Rules 8.9 and 8.21 would provide 75432 (July 13, 2015), 80 FR 42597 (July 17, 2015)
. . .’’) with Rule 8.5(a)(1) (‘‘During trading hours a Market-Makers and DPMs with the (Order Approving Adopting a Principles-Based
Market-Maker must maintain a continuous two- Approach to Prohibit the Misuse of Material
sided market in 60% of the non-adjusted option
flexibility to adapt their policies and Nonpublic Information by Specialists and e-
series of each registered class that have a time to procedures as appropriate to reflect Specialists by Deleting Rule 927.3NY and Section
expiration of less than nine months.’’). changes to their business model, Continued

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both Market-Maker or DPM traded- 6(b)(5) 14 requirements that the rules of fraudulent and manipulative acts and
positions for the purposes of calculating an exchange be designed to prevent practices and to promote just and
net positions consistent with Rule 200 fraudulent and manipulative acts and equitable principles of trade because
of Regulation SHO,11 calculating intra- practices, to promote just and equitable existing rules make clear to all TPHs the
day net capital positions, and managing principles of trade, to foster cooperation type of conduct that is prohibited by the
risk both generally as well as in and coordination with persons engaged Exchange. While the proposal
compliance with Rule 15c3–5 under the in regulating, clearing, settling, eliminates certain requirements relating
Act (the ‘‘Market Access Rule’’).12 The processing information with respect to, to the misuse of material nonpublic
Exchange notes that any risk and facilitating transactions in information, Market-Makers, DPMs and
management operations would need to securities, to remove impediments to all other TPHs would remain subject to
operate consistent with the requirement and perfect the mechanism of a free and existing Exchange Rules requiring them
to protect against the misuse of material open market and a national market to establish and maintain systems to
nonpublic information. system, and, in general, to protect supervise their activities, and to create,
The Exchange further notes that if investors and the public interest. implement, and maintain written
options Market-Makers or DPMs are Additionally, the Exchange believes the procedures that are reasonably designed
integrated with other Market-Making proposed rule change is consistent with to comply with applicable securities
operations, they would be subject to the Section 6(b)(5) 15 requirement that laws and Exchange Rules, including the
existing rules that prohibit TPHs from the rules of an exchange not be designed prohibition on the misuse of material
disadvantaging their customers or other to permit unfair discrimination between nonpublic information.
market participants by improperly customers, issuers, brokers, or dealers. The Exchange notes that the proposed
capitalizing of a TPH organization’s In particular, the Exchange believes rule change would still require that
access to the receipt of material that the proposed rule change would TPHs operating Market-Makers and
nonpublic information. As such, a TPH remove impediments to and perfect the DPMs maintain and enforce policies and
organization that integrates its options mechanism of a free and open market by procedures designed to ensure
Market-Making or DPM operations adopting a principles-based approach to compliance with applicable federal
together with equity Market-Making, permit a TPH operating a Market-Maker securities laws and regulations and with
would need to protect customer or DPM to maintain and enforce policies Exchange Rules. Even thought there
information consistent with existing and procedures to, among other things, would no longer be pre-approval of
obligations to protect such information. prohibit the misuse of material DPM information barriers, both Market-
The Exchange has rules prohibiting nonpublic information. The proposed Maker and DPM written policies and
TPHs from disadvantaging their rule change would further eliminate procedures would continue to be subject
customers or other market participants restrictions on how a TPH structures its to oversight by the Exchange and
by improperly capitalizing on the TPH’s Market-Maker or DPM operations. The therefore the elimination of the pre-
access to or receipt of material Exchange notes that the proposed rule approval requirements should not
nonpublic information. For example, change is based on an approved rule of reduce the effectiveness of the Exchange
Rule 4.24(e) requires Each TPH shall the Exchange to which Market-Makers rules to protect against the misuse of
establish, maintain, and enforce written and DPMs are already subject (Rule material nonpublic information. Market-
supervisory procedures reasonably 4.18) and harmonizes the rules Makers and DPMs will be able to utilize
designed to prevent and detect governing Market-Makers, DPMs, and a flexible, principles-based approach to
violations of applicable securities laws other market participants. Moreover, modify their policies and procedures as
and regulations, and applicable TPHs operating Market-Makers and appropriate to reflect changes to their
Exchange rules. Additionally Rule 6.9(e) DPMs would continue to be subject to business model, business activities, or
prevents a TPH or person associated federal and Exchange requirements for to the securities market itself. Moreover
with a TPH, who has knowledge of all protecting material nonpublic order the Exchange notes that a TPH’s
material terms and conditions of an information.16 The Exchange believes business model or business activities
original order and a solicited order, that the proposed rule change would may dictate that an information barrier
including a facilitation order, to enter, remove impediments to and perfect the or functional separation be part of the
based on such knowledge, an order to mechanism of a free and open market appropriate set of policies and
buy or sell an option of the same class because it would harmonize the procedures that would be reasonably
as an option that is the subject of the Exchange’s approach to protecting designed to achieve compliance with
original order, or an order to buy or sell against the misuse of material nonpublic applicable securities laws and
the security underlying such class, or an information and no longer subject regulations, and with applicable
order to buy or sell any related Market-Makers and DPMs to redundant Exchange Rules. The Exchange therefore
instrument unless certain circumstances requirements. The Exchange does not believes that the proposed rule change
are met. believe that the existing requirements will maintain the existing protection of
applicable to Market-Makers and DPMs investors and the public interest that is
2. Statutory Basis are narrowly tailored to their respective currently applicable to Market-Makers
The Exchange believes the proposed roles because neither market participant and DPMs, while at the same time
rule change is consistent with the Act has access to Exchange trading removing impediments to and
and the rules and regulations information in a manner different from perfecting a free and open market by
thereunder applicable to the Exchange any other market participant on the moving to a principles-based approach
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and, in particular, the requirements of Exchange and they do not have agency to protect against the misuse of material
Section 6(b) of the Act.13 Specifically, responsibilities to the Book. nonpublic information.
the Exchange believes the proposed rule The Exchange further believes the B. Self-Regulatory Organization’s
change is consistent with the Section proposal is designed to prevent Statement on Burden on Competition
11 17 CFR part 242.200. 14 15 U.S.C. 78f(b)(5). CBOE does not believe that the
12 17 CFR part 240.15c3–5. 15 Id. proposed rule change will impose any
13 15 U.S.C. 78f(b). 16 See 15 U.S.C. 78o(g) and Rule 4.18. burden on competition that is not

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52502 Federal Register / Vol. 81, No. 152 / Monday, August 8, 2016 / Notices

necessary or appropriate in furtherance burden on competition; and (iii) become IV. Solicitation of Comments
of the purposes of the Act. To the operative for 30 days from the date on Interested persons are invited to
contrary, the Exchange believes that the which it was filed, or such shorter time submit written data, views, and
proposal will enhance competition by as the Commission may designate, the arguments concerning the foregoing,
allowing Market-Makers and DPMs to proposed rule change has become including whether the proposed rule
comply with applicable Exchange Rules effective pursuant to Section 19(b)(3)(A) change is consistent with the Act.
in a manner best suited to their business of the Act and Rule 19b–4(f)(6) Comments may be submitted by any of
models, business activities and the thereunder.17 the following methods:
securities markets, thus reducing A proposed rule change filed
regulatory burdens while still ensuring Electronic Comments
pursuant to Rule 19b–4(f)(6) under the
compliance with applicable securities Act normally does not become operative • Use the Commission’s Internet
laws and regulations and Exchange for 30 days after the date of its filing. comment form (http://www.sec.gov/
rules. The Exchange believes that the However, Rule 19b–4(f)(6)(iii) permits rules/sro.shtml); or
proposal will foster a fair and orderly the Commission to designate a shorter • Send an email to rule-comments@
marketplace without being overly time if such action is consistent with the sec.gov. Please include File Number SR–
burdensome upon Market-Makers and protection of investors and the public C2–2016–015 on the subject line.
DPMs.
interest. The Exchange has asked the Paper Comments
Moreover, the Exchange believes that
Commission to waive the 30-day • Send paper comments in triplicate
the proposed rule change would
eliminate a burden on competition for operative delay so that the proposal may to Secretary, Securities and Exchange
TPHs that currently exists as a result of become operative immediately upon Commission, 100 F Street NE.,
disparate rule treatment between the filing. Waiver of the 30-day operative Washington, DC 20549–1090.
options and equities markets regarding delay would help facilitate the
All submissions should refer to File
how to protect against the misuse of harmonization of information barrier
Number SR–C2–2016–015. This file
material, nonpublic information. For rules across options exchanges. The
number should be included on the
those TPHs that are also members of Exchange represents that Exchange rules
subject line if email is used. To help the
equities exchanges, their respective still require a Market Maker to evaluate
Commission process and review your
equity Market-Maker operations are now its business to assure that its policies
comments more efficiently, please use
subject to a principles-based approach and procedures are reasonably designed
only one method. The Commission will
to protecting against the misuse of to protect against the misuse of material
post all comments on the Commission’s
material nonpublic information. The nonpublic information. Further, the
Internet Web site (http://www.sec.gov/
Exchange believes it would remove a Exchange states that the proposed rule
rules/sro.shtml). Copies of the
burden on competition to enable TPHs change is designed to provide more
submission, all subsequent
to similarly apply a principles-based flexibility to market participants, while
amendments, all written statements
approach to protecting against the not decreasing the protections against
with respect to the proposed rule
misuse of material nonpublic the misuse of material, non-public
change that are filed with the
information in the options space. To information. Based on the foregoing, the
Commission, and all written
this end, the Exchange notes that Rule Commission believes the waiver of the
communications relating to the
4.18 still requires a TPH, which operates operative delay is consistent with the
proposed rule change between the
as a Market-Maker or DPM on the protection of investors and the public
Commission and any person, other than
Exchange, to evaluate its business to interest.18 The Commission hereby
those that may be withheld from the
assure that its policies and procedures grants the waiver and designates the
public in accordance with the
are reasonably designed to protect proposal operative upon filing.
provisions of 5 U.S.C. 552, will be
against the misuse of material, At any time within 60 days of the available for Web site viewing and
nonpublic information. However, with filing of the proposed rule change, the printing in the Commission’s Public
this proposed rule change, a TPH that Commission summarily may Reference Room, 100 F Street NE.,
trades equities and options could look at temporarily suspend such rule change if Washington, DC 20549 on official
its firm more holistically to structure its it appears to the Commission that such business days between the hours of
operations in a manner that provides it action is necessary or appropriate in the 10:00 a.m. and 3:00 p.m. Copies of the
with better tools to manage risks across public interest, for the protection of filing also will be available for
multiple security classes, while at the investors, or otherwise in furtherance of inspection and copying at the principal
same time protecting against the misuse the purposes of the Act. If the office of the Exchange. All comments
of material nonpublic information. Commission takes such action, the received will be posted without change;
Commission shall institute proceedings the Commission does not edit personal
C. Self-Regulatory Organization’s
to determine whether the proposed rule identifying information from
Statement on Comments on the
should be approved or disapproved. submissions. You should submit only
Proposed Rule Change Received From
Members, Participants, or Others information that you wish to make
17 In addition, Rule 19b–4(f)(6)(iii) requires the
available publicly. All submissions
The Exchange neither solicited nor Exchange to give the Commission written notice of should refer to File Number SR–C2–
received comments on the proposed the Exchange’s intent to file the proposed rule
2016–015 and should be submitted on
rule change. change, along with a brief description and text of
the proposed rule change, at least five business days or before August 29, 2016.
mstockstill on DSK3G9T082PROD with NOTICES

III. Date of Effectiveness of the prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
For the Commission, by the Division of
Proposed Rule Change and Timing for Commission. The Exchange has satisfied this Trading and Markets, pursuant to delegated
Commission Action requirement. authority.19
Because the proposed rule change 18 For purposes only of waiving the 30-day Robert W. Errett,
operative delay, the Commission has also Deputy Secretary.
does not (i) significantly affect the considered the proposed rule’s impact on
protection of investors or the public efficiency, competition, and capital formation. See [FR Doc. 2016–18702 Filed 8–5–16; 8:45 am]
interest; (ii) impose any significant 15 U.S.C. 78c(f). BILLING CODE 8011–01–P

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Document Created: 2016-08-06 03:08:08
Document Modified: 2016-08-06 03:08:08
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 52498