82 FR 37647 - Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rule 6.49, C2 Trade Match System

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 154 (August 11, 2017)

[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)]
[Notices]
[Pages 37647-37649]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-16930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81327; File No. SR-C2-2017-023]


 Self-Regulatory Organizations; C2 Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Rule 6.49, C2 Trade Match System

August 7, 2017.
    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 August 4, 2017, 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 Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to adopt new Rule 6.49 related to its 
existing C2 Trade Match System (``CTM'') functionality.
    The text of the proposed rule change 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.

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

1. Purpose
    The Exchange is proposing to adopt new Rule 6.49 related to its 
existing C2 Trade Match System (``CTM'') functionality. CTM is a 
systems user interface provided by the Exchange in which authorized 
Trading Permit Holders (``TPHs'') may receive copies of trade records 
and add and/or update their trade records. Although references to CTM 
exist within Regulatory Circulars, the functionality is not currently 
described in Exchange rules. The Exchange believes it would be 
beneficial to address and provide further detail in its rules regarding 
the CTM functionality and permitted uses.
    Post-trade modifications may be effected via the CTM system. A rule 
explicitly detailing the modification process and defining what 
permitted modifications are allowed does not currently exist in the 
Exchange's rules. The Exchange believes it would be useful to 
explicitly reference within the rule text the term ``CTM'' and codify 
what post trade modifications via CTM are permitted to reduce confusion 
and add additional transparency to the rules regarding C2's systems.
    First, the Exchange proposes to explicitly reference and describe 
``CTM.'' Specifically, CTM is a system in which authorized TPHs may 
enter and report transactions that have been effected on the Exchange 
in accordance with Exchange rules or to correct bona fide errors (e.g., 
a situation in which a transaction was incorrectly reported as an 
opening transaction). Documentation requirements related to changes 
made through the use of CTM will be announced via a Regulatory 
Circular.
    By way of background, C2 Rule 6.38 requires that for all 
transactions made on the Exchange, TPHs must file with the Exchange 
certain trade information \5\ in order to allow the Exchange to 
properly match and clear trades. This information is used to provide 
the comparison of the two sides (i.e., buy and sell) of a transaction. 
When the two sides match, the trade is successfully compared and will 
move on to the Options Clearing Corporation (``OCC'') for clearance. 
For trades that do not match (i.e., trade information from each side do 
not match) TPHs and their respective representatives typically make 
reasonable efforts to resolve unmatched trades on trade day. The 
Exchange notes that CTM may be used

[[Page 37648]]

by TPHs to change certain fields on a trade record for which it has 
authority to correct, in order to update a trade record or correct an 
unmatched field to resolve an out-trade. The Exchange proposes to 
codify what post trade modifications via CTM are permitted and further 
specify which changes will require notification to the Exchange.
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    \5\ See C2 Rule 6.38.
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    The Exchange first seeks to specify which fields may be changed by 
TPHs through the use of CTM without notice to the Exchange. Those 
fields are: (1) Executing Firm and Contra Firm; (2) Executing Broker 
and Contra Broker; (3) CMTA; \6\ (4) Market-Maker Account and Sub 
Account; (5) Customer ID; (6) Position Effect (open/close); (7) 
Optional Data; and/or (8) Origin Code (provided the change is not from 
a customer origin code to any other origin code). The Exchange notes 
that the information contained in these fields does not affect the 
terms of a contract or the Consolidated Tape. Rather, the Exchange 
views these changes to be non-critical back office changes and as such, 
the Exchange does not believe it needs notice from the TPH making the 
change. The Exchange also notes that such changes would be captured in 
the Exchange's audit trail.
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    \6\ Under a Clearing Member Trade Agreement (``CMTA''), an 
Options Clearing Corporation (``OCC'') clearing member (``carrying 
clearing member'') authorizes another clearing member (``executing 
clearing member'') to give up the name of the carrying clearing 
member with respect to any trade executed on a specific exchange 
(i.e., the re-assignment of a trade to a different Clearing firm 
occurs post-trade at the OCC).
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    Next, the Exchange proposes to specify which fields may be changed 
by TPHs through the use of CTM that require TPHs to give notice to the 
Exchange in a form and manner determined by the Exchange. Specifically, 
those fields are: (1) Series; (2) Quantity; (3) Buy or Sell; (4) 
Premium Price; and/or (5) Origin Code (if changing origin code from 
customer (C) to any other origin code). The Exchange notes that these 
fields, with the exception of origin code, do change the terms of the 
contract and additionally affect the Consolidated Tape. As such, the 
Exchange proposes to require notice and further documentation as to why 
such a change is being made in order to monitor such changes, as well 
as take the necessary steps to ensure that any such changes are 
properly reflected in the Consolidated Tape. As to changes from a 
Customer (C) origin code to any other origin code, the Exchange notes 
that while such change does not affect the Consolidated Tape or terms 
of a contract, such changes may affect other substantive aspects of how 
a trade was processed, including whether a trade should have been given 
order priority. Accordingly, the Exchange believes that TPHs making 
changes to these fields should be required to provide the Exchange 
notice and documentation relating to the change. The Exchange proposes 
to require that notification of the change be made as soon as 
practicable, but, no later than fifteen (15) minutes after the change 
has been made. The Exchange notes that it will not be authorizing any 
changes prior to the TPH making changes to any of the above-mentioned 
fields (i.e., the Exchange will not expressly indicate whether or not a 
change identified in a TPH's notice is in conformity with Exchange 
rules prior to the change being made). Rather, due to inherent time 
constraints, such changes will be reviewed by Exchange personnel after 
the fact, and a TPH that is found to have made an improper modification 
may be subject to appropriate disciplinary action in accordance with 
the Rules of the Exchange as described more fully below.
    The Exchange lastly proposes to adopt Interpretation and Policy .01 
to provide that any action taken by the Exchange pursuant to proposed 
Rule 6.49(b) and (c) does not constitute a determination by the 
Exchange that the transaction was effected in conformity with Exchange 
Rules.\7\ As noted above, any improper change made through CTM shall be 
processed and given effect, but the TPH may be subject to appropriate 
disciplinary action in accordance with Exchange rules. Additionally, 
the Exchange notes that nothing in proposed Rule 6.49 is intended to 
define or limit the ability of the Exchange to sanction or take other 
remedial action pursuant to other Exchange rules for rule violations or 
other activity for which remedial measures may be proposed. The 
Exchange notes that given the inherent time constraints in making 
various changes to exchange transactions, the Exchange would not be 
able to adequately consider the above-mentioned requirements and make a 
determination within the time required as to whether a change was 
improper or not. As such the Exchange will not prevent any changes from 
being processed and given effect, but will review such changes after 
the fact to ensure compliance with Exchange rules.
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    \7\ For example, if the Exchange provides a TPH the ability to 
make a change via CTM, such action should not be construed as a 
determination by the Exchange that the transaction proposed is in 
conformity with Exchange Rules.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The Exchange views CTM as an important tool that allows TPHs to 
receive copies of trade records and add and/or update trade records. 
The Exchange believes CTM provides TPHs an effective mechanism to make 
such changes and reconcile out-trades due to bona fide errors, thereby 
removing impediments to and perfecting the mechanism of a free and open 
market and a national market system, and protecting investors and the 
public interest.
    The Exchange also believes that clearly defining in the rules 
existing system functionality (i.e., CTM) provides additional 
transparency in the rules and provides market participants an 
additional avenue to easily understand the system and processes C2 
offers. The Exchange believes additional transparency removes a 
potential impediment to and perfecting the mechanism for a free and 
open market and a national market system, and, in general, protecting 
investors and the public interest. Additionally, the Exchange believes 
that requiring certain changes made through the CTM system allows the 
Exchange to receive from TPHs information in a uniform format, which 
aids the Exchange's efforts to monitor and regulate C2 and TPHs and 
helps prevent fraudulent and manipulative practices.

[[Page 37649]]

    Finally, the Exchange believes that the proposed rule changes are 
designed to not permit unfair discrimination among market participants. 
For example all TPHs may request access to CTM. Additionally, all TPHs 
will be subject to the same limitations as to the permitted uses of CTM 
functionality.

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 
proposed Rule 6.49 will promote competition by making the CTM 
functionality more understandable to users and the general public. The 
Exchange believes that by better explaining its CTM functionality to 
TPHs and codifying the permitted uses of CTM, TPHs will better 
understand the Exchange's systems. The Exchange believes that 
additional clarity and transparency in the Rules will make it easier 
for market participants to compete with one another on equal footing in 
the markets and ultimately benefits all investors.

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 written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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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 will 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-C2-2017-023 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-C2-2017-023. 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-C2-2017-023 and should be 
submitted on or before September 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16930 Filed 8-10-17; 8:45 am]
BILLING CODE 8011-01-P