Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to amend its rules regarding System
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.
The Exchange proposes to amend its rules regarding System access, connectivity, and testing by Participants. The Exchange makes available to Participants various application programming interfaces ("APIs"),
After a Participant registers with the Exchange to use a specific API, the Exchange may require the Participant to use a specific connectivity protocol that, among other things, may require the input of certain information (e.g. trading acronym, category of Participant) during the connectivity process in accordance with technical specifications established by the Exchange. The Exchange may prescribe a specific connectivity protocol for all Participants, or for certain categories of similarly situated Participants (e.g. Market-Makers, Designated Primary Market-Makers ("DPMs")).
It is imperative for the Exchange to receive during the connectivity process information regarding a Participant's identification so that the Exchange can ensure that the connecting party is a Participant authorized to access the System and that the Exchange is aware of what type of Participant the connecting party is. Requiring a specific connectivity protocol allows the Exchange to receive this information in a uniform manner for all Participants, or categories of similarly situated Participants, as the Exchange deems necessary. This information allows the Exchange to, among other things, perform the necessary surveillances applicable to the Participant and determine whether the Participant is complying with all relevant Exchange Rules. Many of the Exchange's surveillances are conducted by type of Participants, as different types have
The Exchange also periodically requires Participants that have been authorized to access the System to conduct or participate in the testing of their computer systems to ascertain the compatibility of these systems with the System. The Exchange believes that it is critical that Participants work closely with the Exchange in testing new software releases and other System changes. System testing allows the Exchange to ensure that Participants' systems are continuously compatible with the System in the event of System changes and that the Exchange continues to receive all necessary data from Participants in a timely manner and efficient format. Additionally, System testing allows Participants to make any necessary adjustments to their systems in the event of System changes to ensure that their connections to the System are functioning properly and that they are able to submit order and trade information in compliance with all applicable Exchange Rules.
The Exchange proposes to codify these current Exchange practices and requirements related to System access and connectivity. Proposed Rule 6.34(c) clarifies in the Rules that only Participants (and their associated persons) may be authorized to access the System to enter and execute orders. This proposed provision also provides that the Exchange will require a Participant to enter into a software user or license agreement with the Exchange in a form or forms prescribed by the Exchange in order to obtain authorized access to the System if the Participant elects to use an API for which the Exchange has determined that this type of an agreement is necessary. In other words, whether the Exchange requires a Participant to enter into a user or license agreement will depend solely on the objective criteria of what type of API the Participant opts to use.
Proposed Rule 6.34(d) provides that the Exchange may prescribe technical specifications pursuant to which all Participants, or categories of similarly situated Participants (e.g., DPMs, Market-Makers), may establish an electronic connection to the System (and any facilities). The Exchange will announce to Participants via Regulatory Circular any connectivity protocol prescription.
Proposed Rule 6.34(e)(i) provides that each Participant that the Exchange designates as required to participate in a system test must conduct or participate in the testing of its computer systems to ascertain the compatibility of such systems with the System in the manner and frequency prescribed by the Exchange. The Exchange will designate Participants as required to participate in a system test based on: (1) The category of the Participant (e.g. DPM, Market-Maker); (2) the computer system(s) the Participant uses; and (3) the manner in which the Participant connects to the System. The Exchange will give Participants reasonable notice of any mandatory systems test, which notice will specify the nature of the test and Participants' obligations in participation in the test.
In connection with this mandatory system testing, proposed Rule 6.34(e)(ii) provides that every Participant required by the Exchange to conduct or participate in testing of computer systems must provide to the Exchange any reports relating to the testing as the Exchange may prescribe. Participants must maintain adequate documentation of tests required by this Rule and results of this testing for examination by the Exchange.
Proposed Rule 6.34(e)(iii) states that a Participant that fails to conduct or participate in mandatory systems tests, fails to file the required reports, or fails to maintain the required documentation, as required by proposed Rule 6.34(e)(i) and (ii), may be subject to summary suspension or other action taken pursuant to Chapter 16 (Summary Suspension) and/or disciplinary action pursuant to Chapter 17 (Discipline) of the Exchange Rules. Disciplinary action may include fines pursuant to proposed Rule 17.50(g)(19), which provides that Participants that violate proposed Rule 6.34(e) may be subject to fines under the Exchange's minor rule violation plan.
Codification of these requirements gives the Exchange the ability to discipline any Participants that fail to comply with these requirements. While Participants generally comply with these requirements, their inclusion in the Rules (and the resulting potential for discipline for noncompliance) may enhance Participants' overall compliance with them.
Codification of these requirements is also consistent with the Rules of other exchanges. Proposed Rule 6.34(c) is substantially similar to: BATS Exchange, Inc. ("BATS") Rule 11.3(a); BOX Options Exchange LLC ("BOX") Rule 7000(a); EDGA Exchange, Inc. ("EDGA") Chapter XI, Rule 11.3(a); EDGX Exchange, Inc. ("EDGX") Chapter XI, Rule 11.3(a); International Securities Exchange, LLC ("ISE") Rule 706(a); NASDAQ Option Market ("NOM") Chapter V, Section 1(a); NYSE Arca, Inc. ("NYSE Arca") Rule 6.2A(a); and NYSE MKT LLC ("NYSE MKT") Rule 902.1NY(a). Proposed Rule 6.34(e) is substantially similar to: BATS Rule 18.13; BOX Rule 3180; ISE Rule 419; and NOM Chapter III, Section 13. BOX Rule 12140(d)(7) and ISE Rule 1614(d)(8) also allow those exchanges to fine their members for violations of their respective mandatory system provisions pursuant to their respective minor rule violation plans.
Additionally, proposed Rule 6.34(c) is consistent with Rule 15c3-1 [sic] under the Act.
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.
The proposed rule change codifies current Exchange requirements that enhance C2's market surveillances and System functionality. Proposed Rule 6.34(c) is consistent with Rule 15c3-5 under the Act, and the Exchange believes the proposed rule change promotes compliance by Participants with the market access requirements under that rule. The Exchange believes that proposed Rule 6.34(d) allows the Exchange to receive from Participants, or categories of similarly situated Participants, information in a uniform format, which aids the Exchange's efforts to monitor and regulate C2's markets and Participants and helps prevent fraudulent and manipulative practices. This also helps coordinate the ability of Participants to electronically trade on the Exchange with the Exchange's ability to receive the necessary information to regulate those transactions. Proposed Rule 6.34(e) allows the Exchange to ensure that Participants' connections to the System function correctly, which promotes efficiency and enhances compliance by Participants with Exchange Rules.
In addition, codification of these requirements is consistent with the Act because it gives the Exchange the ability to discipline Participants that fail to comply with these requirements, which may enhance overall Participants compliance with these requirements. This proposed rule change will also promote consistency in the minor rule violation programs of other exchanges and allow the Exchange to carry out its regulatory responsibilities more quickly and efficiently by including violations of the mandatory system testing provision in the Exchange's minor rule violation plan.
The Exchange believes that the proposed rule change is designed to not permit unfair discrimination among Participants, as the proposed rule change provides for the Exchange to impose requirements on Participants in an objective manner. For example, under proposed Rule 6.34(d), the Exchange may impose connectivity protocol requirements on all Participants, or similarly situated Participants. Additionally, under proposed Rule 6.34(c), whether the Exchange requires a Participant to enter into a software user or license agreement depends solely on what type of API the Participant opts to use to connect to the System.
Finally, the proposed rule change will help remove impediments to and promote a free and open market and a national market system because it is consistent with rules in place at other exchanges and imposes substantially similar requirements on Participants as those rules do on those exchanges' members.
C2 does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of this 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.
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:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2012-036. 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 (