2016-09454. Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule to Amend the Fees Schedule

April 19, 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 April 11, 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, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend its Fees Schedule. The text of the proposed rule change is available on the Exchange's Web site at (http://www.c2exchange.com/​Legal/​), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room.

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

In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose

The Exchange proposes to amend its Fees Schedule.^[3] Specifically, the Exchange proposes to adopt separate transaction fees and rebates for non-Penny option classes. By way of background, the Exchange began adding an additional 2,000 option classes the week of February 22, 2016. The Exchange notes that the additional classes are non-Penny option classes (i.e., each traded in nickel increments, as opposed to penny increments). As such, the Exchange proposes adopting fee and rebate rates for these classes that would be different than the current fees and rebates which would apply to Penny option classes only.

Specifically, the Exchange proposes to adopt the following rates for simple and complex orders in all equity, multiply-listed index, ETF and ETN non-Penny option classes. Listed rates are per contract.

	Maker	Taker fee
Public Customer	($.75)	$.83
C2 Market-Maker	(.68)	.85
All Other Origins (Professional Customer, Firm, Broker/Dealer, non-C2 Market-Maker, JBO, etc.)	(.60)	.88
Trades on the Open	.00	.00

The Exchange notes that the proposed fees are similar to those adopted on other Exchanges.^[4]

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.^[5] Specifically, the Exchange believes the proposed rule change is consistent with Section 6(b)(4) of the Act,^[6] which requires that Exchange rules provide for the equitable allocation of reasonable dues, fees, and other charges among its Trading Permit Holders and other persons using its facilities. In particular, the Exchange's proposal to adopt fees and rebates for non-Penny option classes is reasonable because the amounts proposed are similar to, and in line with, the rebates and fees for non-Penny option transactions at other Exchanges that use the Make-Take pricing structure.^[7]

The Exchange believes that it is equitable and not unfairly discriminatory to assess lower fees to Public Customers as compared to other market participants and to provide higher rebates to Public Customers as compared to other market participants because Public Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Specifically, Public Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Market-Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Moreover, the options industry has a long history of providing preferential pricing to Public Customers. Finally, all fee and rebate amounts listed as applying to Public Customers will be applied equally to all Public Customers.

The Exchange believes that it is equitable and not unfairly discriminatory to assess lower fees to Market-Makers as compared to other market participants other than Public Customers and provide higher rebates to Market-Makers as compared to other market participants other than Public Customers because Market-Makers, unlike other C2 market participants, take on a number of obligations, including quoting obligations, that other market participants do not have. Further, these lower fees and higher rebates offered to Market-Makers are intended to incent Market-Makers to quote and trade more on the Exchange, thereby providing more trading opportunities for all market participants. Finally, all fee and rebate amounts listed as applying to Market-Makers will be applied equally to all Market-Makers.

The Exchange also believes it is equitable and not unfairly discriminatory to assess higher fees and lower rebates to all other origins (i.e., Professional Customer, Firm, Broker/Dealer, non-C2 Market-Maker, JBO, etc.). Particularly, the Exchange notes that it believes it's equitable and not unfairly discriminatory to assess a higher fee and lower rebate than it does of Market-Makers, because these market participants do not have the same obligations, such as quoting, as Market-Makers do. The Exchange believes it's equitable and not unfairly discriminatory to assess a higher fee and lower rebate than it does to Public Customers, because, as described above, there is a history of providing preferential pricing to Public Customers as Public Customer liquidity benefits all market participants by providing more trading opportunities. The Exchange notes that the proposed fee and rebate amounts listed will also be applied to each of these market participants (i.e., Professional Customers, Firms, Broker/Dealers, non-C2 Market-Makers, JBOs, etc. will be assessed the same amount). It should also be noted that all fee and rebate amounts described herein are intended to attract greater order flow to the Exchange, which should therefore serve to benefit all Exchange market participants.

The Exchange believes it's reasonable, equitable and not unfairly discriminatory to assess no fees and offer no rebates for Trades on the Open because trades on the Open involve the matching of undisplayed pre-opening trading interest. As such, there is, in effect, no Maker or Taker activity occurring. Additionally, the Exchange would like to encourage users to submit pre-opening orders.

The Exchange lastly believes it's equitable and not unfairly discriminatory to assess higher fees and rebates for non-Penny option classes than Penny option classes because Penny classes and non-Penny classes offer different pricing, liquidity, spread and trading incentives. The spreads in Penny classes are tighter than those in non-Penny classes (which trade in $0.05 increments). The wider spreads in non-Penny option classes allow for greater profit potential. Further, a number of options exchanges offer different pricing for Penny and non-Penny option classes.^[8]

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

C2 does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because, while different fees and rebates are assessed to different market participants, these different market participants have different obligations and different circumstances (as described in the “Statutory Basis” section above). For example, Public Customers order flow, as discussed above, enhances liquidity on the Exchange for the benefit of all market participants. There is also a history in the options markets of providing preferential treatment to Public Customers. Additionally, Market-Makers have quoting obligations that other market participants do not have.

The Exchange does not believe that the proposed change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because it only applies to trading on the Exchange. Further, the proposed fee and rebate amounts are similar to those assessed for similar orders by other exchanges,^[9] and therefore should continue to encourage competition. Should the proposed change make C2 a more attractive trading venue for market participants at other exchanges, such market participants may elect to become market participants at C2 [sic]

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

The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act ^[10] and paragraph (f) of Rule 19b-4 ^[11] thereunder. 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 [e-mail]. Please include File Number SR-C2-2016-004 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-C2-2016-004. 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-C2-2016-004, and should be submitted on or before May 16, 2016.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.¹²

Robert W. Errett,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  The Exchange initially filed the proposed fee change on April 1, 2016 (SR-C2-2016-003). On April 11, 2016, the Exchange withdrew that filing and replaced it with SR-C2-2016-004.

4.  See e.g., NYSE Arca Options Fee Schedule, which lists, for electronic executions in in non-Penny Pilot issues, (1) the standard Customer Maker rebate of $0.75 versus a Taker fee of $0.85, (2) the standard Market Maker rebate of $0.05 versus a Taker fee of $0.99, and (3) the standard Firm and Broker Dealer Maker fee of $0.50 versus a Taker fee of $0.99. See also, ISE Gemini Schedule of Fees, which lists for executions in Non-Penny symbols, (1) the standard Customer Maker rebate of between $0.75 to $0.85 versus a Taker fee between $0.81 to $0.82, (2) the standard Market Maker rebate between $0.40 to $0.49 versus a Taker fee of $0.89, and (3) the standard Firm and Broker Dealer Maker rebate between $0.25 to $0.65 versus a Taker fee of $0.89.

5.  15 U.S.C. 78f(b).

6.  15 U.S.C. 78f(b)(4).

7.  See supra note 4.

8.  See e.g., NYSE Arca Options Fee Schedule and ISE Gemini Schedule of Fees.

9.  See supra note 4.

10. 15 U.S.C. 78s(b)(3)(A).

11. 17 CFR 240.19b-4(f).

12. 17 CFR 200.30-3(a)(12).