Sep. 11, 2017
I strongly object to the changes to Rule 6.15 submitted by the C2 Options Exchange. The core problem of the rule has not been addressed.
On March 2, 2017 I submitted a petition to the SEC (File NO 4-708) regarding the same rule. I requested that the section of the rule regarding "wide quotes" be amended or removed. The C2 exchange goes to great lengths to improve transparency of the theoretical value of options but does not make any change to the wide quote section which allows the theoretical value to be determined by the market makers quote. As long as the quote has not changed for ten seconds prior to the trade taking place, this section of the rule makes the market maker's quote the theoretical value. Why? It appears that this section of an otherwise good rule protects the market makers to the detriment of public customers.
Case in point:
On November 15, 2016 I sent an order to buy 20 UVXY2 Dec 16,2016 28 strike call options.The quotation for that option at the time of the order was Bid-0, Asked-4.70. For approximately two weeks I had been entering an order to buy this option for .01 cent. On this day I made an error and did not limit the order. The order went in as a market order and was executed at the asked price of $4.70. At the exact same time that my order was executed at $4.70 the UVXY2 Dec 16, 2016 16 strike call was offered at ten cents. It is obvious the $4.70 execution is an error. I could have bought a call option of the same series with a strike price $12 cheaper for ten cents.The error was immediately reported to the PHLX Option Exchange. The PHLX Exchange cited Rule 1092(b)(3) and refused to cancel the trade. On the day of this option trade the underlying stock UVXY, which had undergone a 1 for 5 reverse split the previous July, had a high price sale of $2.63 per share. As a result I was forced to pay
$470 for the right to buy 100 shares at $28 per share or $2800 for the next thirty days for a stock that was selling for$2.63. Common sense would not allow such a transaction. Never has a call option sold for a price higher than the underlying security. IT DOES NOT HAPPEN! It is shocking that the exchange let that trade go through yet the current rule permits it to happen.
In the strongest terms I request that the SEC does not approve the changes in Rule 6.15 until the problem with the wide quote exception is amended or removed. The public should be protected from such unconscionable behavior by an exchange and its market makers. Your duty is to protect us. Please do so.