[Federal Register Volume 75, Number 186 (Monday, September 27, 2010)]
[Notices]
[Pages 59305-59309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24059]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62954; File No. SR-BX-2010-066]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of a Proposed Rule Change To Enhance Quotation Requirements for
Market Makers
September 20, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 17, 2010, NASDAQ OMX
[[Page 59306]]
BX, Inc. (``BX'' or the ``Exchange'') filed with the Securities and
Exchange Commission (``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.
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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 is filing with the Commission a proposed rule change
to enhance quotation requirements for market makers. The text of the
proposed rule change is below. Proposed new language is in italics;
proposed deletions are in [brackets].\3\
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\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at http://nasdaqomxbx.cchwallstreet.com.
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* * * * *
[4613. Character of Quotations]
A member registered as an Equities Market Maker shall engage in a
course of dealings for its own account to assist in the maintenance,
insofar as reasonably practicable, of fair and orderly markets in
accordance with this Rule.
(a) Quotation Requirements and Obligations
(1) Two-Sided Quote Obligation. For each security in which a member
is registered as an Equities Market Maker, the member shall be willing
to buy and sell such security for its own account on a continuous basis
and shall enter and maintain a two-sided quotation (``Principal
Quote''), which is attributed to the market maker by a special market
participant identifier (``MPID'') and is displayed in the NASDAQ OMX BX
Equities Market at all times, subject to the procedures for excused
withdrawal set forth in Rule 4619.
(A) A registered Equities Market Maker must display a quotation
size for at least one normal unit of trading (or a larger multiple
thereof) when it is not displaying a limit order in compliance with SEC
Rule 604, provided, however, that a registered Equities Market Maker
may augment its displayed quotation size to display limit orders priced
at the Equities Market Maker's quotation. Unless otherwise designated,
a ``normal unit of trading'' shall be 100 shares.
(B) The minimum quotation increment for quotations of $1.00 or
above in all System Securities shall be $0.01. The minimum quotation
increment in the System for quotations below $1.00 in System Securities
shall be $0.0001.
(2) The first MPID issued to a member pursuant to subparagraph (1)
of this rule, or Rule 4623, shall be referred to as the member's
``Primary MPID.'' Market makers and ECNs may request the use of
additional MPIDs that shall be referred to as ``Supplemental MPIDs.'' A
market maker may request the use of a Supplemental MPIDs for displaying
Attributable Quotes/Orders in the Exchange's Quotation Montage for any
security in which it is registered and meets the obligations set forth
in subparagraph (1) of this rule. An ECN may request the use of
Supplemental MPIDS for displaying Attributable Quotes/Orders in the
Exchange's Quotation Montage for any security in which it meets the
obligations set forth in Rule 4623. A market maker or ECN that ceases
to meet the obligations appurtenant to its Primary MPID in any security
shall not be permitted to use a Supplemental MPID for any purpose in
that security.
(3) Market makers and ECNs that are permitted the use of
Supplemental MPIDs for displaying Attributable Quotes/Orders pursuant
to subparagraph (2) of this rule are subject to the same rules
applicable to the member's first quotation, with two exceptions: (a)
The continuous two-sided quote requirement and excused withdrawal
procedures described in subparagraph (1) above do not apply to market
maker's Supplemental MPIDs; and (b) Supplemental MPIDs may not be used
by market makers to enter stabilizing bids pursuant to Equity Rule
4614.]
4613. Market Maker Obligations
A member registered as an Equities Market Maker shall engage in a
course of dealings for its own account to assist in the maintenance,
insofar as reasonably practicable, of fair and orderly markets in
accordance with this Rule.
(a) Quotation Requirements and Obligations
(1) Two-Sided Quote Obligation. For each security in which a member
is registered as a Equities Market Maker, the member shall be willing
to buy and sell such security for its own account on a continuous basis
during regular market hours and shall enter and maintain a two-sided
trading interest (``Two-Sided Obligation'') that is identified to the
Exchange as the interest meeting the obligation and is displayed in the
Exchange's quotation montage at all times. Interest eligible to be
considered as part of an Equities Market Maker's Two-Sided Obligation
shall have a displayed quotation size of at least one normal unit of
trading (or a larger multiple thereof); provided, however, that an
Equities Market Maker may augment its Two-Sided Obligation size to
display limit orders priced at the same price as the Two-Sided
Obligation. Unless otherwise designated, a ``normal unit of trading''
shall be 100 shares. After an execution against its Two-Sided
Obligation, Equities a Market Maker must ensure that additional trading
interest exists in the Exchange to satisfy its Two-Sided Obligation
either by immediately entering new interest to comply with this
obligation to maintain continuous two-sided quotations or by
identifying existing interest on the Exchange book that will satisfy
this obligation.
(2) Pricing Obligations. For NMS stocks (as defined in Rule 600
under Regulation NMS) an Equities Market Maker shall adhere to the
pricing obligations established by this Rule during Regular Market
Hours.
(A) Bid Quotations. At the time of entry of bid interest satisfying
the Two-Sided Obligation, the price of the bid interest shall be not
more than the Designated Percentage away from the then current National
Best Bid, or if no National Best Bid, not more than the Designated
Percentage away from the last reported sale from the responsible single
plan processor. In the event that the National Best Bid (or if no
National Best Bid, the last reported sale) increases to a level that
would cause the bid interest of the Two-Sided Obligation to be more
than the Defined Limit away from the National Best Bid (or if no
National Best Bid, the last reported sale), or if the bid is executed
or cancelled, the Equities Market Maker shall enter new bid interest at
a price not more than the Designated Percentage away from the then
current National Best Bid (or if no National Best Bid, the last
reported sale), or identify to the Exchange current resting interest
that satisfies the Two-Sided Obligation.
(B) Offer Quotations.--At the time of entry of offer interest
satisfying the Two-Sided Obligation, the price of the offer interest
shall be not more than the Designated Percentage away from the then
current National Best Offer, or if no National Best Offer, not more
than the Designated Percentage away from the last reported sale
received from the responsible single plan processor. In the event that
the National Best Offer (or if no National Best Offer, the last
reported sale) decreases to a level that would cause the offer interest
of the Two-Sided Obligation to be more than the Defined
[[Page 59307]]
Limit away from the National Best Offer (or if no National Best Offer,
the last reported sale), or if the offer is executed or cancelled, the
Equities Market Maker shall enter new offer interest at a price not
more than the Designated Percentage away from the then current National
Best Offer (or if no National Best Offer, the last reported sale), or
identify to the Exchange current resting interest that satisfies the
Two-Sided Obligation.
(C) The National Best Bid and Offer shall be determined by the
Exchange in accordance with its procedures for determining protected
quotations under Rule 600 under Regulation NMS.
(D) For purposes of this Rule, the term ``Designated Percentage''
shall mean the individual stock pause trigger percentage under Rule
4120(a)(11) (or comparable rule of another exchange) less two (2)
percentage points. For times during regular market hours when stock
pause triggers are not in effect under Rule 4120(a)(11) (or comparable
rule of another exchange), the Designated Percentage calculation will
assume a trigger percentage of 22%. For NMS stocks that are not subject
to such stock pause triggers the Designated Percentage will assume a
trigger percentage of 32%.
(E) For purposes of this Rule, the term ``Defined Limit'' shall
mean the individual stock pause trigger percentage under Rule
4120(a)(11) (or comparable rule of another exchange) less one-half (\1/
2\) percentage point. For times during regular market hours when stock
pause triggers are not in effect under Rule 4120(a)(11) (or comparable
rule of another exchange), the Defined Limit calculation will assume a
trigger percentage of 22%. For NMS stocks that are not subject to such
stock pause triggers the Defined Limit calculation will assume a
trigger percentage of 32%.
(F) Quotation Creation and Adjustment. For each Issue in which an
Equities Market Maker is registered, the System shall automatically
create a quotation for display to comply with this Rule. System-created
compliant displayed quotations will thereafter be allowed to rest and
not be further adjusted by the System unless the relationship between
the quotation and its related National Best Bid or National Best Offer,
as appropriate, shrinks to the greater of: (a) 4 percentage points, or,
(b) one-quarter the applicable percentage necessary to trigger an
individual stock trading pause as described in NASDAQ OMX BX Rule
4120(a)(11), or expands to within that same percentage less 0.5%,
whereupon the System will immediately re-adjust and display the
Equities Market Maker's quote to the appropriate Designated Percentage
set forth in section (D) above. As the System allows for multiple
attributable quotations by a Equities Market Maker in an issue,
quotations originally entered by Equities Market Makers shall be
allowed to move freely towards or away from the National Best Bid or
National Best Offer, as appropriate, for potential execution.
(G) Quotation Refresh After Execution. In the event of an execution
against a System-created compliant quotation, the Equities Market Maker
shall have its quote refreshed by the System on the executed side of
the market at the applicable Designated Percentage away from the then
National Best Bid (Offer) (or if no National Best Bid (Offer), the last
reported sale).
(H) Nothing in this Rule shall preclude an Equities Market Maker
from quoting at price levels that are closer to the National Best Bid
and Offer than the levels required by this Rule.
(I) The minimum quotation increment for quotations of $1.00 or
above in all System Securities shall be $0.01. The minimum quotation
increment in the System for quotations below $1.00 in System Securities
shall be $0.0001.
(J) The individual Market Participant Identifier (``MPID'')
assigned to a member to meet its Two-Sided Obligation pursuant to
subparagraph (a)(1) of this Rule, or Rule 4623, shall be referred to as
the member's ``Primary MPID.'' Equities Market Makers and ECNs may
request the use if additional MPIDs that shall be referred to as
``Supplemental MPIDs.'' An Equities Market Maker may request the use of
Supplemental MPIDs for displaying Attributable Quotes/Orders in the
Quotation Montage for any security in which it is registered and meets
the obligations set forth in subparagraph (1) of this rule. An ECN may
request the use of Supplemental MPIDs for displaying Attributable
Quotes/Orders in the Quotation Montage for any security in which it
meets the obligations set forth in Rule 4623. An Equities Market Maker
or ECN that ceases to meet the obligations appurtenant to its Primary
MPID in any security shall not be permitted to use a Supplemental MPID
for any purpose in that security.
(K) Equities Market Makers and ECNs that are permitted the use of
Supplemental MPIDs for displaying Attributable Quotes/Orders pursuant
to subparagraph (2) of this rule are subject to the same rules
applicable to the members' first quotation, with two exceptions: (a)
The continuous two-sided quote requirement and excused withdrawal
procedures described in subparagraph (1) above do not apply to Equities
Market Makers' Supplemental MPIDs; and (b) Supplemental MPIDs may not
be used by Equities Market Makers to engage in passive market making or
to enter stabilizing bids pursuant to Rule 4614.
(b)-(e) No Change.
* * * * *
(b) Not applicable.
(c) Not applicable.
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
Market Maker Quote Obligations:
The Exchange proposes to adopt rules to enhance minimum quotation
requirements for market makers. Under the proposal, the Exchange will
require market makers for each stock in which they are registered to
continuously maintain a two-sided quotation within a designated
percentage of the National Best Bid and National Best Offer as
appropriate. These enhanced market maker quotation requirements are
intended to eliminate trade executions against market maker placeholder
quotations traditionally priced far away from the inside market,
commonly known as ``stub quotes.'' They are also intended to augment
and work in relation to the single stock pause standards already in
place on a pilot basis for stocks in the S&P 500, Russell 1000, and
specified ETFs.\4\ Under the proposal, the Exchange will require
registered market makers to enter and maintain quotes priced at no more
than a certain percentage away from the national inside bid and offer.
Permissible quotes are determined by the individual character of the
security, the time of day in which the quote is entered, and other
factors which are summarized below:
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\4\ See Exchange Act Release No. 62884 (September 10, 2010).
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[[Page 59308]]
For issues subject to an individual stock trading trigger pause, a
permissible quote is determined by first looking at the applicable
stock trading pause trigger percentage of the security and then
reducing that number by 2%. Since currently the stock pause trigger
percentage across all exchanges is 10%, a market maker's quote in such
a security may not be more than 8% away from the national best bid or
best offer as appropriate. Once a compliant quote is entered, it may
rest without adjustment until such time as it moves to within \1/2\ of
1% of the applicable trigger pause percentage (i.e., currently 9.5%)
whereupon the market maker must immediately move its quote back to at
least the permissible default level of 8% away from the national best
bid or best offer. During times in which a trigger pause percentage is
not applicable (e.g. before 9:45 a.m. and after 3:35 p.m.), a market
maker must maintain a quote no further than 20% away from the inside
(i.e. it may rest without adjustment until it reaches 21.5%). In the
absence of national best or best offer, the above calculations will
remain the same, but will use the national last sale instead of the
absent bid or offer.
For securities not subject to any individual stock pause trigger,
the proposal will a [sic] assume a hypothetical 32% trigger pause,
apply a 2% reduction, and require market makers in those issues to
maintain quotes no more than 30% away from the national best and
national best offer. Like securities subject to stock trading pauses,
once a compliant quote is entered, it may rest without adjustment until
such time as it moves to within \1/2\ of 1% of its applicable trigger
pause percentage (31.5%) whereupon the market maker must immediately
move its quote back to at least the permissible default level of 30%.
These requirements shall apply to Regulation NMS securities during
normal market hours.
Nothing in the above precludes a market maker from voluntarily
quoting at price levels that are closer to the national best bid and
best offer than required under the proposal.
Automated Quote Management:
In order to assist market makers in meeting their enhanced
quotation obligations, the Exchange will also provide automated quote
management functionality. For each issue in which a market maker is
registered, the Exchange will automatically create a quotation for
display to comply with this standard set forth in this proposal.
Compliant displayed quotations will thereafter be allowed to rest and
not be further adjusted by the Exchange unless the relationship between
the quotation and its related national best bid or national best offer,
as appropriate, shrinks to the greater of: (a) 4 percentage points, or,
(b) one-quarter the applicable percentage necessary to trigger an
individual stock trading pause as described in NASDAQ OMX BX Rule
4120(a)(11), or expands to within that same percentage less 0.5%,
whereupon the Exchange will immediately re-adjust and display the
market maker's quote to the appropriate designated percentage.
Quotations originally entered by market makers shall be allowed to move
freely towards the national best bid or national best offer, as
appropriate, for potential execution.
In the event of an execution against a System-created compliant
quotation, the market maker shall have its quote refreshed by the
System on the executed side of the market at the applicable designated
percentage away from the then national best bid (offer), or if no
national best bid (offer), the last reported sale.
Previously Approved Rule Text:
Finally, the sections (I), (J) and (K) of the proposed rule are
portions of previously approved text of Rule 4613 that have moved so as
to group the proposed market making standard sections together within
the rule.
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\5\ which requires
the rules of an exchange to promote just and equitable principles of
trade, 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. The proposed rule change also is
designed to support the principles of Section 11A(a)(1) \6\ of the Act
in that it seeks to assure fair competition among brokers and dealers
and among exchange markets. The Exchange believes that the proposed
rule meets these requirements in that it promotes transparency and
uniformity across markets concerning minimum market maker quotation
requirements.
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\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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 e-mail to [email protected]. Please include
File Number SR-BX-2010-066 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2010-066. This file
number should be included on the subject line if e-mail 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
[[Page 59309]]
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such 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 publicly available. All
submissions should refer to File Number SR-BX-2010-066 and should be
submitted on or before October 18, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24059 Filed 9-24-10; 8:45 am]
BILLING CODE 8010-01-P