[Federal Register Volume 75, Number 65 (Tuesday, April 6, 2010)]
[Notices]
[Pages 17454-17456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7693]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61805; File No. SR-BX-2010-022]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Price Improvement Period
March 31, 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 March 25, 2010, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II 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 proposes to amend Chapter V, Section 18 (The Price
Improvement Period (``PIP'')) of the Rules of the Boston Options
Exchange Group, LLC (``BOX''). The text of the proposed rule change is
available from the principal office of the Exchange, at the
Commission's Public Reference Room and also on the Exchange's Internet
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.
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 PIP currently allows Initiating Participants \3\ to enter two-
sided orders for execution with the possibility of receiving a price
that improves upon the National Best Bid or Offer (``NBBO'') (``price
improvement''). The customer side of these orders (``PIP Order'') is
exposed \4\ to Options Participants to give them an opportunity to
compete for allocations in the PIP by entering orders (``Improvement
Orders'') at the proposed cross price or better. This provides an
opportunity for the PIP Order to receive price improvement. PIP Orders
are submitted to BOX with a matching guaranteed contra order (``Primary
Improvement Order''), equal to the full size of the PIP Order. The
Primary Improvement Order currently must represent a single price
(``Single-Priced Primary Improvement Order'') \5\ that is equal to or
better than that of the NBBO at the time of the commencement of the
PIP.
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\3\ Options Participants, both OFPs and Market Makers, who
submit PIP Orders for price improvement.
\4\ BOX commences a PIP by broadcasting a message to all Options
Participants that (1) states that a Primary Improvement Order has
been processed; (2) contains information concerning series, size,
PIP Start Price and side of the market, and; (3) states when the PIP
will conclude (``PIP Broadcast'').
\5\ Presently, a Single-Priced Submission is the only manner in
which an Options Participant may start a PIP.
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The purpose of this proposed rule change is to add an auto-match
functionality within the PIP for the Initiating Participant to submit a
Primary Improvement Order that will automatically match both the price
and size of all competing quotes and orders at any price level achieved
during the PIP auction or only up to a designated limit price (``Max
Improvement Primary Improvement Order''). Either the Single-Priced
Primary Improvement Order or the Max Improvement Primary Improvement
Order will designate the PIP auction start price (``PIP Start Price''),
which shall be equal to or better than the NBBO at the time of
commencement of the PIP. With a Max Improvement Primary Improvement
Order the Initiating Participant does not respond at all, but instead
must honor the prices set forth by the competing orders, including
booked unrelated orders, received from other Options Participants.
After the commencement of a PIP, the Initiating Participant would not
be able to cancel or modify the Max Improvement Primary Improvement
Order. In this case, the Initiating Participant would not have control
over the prices at which it receives an allocation at the conclusion of
the PIP auction.
Under the proposal, at the conclusion of the PIP, the Max
Improvement Primary Improvement Order shall be allocated its full size
at each price level where there are competing quotes or orders, except
where restricted by any designated max improvement limit price, until a
price level is reached where the balance of the PIP Order can be fully
executed. Only at such price level will the Initiating Participant
retain priority for the greater of one contract or 40% of the remaining
size of the PIP Order.
The following example illustrates how the proposed PIP auto-match
functionality will operate for the Max Improvement Primary Improvement
Order:
At the commencement of the PIP the NBBO is 2.00 (bid)--2.10
(offer). The Initiating Participant submits to the PIP a customer
order to sell 155 contracts at $2.01 (``the PIP Order'') while
simultaneously submitting a guaranteed contra Max Improvement
Primary Improvement Order with a PIP Start Price of $2.01 (bid) and
a designated max improvement limit price of $2.04 (bid). During the
PIP auction the following competing orders were received from
Options Participants: PIP Participant A: $2.05 (bid) for 5 contracts
(a booked unrelated order); PIP Participant B: $2.03 (bid) for 15
contracts; PIP Participant C: $2.02 (bid) for 10 contracts; and PIP
Participant D: $2.01 (bid) for 155 contracts.
The following allocations shall occur at the conclusion of the
PIP auction:
Participant A is allocated 5 contracts at $2.05.
[cir] Remaining size of PIP Order is 150.
[cir] Note that Initiating Participant is not allocated any
quantity at this price level because it exceeds the Max Improvement
Primary Improvement Order designated limit price of $2.04.
Initiating Participant and Participant B are each allocated
15 contracts at $2.03.
[[Page 17455]]
[cir] Remaining size of PIP Order is 120.
Initiating Participant and Participant C are each allocated
10 contracts at $2.02.
[cir] Remaining size of PIP Order is 100.
Initiating Participant is allocated 40 contracts at $2.01
(40% of the remaining quantity of 100 contracts) and Participant D
is allocated 60 contracts (balance of the remaining quantity of the
PIP Order after the Initiating Participant's allocation at this
price level).
BOX's PIP allows for broad participation in its competitive auction
by all types of market participants (e.g. Public Customers, Broker
Dealers and Market Makers).\6\ All Options Participants are able to
receive the PIP Broadcasts and may respond by submitting competing
Improvement Orders. All PIP Orders entered into the PIP will continue
to be broadly exposed in the auction before the Initiating Participant
can execute against the PIP Order via the Max Improvement Primary
Improvement Order.
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\6\ The Exchange notes that no changes to the priority of Public
Customer Orders within the PIP auction are being proposed.
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BOX notes that when the Initiating Participant selects the Max
Improvement Primary Improvement Order prior to the start of the
auction, the available liquidity at improved prices would be
automatically doubled and competitive final pricing would be out of the
Initiating Participant's control. The Exchange believes that the
proposal, if approved, will increase competition in the PIP auction,
will provide more options contracts with price improvement and incent
Options Participants to initiate more such Max Improvement PIP
auctions. Increases in the number of PIP auctions initiated by BOX
Options Participants will directly correlate with an increase in the
number of customer orders that are provided with the opportunity to
receive price improvement over the NBBO.
The Exchange also notes that a similar auto-match function is
currently in place on at least one other options exchange.\7\
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\7\ See CBOE Rule 6.74A Automated Improvement Mechanism
(``AIM''). See also Securities Exchange Act Release No. 53222
(February 3, 2006), 71 FR 7089 (February 10, 2006) (SR-CBOE-2005-60)
(Order Granting Approval of Proposed Rule Change and Amendment No. 1
Thereto and Notice of Filing and Order Granting Accelerated Approval
to Amendment No. 2 to the Proposed Rule Change Relating to an
Automated Improvement Mechanism).
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The Exchange represents that BOX shall provide the Commission with
the following data: The percentage of all BOX trades effected through
the PIP in which the Initiating Participant has submitted a Max
Improvement Primary Improvement Order with a limit price and the
percentage without a limit price, and the average amount of price
improvement provided to the PIP Order when the Initiating Participant
has submitted a Max Improvement Primary Improvement Order with a limit
price and the average without a limit price, versus the average amount
of price improvement provided to the PIP Order when the Initiating
Participant has chosen a Single-Priced Primary Improvement Order.
After effectiveness of the proposal, and at least one week prior to
implementation of the rule change, BOXR will issue a regulatory
circular to Options Participants. The regulatory circular will inform
Options Participants of the implementation date of the Max Improvement
function. This will give Options Participants an opportunity to make
any necessary modifications to coincide with the implementation date.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\8\ in general, and Section
6(b)(5) of the Act,\9\ in particular, in that it is designed 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 for a free and open market and a national market
system and, in general, to protect investors and the public interest.
In particular, the Exchange believes that the proposal, if approved,
will result in double the liquidity available at improved prices with
competitive final pricing out of the Initiating Participant's control,
thus increasing competition in the PIP auction and providing more
options contracts with price improvement. As a result of the increased
opportunity for price improvement, the Exchange believes that Options
Participants will be incented to initiate more such Max Improvement PIP
auctions. Increases in the number of PIP auctions initiated by BOX
Options Participants will directly correlate with an increase in the
number of customer orders that are provided with the opportunity to
receive price improvement over the NBBO.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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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
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received 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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \12\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) \13\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay because the
changes to the PIP auction will allow immediate increases in the
liquidity available at improved prices. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest and designates the proposal operative
upon filing.\14\
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6).
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate 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.
[[Page 17456]]
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-2010-022 on the subject line.
Paper Comments
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-BX-2010-022. 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,\15\ 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, on
official business days between the hours of 10 a.m. and 3 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-BX-2010-022 and should be submitted on or before April
27, 2010.
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\15\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7693 Filed 4-5-10; 8:45 am]
BILLING CODE 8011-01-P