[Federal Register Volume 75, Number 75 (Tuesday, April 20, 2010)]
[Notices]
[Pages 20647-20649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9031]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61891; File No. SR-BX-2010-026]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Chapter V, Section 7 (Customer Orders and Order Flow Providers)
Date: April 13, 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 31, 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 NASDAQ OMX BX, Inc. (the ``Exchange'')
proposes to amend Chapter V, Section 17 (Customer Orders and Order Flow
Providers) 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 Exchange is proposing to amend Chapter V, Section 17 (Customer
Orders and Order Flow Providers) of the BOX Rules in order to eliminate
some of its restrictions. Section 17(c) currently provides that an
Order Flow Provider (``OFP'') \3\ shall not enter into BOX, as
principal or agent, Limit Orders in the same options series, for the
account or accounts of the same or related beneficial owners, in such a
manner that the OFP or the beneficial owner(s) effectively is operating
as a market maker by holding itself out as willing to buy and sell such
options contract on a regular or continuous basis.
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\3\ See Chapter I, Section 1 (Definitions) of the BOX Rules
which defines the term ``Order Flow Provider'' or ``OFP'' to mean
those Options Participants representing as agent Customer Orders on
BOX and those non-Market Maker Participants conducting proprietary
trading.
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The Exchange is proposing that these restrictions be eliminated so
that they are no longer applicable to instances where an OFP is acting
as principal on its own behalf or is acting as agent on behalf of other
broker-dealer or Public Customer orders.\4\ Because broker-dealer and
Public Customer orders are not subject to priority on the BOX Book that
is any better than Market Makers, BOX does not believe it is necessary
to impose the Rule's restrictions on the entry of broker-dealer and
Public Customer orders. The Exchange believes that the elimination of
these restrictions will permit entities other than Market Makers to
enter orders on both sides of the market more freely, which may result
in more orders on the BOX Book and therefore increased liquidity on the
BOX market, all to the benefit of investors.
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\4\ The Exchange notes that the Securities and Exchange
Commission (``Commission'') has previously found that it is
consistent with the Securities Exchange Act of 1934 (``the Act'')
for an options exchange not to prohibit a user of its market from
effectively operating as a market maker by holding itself out as
willing to buy and sell options contracts on a regular or continuous
basis without registering as a market maker. See Securities Exchange
Act Release No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008)
(SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080) (Order Approving, among
other things, a Proposed Rule Change to Establish Rules Governing
the Trading of Options on the NASDAQ Options Market (``NOM'')).
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The Exchange notes that OFPs must register as BOX Options
Participants as well as registering with the Commission under Section
15 of the Act,\5\ and the rules and regulations thereunder.\6\ Further,
an entity which acts as a ``dealer,'' as defined in Section 3(a)(5) of
the Act,\7\ must also register with the Commission under Section 15 of
the Act,\8\ and the rules and regulations thereunder, or alternatively
qualify for any exception or exemption from such registrations.\9\
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\5\ 15 U.S.C. 78o.
\6\ The Exchange notes that this rule change would only
eliminate the restrictions of Chapter V, Section 17 in the manner
proposed. BOX Options Participants would continue to remain subject
to the requirements of Chapter III, Section 4(a) (which requires BOX
Options Participants to establish, maintain and enforce written
policies and procedures reasonably designed, taking into
consideration the nature of the Participant's business, to prevent
the misuse of material nonpublic information by such Participant or
persons associated with such Participant); Chapter III, Section 4(f)
(which may consider it conduct inconsistent with just and equitable
principles of trade for any Participant or person associated with a
Participant who has knowledge of all material terms and conditions
of (i) an order and a solicited order, (ii) an order being
facilitated or submitted to the Price Improvement Period, or (iii)
orders being crossed; the execution of which are imminent, to enter,
based on such knowledge, an order to buy or sell an option for the
same underlying security as any option that is the subject of the
order, or an order to buy or sell the security underlying such
class, or an order to buy or sell any related instrument until (a)
the terms and conditions of the order and any changes in the terms
and conditions of the order of which the Participant or person
associated with the Participant has knowledge are disclosed to the
trading crowd, or (b) the trade can no longer reasonably be
considered imminent in view of the passage of time since the order
was received); Supplementary Material .02 to Chapter V, Section 17
(which provides that if an Options Participant fails to expose its
Customer Order[s] on BOX, it will be a violation of Section 17 for
an Options Participant to cause the execution of an order it
represents as agent on BOX through the use of orders it solicited
from Options Participants and/or non-Participant broker-dealers to
transact with such orders, whether such solicited orders are entered
into the BOX market directly by the Options Participant or by the
solicited party (either directly or through another Participant),
unless the agency order is first exposed to the BOX Book for at
least one (1) second); and Supplementary Material .03 to Chapter V,
Section 17 (which provides that an OFP may not execute as principal
an order it represents as agent unless, (i) the agency order is
first exposed to the BOX Book for at least one (1) second, or (ii)
the OFP has been bidding or offering on BOX for a least one (1)
second prior to receiving an agency order that is executable against
such bid or offer; or (iii) the OFP sends the agency order to the
Price Improvement Period or Universal Price Improvement Period
process pursuant to Sections 18 and 29 of Chapter V of the BOX
Rules).
\7\ 15 U.S.C. 78c(a)(5).
\8\ 15 U.S.C. 78o.
\9\ Activity that may cause a person to be deemed a dealer
includes ``quoting a market in or publishing quotes for securities
(other than quotes on one side of the market on a quotations system
generally available to non-broker-dealers, such as a retail screen
broker for government securities).'' See Definition of Terms in and
Specific Exemptions for Banks, Savings Associations, and Savings
Banks Under Sections 3(a)(4) and 3(a)(5) of the Securities Exchange
Act of 1934, Securities Exchange Act Release No. 47364, 68 FR 8685,
8689, note 26 (February 24, 2003) (quoting OTC Derivatives Dealers,
Securities Exchange Act Release No. 40594, 63 FR 59362, 59370, note
61 (November 3, 1998)).
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\10\ in general, and Section
6(b)(5) of the Act,\11\ 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.
The proposed changes should continue to contribute to the Exchange's
ability to maintain a fair and orderly market in a manner that will
limit unfair advantage and encourage competition. Specifically, because
broker-dealer and Public Customer orders are not subject to priority on
the BOX Book that is any better than Market Makers, the Exchange does
not believe it is necessary to impose the Rule's restrictions on the
entry of broker-dealer and Public Customer orders. The Exchange
believes that the elimination of these restrictions will permit
entities other than Market Makers to enter orders on both sides of the
market more freely, resulting in more orders on the BOX Book and
therefore increased liquidity on the BOX market, all to the benefit of
investors.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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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Because broker-dealer and Public Customer orders are not subject to
priority on the BOX Book that is any better than Market Makers, the
Exchange does not believe it is necessary to impose the Rule's
restrictions on the entry of broker-dealer and Public Customer orders.
The Exchange believes that the elimination of these restrictions will
permit entities other than Market Makers to enter orders on both sides
of the market more freely, resulting in more orders on the BOX Book and
therefore increased liquidity on the BOX market, all to the benefit of
investors.
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.
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-2010-026 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-2010-026. This file
number should be included on the subject line if e-mail is used. To
help the
[[Page 20649]]
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,\14\ 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-
2010-026 and should be submitted on or before May 11, 2010.
\14\ 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.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9031 Filed 4-19-10; 8:45 am]
BILLING CODE 8011-01-P