43200 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Notices 

44See Plan Approval, supra, note 5. 45The Commission notes that any Participating 

Options Exchange that wishes to utilize such order 

types in a manner that would result in a TradeThrough would need to separately request an 

exemption from the Plan for such use. See, supra, 

note 27. 46The Commission notes that the rules contained 

in CBOE Temporary Rule 6.83 are not required by 

the Plan, but rather are rules proposed by the 

Exchange in order to facilitate the participation in 

the Plan of certain exchanges, including CBOE, 

during an initial transition period. 47See also, supra, note 27. 48 15 U.S.C. 78f(b)(5). 49Members may choose to avoid routing by using 

the Immediate or Cancel designation. See Notice. 

50See proposed CBOE Rule 6.14B(c). 

51 15 U.S.C. 78f(b)(4) and (5). 

52See proposed CBOE Rule 6.14B(c). 

53 15 U.S.C. 78f(b)(5). 

54See notes 28–32, infra, and accompanying text. 

55 15 U.S.C. 78s(b)(2). 

56 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 60158 

(June 22, 2009), 74 FR 31081 (‘‘Notice’’). 

4The Plan is a national market system plan 

proposed by the seven existing options exchanges 

and approved by the Commission. See Securities 

Exchange Act Release No. 59647 (March 30, 2009), 

74 FR 15010 (April 2, 2009) (File No. 4–546) (‘‘Plan 

system, and, in general, to protect 

investors and the public interest. 

The Commission also finds that 

proposed CBOE Temporary Rule 6.83, 

which facilitates the participation of 

certain Participating Options Exchanges, 

including CBOE, who may require the 

use of P/A Orders and Principal Orders 

after implementation of the Plan, and 

would permit CBOE to transmit P/A 

Orders and Principal Orders, is 

consistent with the Act. Although the 

Commission has already approved the 

Plan,44 the Commission also recognizes 

that the Exchange and other Plan 

Participants may require a temporary 

transition period during which they 

may want to utilize these order types 

that exist currently under the Old 

Plan.45 The Exchange and each of the 

other Participating Options Exchanges 

have proposed substantially identical 

temporary provisions to accommodate 

this.46 Further, because the Exchange 

intends also to send P/A Orders and 

Principal Orders for a temporary period, 

the Exchange has proposed temporary 

rules to permit this.47 The Commission 

finds that the proposed rule relating to 

the Exchange’s receipt and handling, 

and transmission of P/A Orders and 

Principal Orders, and imposing certain 

obligations on the Exchange with 

respect to such orders that are similar to 

those that exist under the Old Plan, is 

appropriate and consistent with Section 

6(b)(5) of the Act 48 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed 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 Commission further finds that 

CBOE’s proposed rule governing routing 

of sweep orders is consistent with the 

Act. As described above, the Exchange 

would enter into agreements that govern 

the routing of orders to away markets. 

Further, the routing of sweep orders 

would be optional; 49 and the Exchange 

would be responsible for routing 

decisions and would retain control of 

the routing logic. Neither the Exchange, 

nor any affiliate of the Exchange, may be 

the designated examining authority for 

the routing service provider.50 The 

Commission also notes that the rule 

contemplates procedures and internal 

controls designed to protect confidential 

and proprietary information, which 

should help ensure that the routing 

service provider does not misuse 

routing information obtained from the 

Exchange. In addition, the Exchange 

would provide its routing services in 

compliance with the Act and the rules 

thereunder, including but not limited to, 

the requirements in Sections 6(b)(4) and 

(5) of the Act 51 that the rules of a 

national securities exchange provide for 

the equitable allocation of reasonable 

dues, fees, and other charges among 

Exchange members and other persons 

using the Exchange’s facilities, and not 

be designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers.52

Proposed CBOE Rule 6.53 proposes 

four new order types: ISO, AIM ISO, 

Sweep and AIM Order, and CBOE-only 

Order. The Commission believes that 

the design of each of these order types 

should ensure that Protected Bids and 

Protected Orders are not traded-through 

in violation of the Plan while also 

providing market participants with 

flexibility in executing transactions that 

meet the specific requirements of the 

order type. Therefore, the Commission 

finds that Exchange’s rule permitting 

these new order types is consistent with 

Section 6(b)(5) of the Act 53 which 

requires, among other things, that the 

rules of a national securities exchange 

be designed 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 Exchange is also proposing to 

introduce an updated HAL process (i.e., 

HAL2) and revise its rule governing 

automatic executions.54 The 

Commission finds that such changes are 

appropriate and consistent with the Act 

and the Plan. 

Finally, the Commission finds that 

CBOE’s proposed amendments to 

certain other CBOE rules to reflect the 

provisions of the Plan, and to delete 

provisions of CBOE’s rules rendered 

unnecessary due to the Plan, are 

appropriate and consistent with the Act 

and the Plan. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,55 that the 

proposed rule change (SR–CBOE–2009– 

040), be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.56

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–20542 Filed 8–25–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60530; File No. SR–BX– 

2009–028] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Order Granting 

Approval of a Proposed Rule Change 

To Adopt Rules To Implement the 

Options Order Protection and Locked/ 

Crossed Market Plan 

August 18, 2009. 

I. Introduction 

On June 16, 2009, the NASDAQ OMX 

BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend and adopt rules to 

implement the Options Order Protection 

and Locked/Crossed Market Plan. The 

proposed rule change was published for 

comment in the Federal Register on 

June 29, 2009.3 The Commission 

received no comments on the proposal. 

This order approves the proposed rule 

change. 

II. Description of the Proposal 

The Exchange proposes to amend and 

adopt new rules of the Boston Options 

Exchange Group, LLC (‘‘BOX’’) to 

implement the Options Order Protection 

and Locked/Crossed Market 

Plan (‘‘Plan’’).4 Specifically, the 

Exchange proposes to replace current 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Notices 43201 

Notice’’) and 60405 (July 30, 2009), 74 FR 39362 

(August 6, 2009) (File No. 4–546) (‘‘Plan 

Approval’’). The seven options exchanges are: 

Chicago Board Options Exchange, Incorporated 

(‘‘CBOE’’); International Securities Exchange, LLC 

(‘‘ISE’’); The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’); NASDAQ OMX PHLX, Inc. (‘‘Phlx’’); 

NYSE Amex LLC (‘‘NYSE Amex’’); NYSE Arca, Inc. 

(‘‘NYSE Arca’’); and BOX (each exchange 

individually a ‘‘Participant’’ and, together, the 

‘‘Participating Options Exchanges’’). 

5On July 28, 2000, the Commission approved the 

Old Plan as a national market system plan for the 

purpose of creating and operating an intermarket 

options market linkage proposed by the American 

Stock Exchange LLC (n/k/a NYSE Amex), CBOE, 

and ISE. See Securities Exchange Act Release No. 

43086 (July 28, 2000), 65 FR 48023 (August 4, 

2000). Subsequently, Philadelphia Stock Exchange, 

Inc. (n/k/a Phlx), Pacific Exchange, Inc. (n/k/a 

NYSE Arca), Boston Stock Exchange, Inc. (n/k/a 

BOX), and Nasdaq joined the Linkage Plan. See 

Securities Exchange Act Release Nos. 43573 

(November 16, 2000), 65 FR 70851 (November 28, 

2000); 43574 (November 16, 2000), 65 FR 70850 

(November 28, 2000); 49198 (February 5, 2004), 69 

FR 7029 (February 12, 2004); and 57545 (March 21, 

2008), 73 FR 16394 (March 27, 2008). 

6Section 8(c) of the Old Plan. 

7The Linkage Hub is a centralized data 

communications network that electronically links 

the Participating Options Exchanges to one another. 

The Options Clearing Corporation (‘‘OCC’’) operates 

the Linkage Hub. 

8Section 2(16) of the Old Plan. 

9Section 7(a)(i)(C) of the Old Plan. 

10See Securities Exchange Act Release No. 60360 

(July 21, 2009) 74 FR 37265 (July 28, 2009) (File No. 

4–429). 

11 17 CFR 242.608. 

12See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005) (File 

No. S7–10–04); 17 CFR 242.600 et seq. For 

discussions of the similarities between the 

provisions of Regulation NMS and the provisions in 

the Plan, see Plan Notice and Plan Approval, supra 

note 5. 

13Under the Plan, a ‘‘Trade-Through’’ is generally 

defined as a transaction in an option series, either 

as principal or agent, at a price that is lower than 

a Protected Bid or higher than a Protected Offer.’’ 

See Section 2(21) of the Plan. A ‘‘Protected Bid’’ 

and ‘‘Protected Offer’’ generally means a bid or offer 

in an option series, respectively, that is displayed 

by a Participant, is disseminated pursuant to the 

Options Price Reporting Authority (‘‘OPRA’’) Plan, 

and is the Best Bid or Best Offer. See Section 2(17) 

of the Plan. A ‘‘Best Bid’’ or ‘‘Best Offer’’ means the 

highest bid price and the lowest offer price. Section 

(2)(1) of the Plan. ‘‘Protected Bid’’ and ‘‘Protected 

Offer,’’ together are referred to herein as ‘‘Protected 

Quotation.’’ See Section 2(18) of the Plan. 

14Section 5(a)(ii) of the Plan. 

15Section 5(b) of the Plan. 

16Subparagraphs (ii), (vii), and (viii), 

respectively, of Section 5(b) of the Plan. 

17Subparagraphs (i), (iii), (vi), (ix), (xi), and (iv)– 

(v), respectively, of Section 5(b) of the Plan. 

18Subparagraph (x) of Section 5(b) of the Plan. 

19Section 6 of the Plan. The Plan also contains 

provisions relating to the operation of the Plan 

including, for example, provisions relating to the 

entry of new parties to the Plan; withdrawal from 

the Plan; and amendments to the Plan. 

20A more detailed description of the Exchange’s 

proposed rule change may be found in the Notice, 

supra note 3. 

21Proposed BOX Chapter XII, Section 1. 

22Proposed BOX Chapter XII, Section 2(a). 

23Proposed BOX Chapter XII, Section 2(b)(1)– 

(10). In addition, the Exchange proposes to add 

ISOs as a new type of order under proposed BOX 

Chapter V, Section 14(c)(vi). 

24A ‘‘locked market’’ is defined as a quoted 

market in which a Protected Bid is equal to a 

Protected Offer. Proposed BOX Chapter XII, Section 

1(h). A ‘‘crossed market’’ is defined as a quoted 

market in which a Protected Bid is higher than a 

Protected Offer. Proposed BOX Chapter XII, Section 

1(e). 

25Proposed BOX Chapter XII, Section 3(a). 

Chapter XII of the BOX Rules with new 

rules implementing the Plan, amend 

other Exchange rules to reflect the Plan, 

and delete rules rendered unnecessary 

by the Plan. 

The Old Plan 

Each of the Participating Options 

Exchanges are signatories to the Plan for 

the Purpose of Creating and Operating 

an Intermarket Option Linkage (‘‘Old 

Plan’’).5 In pertinent part, the Old Plan 

generally requires its participants to 

avoid trading at a price inferior to the 

national best bid or offer (‘‘tradethrough’’), although it provides for a 

number of exceptions to trade-through 

liability.6 The Participating Options 

Exchanges comply with this 

requirement of the Old Plan by utilizing 

a stand alone system (‘‘Linkage Hub’’) to 

send and receive specific order types,7

namely Principal Acting as Agent 

Orders (‘‘P/A Orders’’), Principal 

Orders, and Satisfaction Orders.8 The 

Old Plan also provided that 

dissemination of ‘‘locked’’ or ‘‘crossed’’ 

markets should be avoided, and 

remedial actions that should be taken to 

unlock or uncross such market.9 Each of 

the Participating Options Exchanges, 

including the Exchange, has submitted 

an amendment to the Old Plan to 

withdraw from such Plan.10 The 

withdrawals will be effective upon 

approval by the Commission of such 

amendments pursuant to Rule 608 of 

Regulation NMS under the Act 

(‘‘Regulation NMS’’).11

The Plan 

The Plan does not require a central 

linkage mechanism akin to the Old 

Plan’s Linkage Hub. Instead, the Plan 

includes the framework for routing 

orders via private linkages that exist for 

NMS stocks under Regulation NMS.12

The Plan requires the Participating 

Options Exchanges to adopt rules 

‘‘reasonably designed to prevent TradeThroughs.’’ 13 Participating Options 

Exchanges are also required to conduct 

surveillance of their respective markets 

on a regular basis to ascertain the 

effectiveness of the policies and 

procedures to prevent Trade-Throughs 

and to take prompt action to remedy 

deficiencies in such policies and 

procedures.14 As further described 

below, the Plan incorporates a number 

of exceptions to trade-through 

liability.15 Some of these exceptions are 

carried over from the Old Plan, 

including exceptions for trading 

rotations, non-firm quotes, and complex 

trades.16 Others are substantially similar 

to exceptions available for NMS stocks 

under Regulation NMS, such as 

exceptions for systems issues, crossed 

markets, quote flickering, customer 

stopped orders, benchmark trades and, 

notably, intermarket sweep orders 

(‘‘ISOs’’).17 In addition, the Plan 

contains a new exception for stopped 

orders and price improvement.18

The Plan also requires each 

Participant to establish, maintain, and 

enforce written rules that: Require its 

members reasonably to avoid displaying 

locked and crossed markets; assure the 

reconciliation of locked and crossed 

markets; and prohibit its members from 

engaging in a pattern or practice of 

displaying locked and crossed markets; 

subject to exceptions as may be 

contained in the rules of the Participant, 

as approved by the Commission.19

The Exchange’s Proposal 

To implement the Plan, the Exchange 

proposes to replace its current rules 

relating to the Old Plan with new rules 

relating to the Plan, and makes 

amendments to other rules as necessary 

to conform to the requirements of the 

Plan.20 As such, the Exchange proposes 

to adopt all applicable definitions from 

the Plan into the Exchange’s rules.21

In addition, the Exchange proposes to 

prohibit its members from effecting 

Trade-Throughs, unless an exception 

applies.22 Consistent with the Plan, the 

Exchange also proposes exceptions to 

the prohibition on trade throughs 

relating to: System issues; trading 

rotations; crossed markets; intermarket 

sweep orders; quote flickering; non-firm 

quotes; complex trades; customer 

stopped orders; stopped orders and 

price improvement; and benchmark 

trades.23

The Exchange also proposes a rule to 

address locked and crossed markets, as 

required by the Plan.24 Specifically, the 

Exchange proposes that, except for 

quotations that fall within a stated 

exception, members shall reasonably 

avoid displaying, and shall not engage 

in a pattern or practice of displaying, 

any quotations that lock or cross a 

Protected Quote.25

The Exchange proposes four 

exceptions to the prohibition against 

locked and crossed markets: When the 

Exchange is experiencing a failure, 

material delay, or malfunction of its 

systems or equipment; when the locking 

or crossing quotation was displayed at 


jlentini on DSKJ8SOYB1PROD with NOTICES
43202 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Notices 

26Proposed BOX Chapter XII, Section 3(b)(1)–(4). 

27Proposed BOX Chapter XII, Temporary Section 

4. 

28The Exchange anticipates such temporary 

period to be between two to eight weeks past 

implementation of the Plan. 

29The Exchange has stated that it intends to 

request exemptive relief from the Plan for a 

temporary period to accommodate this temporary 

use of Principal Orders and P/A Orders. 

30See Notice, supra note 3, at 31084, discussing 

proposed changes to: BOX Chapter I, Section I; BOX 

Chapter V, Sections 14, 16, 20, and 29; BOX 

Chapter VI, Section 5; and BOX Chapter X, Section 

2. 

31 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

32 15 U.S.C. 78f(b)(5). 

33 17 CFR 242.608(c). Section 1 of the Plan 

provides in pertinent part that, ‘‘The Participants 

will submit to the [Commission] for approval their 

respective rules that will implement the framework 

of the Plan.’’ 

34See, supra note 4. 

35Proposed BOX Chapter XII, Section 2(b)(1)– 

(10). 

36Proposed BOX Chapter XII, Section 2(b)(4). 

37 15 U.S.C. 78f(b)(5). 

a time where there is a crossed market; 

when an Exchange member 

simultaneously routes an ISO to execute 

against the full displayed size of any 

locked or crossed Protected Bid or 

Protected Offer; and, with respect to a 

locking quotation, when the order 

entered on the Exchange that will lock 

a Protected Bid or Protected Offer, is (i) 

not a customer order, and the Exchange 

can determine via identification 

available pursuant to the OPRA Plan 

that such Protected Bid or Protected 

Offer does not represent, in whole or in 

part, a customer order; or (ii) a customer 

order, and the Exchange can determine 

via identification available pursuant to 

the OPRA Plan that such Protected Bid 

or Protected Offer does not represent, in 

whole or in part, a customer order, and, 

on a case-by-case basis, the customer 

specifically authorizes the member to 

lock such Protected Bid or Protected 

Offer.26

The Exchange also proposes rules to 

permit it to continue to accept P/A 

Orders and Principal Orders from 

Participating Options Exchanges that are 

not able to send ISOs in order to avoid 

Trade-Throughs.27 In addition, BOX has 

proposed to include provisions that 

would permit the Exchange to send 

Principal Orders and P/A Orders to 

away markets for a temporary period,28

which BOX states would allow it and its 

Options Participants to seek the best 

available price for customers.29

The Exchange also proposes to delete 

and/or modify certain provisions of 

BOX rules to reflect the Exchange’s 

withdrawal from the Old Plan, and to 

amend certain provisions of BOX rules 

to reflect the Plan.30

The Exchange has represented that 

this proposed rule change would 

become effective upon the Exchange’s 

withdrawal from the Old Plan and the 

effectiveness of the Plan. 

II. Discussion and Commission’s 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.31 In 

particular, the Commission finds that 

the proposal is consistent with Section 

6(b)(5) of the Act 32 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed 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 Commission also 

finds that the proposal is consistent 

with Rule 608(c) of Regulation NMS 

under the Act, which requires that each 

exchange comply with the terms of any 

effective national market system plan of 

which it is a participant.33 Finally, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Plan.34

Proposed BOX Chapter XII, Section 1 

would define applicable terms in a 

manner that are substantively identical 

to the defined terms of the Plan. As 

such, the Commission finds that 

proposed BOX Chapter XII, Section 1 is 

consistent with the Act and the Plan. 

Proposed BOX Chapter XII, Section 

2(a) would prohibit members from 

effecting Trade-Throughs unless an 

exception applies. Proposed BOX 

Chapter XII, Section 2(b) would provide 

for ten exceptions to the general TradeThrough prohibition, relating to systems 

issues, trading rotations, crossed 

markets, ISOs, quote flickering, nonfirm quotes, complex trades, customer 

stopped orders, stopped orders and 

price improvement, and benchmark 

trades.35 Aside from the proposed 

exception relating to systems issues, 

each proposed exception would be 

substantively identical to the parallel 

exception under Section 5(b) of the 

Plan. 

The systems issues exception under 

proposed BOX Chapter XII, Section 

2(b)(1) would implement the parallel 

exception available under Section 5(b)(i) 

of the Plan and would permit the 

Exchange to bypass the Protected 

Quotation of another Participant if such 

other Participant repeatedly fails to 

respond within one second to incoming 

orders attempting to access its Protected 

Quotations. The Exchange’s rule would 

require the Exchange to notify such nonresponding Participant immediately 

after (or at the same time as) electing 

self-help, and assess whether the cause 

of the problem lies with the Exchange’s 

own systems and, if so, take immediate 

steps to resolve the problem. Finally, 

the Exchange would be required to 

promptly document its reasons 

supporting any such determination to 

bypass a Protected Quotation. The 

Commission believes that this exception 

should provide the Exchange with the 

necessary flexibility for dealing with 

problems that occur on an away market 

during the trading day. At the same 

time, the exception’s requirements to 

immediately notify such away market of 

its determination and also assess its 

own system should help prevent the use 

of this exception when there in fact is 

a problem with the Exchange’s own 

systems, rather than those of an away 

market. 

The Commission notes that included 

among the exception in proposed BOX 

Chapter XII, Section 2(b) would be an 

exception for certain transactions 

involving ISOs.36 An order identified as 

an ISO would be immediately 

executable by the Exchange (or any 

other Plan Participant that received 

such an order) based on the premise that 

the market participant sending the ISO 

has already attempted to access all 

better-priced Protected Quotations up to 

their displayed size. The Commission 

believes that this exception should help 

ensure more efficient and faster 

executions in the options markets. 

The Commission notes that, in 

addition to these rules regarding TradeThroughs, the Plan requires that each 

Participant establish, maintain and 

enforce written policies and procedures 

that are reasonably designed to prevent 

Trade-Throughs in that Participant’s 

market that do not fall within an 

applicable exception and, if relying on 

such exception, that are reasonably 

designed to assure compliance with the 

terms of the exception. In addition, the 

Commission notes that the Plan requires 

each Participant to conduct surveillance 

of its market on a regular basis to 

ascertain the effectiveness of such 

policies and procedures and to take 

prompt action to remedy any 

deficiencies in such policies and 

procedures. 

Accordingly, the Commission finds 

that proposed BOX Chapter XII, Section 

2 is consistent with Section 5 of the 

Plan and Section 6(b)(5) of the Act 37


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Notices 43203 

38Section 6 of the Plan permits exceptions to the 

Plan’s locked and crossed market rules as may be 

contained in the rules of a Participant approved by 

the Commission. 39 15 U.S.C. 78f(b)(5). 

40See Plan Approval, supra note 4. 

41The Commission notes that any Participating 

Options Exchange that wishes to utilize such order 

types in a manner that would result in a TradeThrough would need to separately request an 

exemption from the Plan for such use. See, supra 

note 29. 

42The Commission notes that the rules contained 

in BOX Chapter XII, Temporary Rule 4 are not 

required by the Plan, but rather are rules proposed 

by the Exchange in order to facilitate the 

participation in the Plan of certain exchanges, 

including BOX, during an initial transition period. 

43See, supra note 29. 

44 15 U.S.C. 78f(b)(5). 

which requires, among other things, that 

the rules of a national securities 

exchange be designed 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. 

Proposed BOX Chapter XII, Section 

3(a) would require Exchange members 

to reasonably avoid displaying, and not 

engage in a pattern or practice of 

displaying, any quotation that locks or 

crosses a Protected Quotation, subject to 

certain exceptions delineated in 

proposed BOX Chapter XII, Section 3(b). 

The Commission recognizes that locked 

and crossed markets may occur 

accidentally and cannot always be 

avoided. However, the Commission 

believes that giving priority to the firstdisplayed Protected Bid or Protected 

Offer, particularly when it includes a 

public customer’s order, will encourage 

price discovery and contribute to fair 

and orderly markets. Therefore, the 

Commission believes that the proposed 

rule, which corresponds to the Plan’s 

language, to require members to 

reasonably avoid displaying, and not 

engaging in a pattern or practice of, 

locks and crosses is appropriate. 

Proposed BOX Chapter XII, Section 

3(b) would permit four exceptions to the 

Exchange’s general rule relating to 

locked and crossed markets.38 The first 

three would be similar to analogous 

certain trade-through exceptions under 

proposed BOX Chapter XII, Section 2(b), 

and relate to when the Exchange is 

experiencing systems issues, when there 

is exists a crossed market, and when a 

member simultaneously routes ISOs 

against the full displayed size of any 

locked or crossed Protected Bid or 

Protected Offer. 

The fourth exception would permit an 

order entered onto the Exchange to lock 

a Protected Bid or Protected Offer when 

such order is: (1) Not a customer order, 

and the Exchange can determine that 

such Protected Bid or Protected Offer 

does not represent, in whole or in part, 

a customer order; or (2) a customer 

order, and the Exchange can determine 

that such Protected Bid or Protected 

Offer does not represent, in whole or in 

part, a customer order and, on a caseby-case basis, the customer specifically 

authorizes the Exchange’s member to 

lock such Protected Bid or Protected 

Offer. This exception would not protect 

a market maker quote or broker-dealer 

order from being locked. 

The Commission believes that the 

Exchange’s proposed rules relating to 

locked and crossed markets are 

consistent with the Plan and the Act 

and should help ensure that the display 

of locked or crossed markets will be 

limited and that any such display will 

be promptly reconciled. The 

Commission also believes that each of 

the proposed exceptions to locked and 

crossed markets relate to circumstances 

when it is appropriate to permit a 

limited, narrow exception to the general 

locked and crossed market rule. 

In particular, the Commission 

believes that the fourth exception is 

appropriate because it would protect 

customer orders that are Protected Bids 

or Protected Offers from being locked, 

and would only permit a customer order 

entered on to the Exchange to lock a 

Protected Bid or Protected Offer when a 

customer specifically authorizes an 

Exchange member, and only when such 

Protected Bid or Protected Offer itself 

does not represent, in whole or in part, 

a customer order. Because of the 

rapidity with which options quotes are 

often updated today, particularly in 

response to changes in the underlying, 

there is an increasing likelihood that 

market maker quotations will lock each 

other. The proposed exception accounts 

for this dynamic by not prohibiting such 

locking instances. Importantly, the 

proposed exception in the Exchange’s 

rules that the Commission is approving 

would allow non-customer orders to 

lock an away market’s Protected 

Quotation only if the Exchange is able 

to affirmatively determine that the 

Protected Quotation on the away market 

is not, in whole or in part, for the 

account of a customer. If any portion of 

such away market’s Protected Quotation 

is for the account of a customer, such 

Protected Quotation may not be locked. 

In addition, the Commission notes that 

the rule requires that such 

determination be made via 

identification available pursuant to the 

OPRA Plan, which is working with the 

participating options exchanges on a 

method to so identify customer 

quotations through OPRA. 

Therefore, the Commission finds that 

Exchange’s rule regarding locked and 

crossed markets appropriately 

implements Section 6 of the Plan, and 

is consistent with Section 6(b)(5) of the 

Act 39 which requires, among other 

things, that the rules of a national 

securities exchange be designed 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 Commission also finds that 

proposed BOX Chapter XII, Temporary 

Section 4, which facilitates the 

participation of certain Participating 

Options Exchanges, including BOX, 

who may require the use of P/A Orders 

and Principal Orders after 

implementation of the Plan, and would 

permit BOX to transmit P/A Orders and 

Principal Orders, is consistent with the 

Act. Although the Commission has 

already approved the Plan,40 the 

Commission also recognizes that the 

Exchange and other Plan Participants 

may require a temporary transition 

period during which they may want to 

utilize these order types that exist 

currently under the Old Plan.41 The 

Exchange and each of the other 

Participating Options Exchanges have 

proposed substantially identical 

temporary provisions to accommodate 

this.42 Further, because the Exchange 

intends also to send P/A Orders and 

Principal Orders for a temporary period, 

the Exchange has proposed temporary 

rules to permit this.43 The Commission 

finds that the proposed rule relating to 

the Exchange’s receipt and handling, 

and transmission of P/A Orders and 

Principal Orders, and imposing certain 

obligations on the Exchange with 

respect to such orders that are similar to 

those that exist under the Old Plan, is 

appropriate and consistent with Section 

6(b)(5) of the Act 44 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed 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. 

Finally, the Commission finds that 

that BOX’s other proposed changes are 

appropriate and consistent with the Act. 


jlentini on DSKJ8SOYB1PROD with NOTICES
43204 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Notices 

45 15 U.S.C. 78s(b)(2). 

46 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

5The Commission previously approved the 

trading of options on NZD, PZO and SKA. See 

Securities Exchange Act Release No. 55575 (April 

3, 2007), 72 FR 17963 (April 10, 2007) (Order 

approving the listing and trading of FX Options). 

6A FXPMM is a primary market maker selected 

by the Exchange that trades and quotes in FX 

Options only. See ISE Rule 2213. 

7A FXCMM is a competitive market maker 

selected by the Exchange that trades and quotes in 

FX Options only. See ISE Rule 2213. 

8These fees will be charged only to Exchange 

members. Under a pilot program that is set to expire 

on July 31, 2010, these fees will also be charged to 

Linkage Principal Orders (‘‘Linkage P Orders’’) and 

Linkage Principal Acting as Agent Orders (‘‘Linkage 

P/A Orders’’). The amount of the execution fee 

charged by the Exchange for Linkage P Orders and 

Linkage P/A Orders is $0.27 per contract side and 

$0.18 per contract side, respectively. See Securities 

Exchange Act Release No. 60175 (June 25, 2009), 74 

FR 32026 (July 6, 2009) (SR–ISE–2009–36). 

9The Exchange applies a sliding scale, between 

$0.01 and $0.18 per contract side, based on the 

number of contracts an ISE market maker trades in 

a month. 

10The amount of the execution fee for non-ISE 

Market Maker transactions executed in the 

Exchange’s Facilitation and Solicitation 

Mechanisms is $0.20 per contract. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,45 that the 

proposed rule change (SR–BX–2009– 

028), as modified by Amendment No. 1, 

be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.46

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–20541 Filed 8–25–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60536; File No. SR–ISE– 

2009–59] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Fee Changes and 

an Incentive Plan for Three Foreign 

Currency Options 

August 19, 2009. 

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 August 3, 

2009, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) 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 selfregulatory organization. ISE has 

designated this proposal as one 

establishing or changing a due, fee, or 

other charge applicable only to a 

member under Section 19(b)(3)(A)(ii) of 

the Act,3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the proposal 

effective upon filing with the 

Commission. 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 ISE is proposing to initiate an 

incentive plan for market makers in 

three newly listed foreign currency 

options (‘‘FX Options’’) and to establish 

fees for transactions in these FX 

Options. The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.ise.com), at the 

principal office of the Exchange, 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 

self-regulatory organization 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 self-regulatory organization 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 purpose of this proposed rule 

change is to initiate an incentive plan 

for market makers on three newly listed 

FX Options, specifically, the New 

Zealand dollar (‘‘NZD’’), the Mexican 

peso (‘‘PZO’’) and the Swedish krona 

(‘‘SKA’’) 5 and to establish fees for 

transactions in these products. Options 

on NZD, PZO and SKA began trading on 

the Exchange on August 3, 2009. As 

such, this proposed fee change will be 

operative and effective on August 3, 

2009. 

In order to promote trading in these 

new FX Options, the Exchange proposes 

to initiate an incentive plan for market 

makers in NZD, PZO and SKA. Market 

makers will be able to enter into the 

incentive plan until October 5, 2009. 

Participants in the incentive plan are 

known on the Exchange’s Schedule of 

Fees as Early Adopter Market Makers. 

Under the incentive plan, the Exchange 

will waive the applicable transaction 

fees for both the Early Adopter 

FXPMM 6 and all Early Adopter 

FXCMMs 7 that make a market in NZD, 

PZO and SKA for as long as the 

incentive plan is in effect. Further, 

pursuant to a revenue sharing agreement 

entered into between an Early Adopter 

Market Maker and ISE, the Exchange 

will pay the Early Adopter FXPMM 

forty percent (40%) of the transaction 

fees collected on any customer trade in 

NZD, PZO and SKA and will pay up to 

ten (10) Early Adopter FXCMMs that 

participate in the incentive plan twenty 

percent (20%) of the transaction fees 

collected for trades between a customer 

and that FXCMM. Market makers that 

do not participate in the incentive plan, 

i.e., market makers that begin to quote 

and trade in NZD, PZO and SKA after 

October 5, 2009, will be charged regular 

transaction fees for trades in these 

products. 

The Exchange is proposing to adopt 

an execution fee of $0.40 per contract 

for all Public Customer transactions in 

options on NZD, PZO and SKA.8 The 

amount of the execution fee for all Firm 

Proprietary transactions will be $0.20 

per contract and the execution fee for all 

non-Early Adopter ISE Market Makers 

in NZD, PZO and SKA shall be equal to 

the execution fee currently charged by 

the Exchange for ISE Market Maker 

transactions in equity options.9 Finally, 

the amount of the execution fee for all 

non-ISE Market Maker transactions in 

these products shall be $0.45 per 

contract.10 The Exchange will not 

charge a Payment for Order Flow fee for 

these products. 

The Exchange also [sic] proposes to 

waive transaction charges for all Early 

Adopter Market Makers in NZD, PZO 

and SKA in order to further encourage 

the trading of these FX Options. The 

Exchange believes that the revenue 

generated from customer, firm 

proprietary and non-ISE market maker 

transaction charges and increased order 

flow would offset the transaction fees 

that would otherwise be applied to 

market makers in NZD, PZO and SKA, 

thereby allowing the Exchange to 

recoup those fees while increasing order 

flow and generating increased revenues. 

The Exchange believes the proposed 

rule change will further the Exchange’s 


jlentini on DSKJ8SOYB1PROD with NOTICES