64384 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 

12 15 U.S.C. 78s(b)(3)(a)(ii). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

demonstrate that the market for market 

data was competitive based on the 

reasoning of the Commission’s 

NetCoalition order because, in the 

court’s view, the Commission had not 

adequately demonstrated that the depthof-book data at issue in the case is used 

to attract order flow. NASDAQ believes, 

however, that evidence not before the 

court clearly demonstrates that 

availability of depth data attracts order 

flow. For example, NASDAQ submits 

that in and of itself, NASDAQ’s decision 

voluntarily to cap fees on existing 

products, as is the effect of an enterprise 

license, is evidence of market forces at 

work. In fact, the instant proposal 

creates a second enterprise license for 

non-professional usage of depth data to 

complement the existing enterprise 

license set forth at NASDAQ Rule 

7023(a)(1)(C). 

Competition among platforms has 

driven NASDAQ continually to improve 

its platform data offerings and to cater 

to customers’ data needs. For example, 

NASDAQ has developed and 

maintained multiple delivery 

mechanisms (IP, multi-cast, and 

compression) that enable customers to 

receive data in the form and manner 

they prefer and at the lowest cost to 

them. NASDAQ offers front end 

applications such as its ‘‘Bookviewer’’ to 

help customers utilize data. NASDAQ 

has created new products like 

TotalView Aggregate to complement 

TotalView ITCH and Level 2, because 

offering data in multiple formatting 

allows NASDAQ to better fit customer 

needs. NASDAQ offers data via multiple 

extranet providers, thereby helping to 

reduce network and total cost for its 

data products. NASDAQ has developed 

an online administrative system to 

provide customers transparency into 

their data feed requests and streamline 

data usage reporting. NASDAQ has also 

expanded its Enterprise License options 

that reduce the administrative burden 

and costs to firms that purchase market 

data. 

Despite these enhancements and a 

dramatic increase in message traffic, 

NASDAQ’s fees for depth-of-book data 

have remained flat. In fact, as a percent 

of total customer costs, NASDAQ data 

fees have fallen relative to other data 

usage costs—including bandwidth, 

programming, and infrastructure—that 

have risen. The same holds true for 

execution services; despite numerous 

enhancements to NASDAQ’s trading 

platform, absolute and relative trading 

costs have declined. Platform 

competition has intensified as new 

entrants have emerged, constraining 

prices for both executions and for data. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.12 At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

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. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or 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 rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2010–125 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–NASDAQ–2010–125. 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 

provisions of 5 U.S.C. 552, will be 

available for website 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–NASDAQ–2010–125 and 

should be submitted on or before 

November 9, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–26208 Filed 10–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63098; File No. SR– 

NASDAQ–2010–074] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Order 

Instituting Proceedings To Determine 

Whether To Disapprove Proposed Rule 

Change, as Modified by Amendment 

No. 1, To Adopt Rule 4753(c) as a Six 

Month Pilot in 100 NASDAQ-Listed 

Securities 

October 13, 2010. 

I. Introduction 

On June 18, 2010, The NASDAQ 

Stock Market LLC (‘‘Nasdaq’’ or the 

‘‘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 

implement, on a six-month pilot basis, 

a volatility-based trading pause in 100 

Nasdaq-listed securities (‘‘Volatility 

Guard’’). On June 25, 2010, Nasdaq filed 

Amendment No. 1 to the proposed rule 

change. The proposed rule change, as 

amended, was published for comment 

in the Federal Register on July 15, 

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Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 64385 

3See Securities Exchange Act Release No. 62468 

(July 7, 2010), 75 FR 41258. 

4See Letter from Joe Ratterman, Chairman and 

Chief Executive Officer, BATS Global Markets, Inc., 

to Hon. Mary Schapiro, Chairman, Commission, 

dated July 1, 2010 (‘‘BATS Letter’’); Letter from Jose 

Marques, Managing Director, Deutsche Bank 

Securities Inc., to Elizabeth M. Murphy, Secretary, 

Commission, dated July 21, 2010 (‘‘Deutsche Bank 

Letter’’); Letter from Janet M. Kissane, Senior Vice 

President, Legal and Corporate Secretary, NYSE 

Euronext, to Elizabeth Murphy, Secretary, 

Commission, dated August 3, 2010 (‘‘NYSE Letter’’); 

Letter from Ann L. Vlcek, Managing Director and 

Associate General Counsel, Securities Industry and 

Financial Markets Association, to Elizabeth M. 

Murphy, Secretary, Commission, dated June 25, 

2010 (‘‘SIFMA Letter’’). 

5See Letter from T. Sean Bennett, Assistant 

General Counsel, Nasdaq, to Elizabeth M. Murphy, 

Secretary, Commission (‘‘Nasdaq response’’). 

6See Securities Exchange Act Release No. 62740 

(August 18, 2010), 75 FR 52049 (August 24, 2010). 

7See BATS Letter at 2; Deutsche Bank Letter at 

4; SIFMA Letter at 3. 

8See Deutsche Bank Letter at 4. 

9See NYSE Letter at 2. In its comment letter, 

NYSE also addressed what it perceived as Nasdaq’s 

inaccurate description of the LRPs. NYSE provided 

additional detail about the LRPs, the role of the 

LRPs during the events of May 6, 2010, and the 

interaction between LRPs and the recently 

approved single-stock circuit breakers. 

10 Id. 

11 Id. at 3–4. 

12Nasdaq response at 2. 

13 Id. 

14 Id. 

15 Id. at 3. 

16 Id. 

17 Id. 

18See Report of the Staffs of the CFTC and SEC 

to the Joint Advisory Committee on Emerging 

Regulatory Issues, ‘‘Findings Regarding the Market 

Events of May 6, 2010’’, dated September 30, 2010. 

19 Id. at 70. 

20 Id. Specifically, the May 6 Staff Report notes 

that there were 19 LRP events affecting 12 stocks 

in which available liquidity within 500 basis points 

of the national best bid or offer may have been able 

to absorb sell pressure. 

21 Id. at 70–71. 

2010.3 The Commission received four 

comment letters on the proposal.4

Nasdaq responded to these comments 

on August 12, 2010.5 The Commission 

subsequently extended the time period 

in which to either approve the proposed 

rule change, or to institute proceedings 

to determine whether to disapprove the 

proposed rule change, to October 13, 

2010.6 This order institutes proceedings 

to determine whether to disapprove the 

proposed rule change. 

II. Description of the Proposal 

Nasdaq proposes to adopt, on a pilot 

basis, a volatility-based trading halt for 

100 Nasdaq-listed securities. Under this 

proposal, Nasdaq would suspend 

trading in a security if a trade in that 

security is executed at a price that 

exceeds a certain threshold, as 

measured over the preceding 30 

seconds. The triggering threshold varies 

according to the price of the security, 

i.e., 15% for securities with an 

execution price of $1.75 and under; 

10% for securities over $1.75 and up to 

$25; 5% for securities over $25 and up 

to $50; and 3% for securities over $50. 

If the Volatility Guard were triggered, 

Nasdaq would suspend trading in that 

security for a period of 60 seconds, but 

would maintain all current quotes and 

orders during that time, and would 

continue to accept quotes and orders. 

Following this 60-second period, 

Nasdaq would re-open the market using 

its Halt Cross mechanism. According to 

Nasdaq, the Volatility Guard is similar 

in purpose to the Liquidity 

Replenishment Points (‘‘LRPs’’) rules 

that currently exist on the New York 

Stock Exchange (‘‘NYSE’’). 

III. Comment Letters 

Three of the four commenters 

expressed concerns about the effect of 

this proposal upon market volatility. 

These commenters stated that the 

Volatility Guard could actually increase 

volatility marketwide by re-directing 

trading in a security to other potentially 

less liquid venues once trading in that 

security had been halted on Nasdaq.7

One commenter argued that this 

proposal, coupled with the LRPs 

currently in effect on the NYSE, would 

result in disparate market approaches 

towards dampening volatility that may 

create confusion among market 

participants, particularly in times of 

market stress, and exacerbate market 

volatility.8

The fourth commenter, however, 

supported Nasdaq’s ‘‘right to design the 

controls it believes are best for trading 

on its market.’’ 9 This commenter stated 

that the national market system was 

designed to encourage competitive 

distinctions such as Nasdaq’s Volatility 

Guard and NYSE’s LRPs.10 According to 

this commenter, both the Nasdaq 

proposal and the NYSE LRPs ‘‘provide 

certainty and predictability of 

operation,’’ and permit those markets to 

pursue strategies where the quality of 

price need not always defer to speed of 

execution.11

In its response, Nasdaq rejected the 

argument that the proposed Volatility 

Guard would exacerbate market 

volatility.12 Nasdaq stated that it 

specifically designed the Volatility 

Guard to work within the parameters of 

the recently adopted single-stock circuit 

breakers, and to avoid the potential for 

conflicting standards between the two 

mechanisms.13 Nasdaq also asserted 

that there is no evidence that the 

Volatility Guard would increase 

volatility in a particular security; rather, 

Nasdaq stated that the Volatility Guard 

would actually keep aberrant volatility 

on Nasdaq from spreading to other 

markets.14

Nasdaq also argued that the proposed 

Volatility Guard differed significantly 

from the NYSE LRPs, and that 

criticizing the Volatility Guard by 

comparing it to the LRPs was 

misleading. Nasdaq stated that the 

Volatility Guard, unlike the LRPs, 

would be based on clear and predictable 

criteria that would trigger a pause only 

in the event of a significant imbalance.15

Accordingly, Nasdaq did not believe it 

appropriate to make a generic assertion 

that all market-based single-stock circuit 

breakers are detrimental.16

Finally, Nasdaq stated that it was 

employing prudent precautions in 

implementing the Volatility Guard. In 

particular, Nasdaq would implement the 

Volatility Guard as a pilot, limited in 

time and scope, during which time the 

Volatility Guard could be adjusted as 

needed. Nasdaq would also provide data 

to the Commission during the pilot 

period about the efficiency and effect of 

the Volatility Guard.17

IV. Proceedings To Determine Whether 

To Disapprove SR–NASDAQ–2010–074 

and Grounds for Disapproval Under 

Consideration 

Nasdaq’s proposal is presented by the 

Exchange as an effort to protect Nasdaqlisted securities and Nasdaq market 

participants from aberrant volatility, 

such as that witnessed on May 6, 2010. 

As noted above, however, several 

commenters argued that individual 

exchange-specific mechanisms to 

moderate volatility may in fact 

exacerbate the volatility of the market 

overall, create confusion, and 

complicate the operation of the marketwide single stock circuit breakers. 

Although the events of May 6, 2010 

provide but one example of the effect of 

an individual exchange volatility 

moderator, the Report of the Staff of the 

Commodity Futures Trading 

Commission and the Commission (the 

‘‘May 6 Staff Report’’) 18 did not find that 

NYSE LRPs caused or created the broadbased liquidity crisis on that day.19

However, the May 6 Staff Report noted, 

among other things, that there were a 

few LRP events affecting certain stocks 

in which available liquidity on the 

NYSE may have been sufficient to 

absorb some of the selling pressure felt 

by other markets.20 In addition, there 

were reports from market participants 

that the increasing number of LRPs on 

May 6 played into their decisions to 

reduce liquidity, pause trading, or 

withdraw from the markets.21 More 

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64386 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 

22 15 U.S.C. 78f(b)(5). 

23 In 2008, the Commission approved a similar 

Nasdaq proposal to establish a volatility-based 

trading pause for a one-year pilot period. See 

Securities Exchange Act Release No. 58386 (August 

19, 2008), 73 FR 50380 (August 26, 2008) (SR– 

NASDAQ–2007–067). Nasdaq never implemented 

that pilot. The initial proposal was, however, 

considered and approved by the Commission before 

the events of May 6, 2010, at which time questions 

were raised about the market-wide impact of 

individual exchange volatility moderators in times 

of market stress. In addition, as noted above, there 

are questions about the way in which the newlyimplemented single-stock circuit breakers, as they 

may be expanded or adjusted, will interact with 

exchange-specific volatility moderators. 

24Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

broadly, the Commission notes that it is 

not yet clear whether the market-wide 

single-stock circuit breakers, as they 

may be expanded or adjusted, are likely 

to interact with individual exchange 

volatility moderators such as the NYSE 

LRPs or, if approved, Nasdaq’s Volatility 

Guard, in a positive, neutral or negative 

way. 

The Commission, therefore, is 

instituting proceedings pursuant to 

Section 19(b)(2)(B) of the Act to 

determine whether the proposed rule 

change should be disapproved. 

Institution of disapproval proceedings 

appears appropriate at this time in view 

of the legal and policy issues raised by 

the proposal. Institution of disapproval 

proceedings, however, does not indicate 

that the Commission has formulated any 

conclusions with respect to any of the 

issues involved. Rather, as described in 

greater detail below, the Commission 

seeks and encourages interested persons 

to comment on the proposed rule 

change. 

The section of the Act applicable to 

the proposed rule change that provides 

the grounds for disapproval under 

consideration is Section 6(b)(5),22 which 

requires that the rules of an exchange be 

designed, among other things, to 

prevent fraudulent and manipulative 

acts and practices, 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. Specifically, the 

Commission believes the proposal raises 

issues as to whether the Volatility 

Guard, by halting trading on Nasdaq 

when the price of a security moves 

quickly over a short period of time, will 

exacerbate the volatility of trading in 

that security on the other exchanges and 

over-the-counter trading centers that 

remain open. In addition, because the 

thresholds for triggering the Volatility 

Guard, and the length of the trading halt 

that results, differ from those of the 

recently approved, market-wide singlestock circuit breakers, the Commission 

believes the proposal raises issues as to 

whether the operation of the Volatility 

Guard will interfere with, or otherwise 

limit the effectiveness of, the circuit 

breakers, the goal of which is to prevent 

potentially destabilizing price volatility 

across the U.S. securities markets.23

V. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the proposal. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposed rule 

change is inconsistent with the Section 

6(b)(5) or any other provision of the Act, 

or the rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval which would be facilitated 

by an oral presentation of views, data, 

and arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.24

Interested persons are invited to 

submit written data, views and 

arguments regarding whether the 

proposed rule change should be 

disapproved by December 3, 2010. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by December 20, 2010. 

The Commission specifically 

reiterates its request for comment on the 

following items: 

• A stated purpose of the proposal is 

to protect Nasdaq-listed securities and 

market participants from ‘‘aberrant’’ 

volatility, such as that which occurred 

on May 6, 2010 and may be caused by 

operational or structural factors beyond 

the control of issuers and individual 

markets. To what extent do the price 

changes that would trigger a trading halt 

under the proposal indicate the 

potential existence of ‘‘aberrant’’ 

volatility, as opposed to the normal 

operation of the markets? If these price 

changes indicate potentially ‘‘aberrant’’ 

volatility, to what extent will the 

proposal address such volatility in a 

manner appropriate and consistent with 

the purposes of the Act? 

• Will a trading halt at Nasdaq under 

the proposal restrict liquidity or 

increase volatility in the affected stock, 

since other markets can continue to 

trade the stock and may not have 

comparable volatility halts? 

• In what respects are the 

consequences of this proposal likely to 

be similar to, or different from, the 

effects of other exchange-specific 

mechanisms that currently restrict 

trading on the relevant exchange under 

certain circumstances? 

• More generally, to what extent is it 

appropriate for the various exchanges to 

adopt different and potentially 

inconsistent approaches to trading 

pauses or restrictions that might affect 

the same stock? 

• To what extent does the answer 

change based on whether the affected 

stock is already subject to a market-wide 

single-stock circuit breaker that applies 

consistently across all trading venues? 

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 rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2010–074 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–NASDAQ–2010–074. 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 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing 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 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 64387 

25 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6)(iii). 

also will be available for inspection and 

copying at the principal office of 

Nasdaq. 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–NASDAQ–2010–074 and 

should be submitted on or before 

December 3, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–26215 Filed 10–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63090; File No. SR–BATS– 

2010–027] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change by BATS Exchange, Inc. 

To Amend BATS Rule 21.9, Entitled 

‘‘Order Routing’’ 

October 13, 2010. 

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 October 

4, 2010, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 Exchange has 

designated this proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(6)(iii) 

thereunder,4 which renders it 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 Exchange, on behalf of the BATS 

Options Market (‘‘BATS Options’’), 

proposes to amend BATS Rule 21.9, 

entitled ‘‘Order Execution,’’ to modify 

the existing general description of 

Exchange routing functionality and to 

describe available routing strategies in 

greater detail. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com, at the 

principal office of the Exchange, at the 

Commission’s Web site at http:// 

www.sec.gov, 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 

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 parts 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 proposes to amend 

Rule 21.9, which describes its order 

routing processes, to modify the existing 

general description of Exchange routing 

functionality and to describe available 

routing strategies in greater detail. Also, 

subject to User instructions, the 

Exchange currently allows orders that 

have been routed and then posted to the 

Exchange’s order book to be re-routed if 

the order is subsequently locked or 

crossed by another options exchange 

(‘‘RECYCLE Option’’). The Exchange 

proposes to add a reference to the 

‘‘RECYCLE Option’’ in its Rule, 

consistent with the general goal of the 

proposed changes to align the routing 

strategies offered by the Exchange with 

the rule text by providing additional 

specificity. The Exchange also wishes to 

make clear that, unless otherwise 

specified, the RECYCLE Option may be 

combined with any of the System 

routing strategies specified in Rule 21.9. 

The Exchange is also amending Rule 

21.9 to include a definition of ‘‘System 

routing table,’’ defined as the proprietary 

process for determining the specific 

options exchanges to which the 

Exchange System routes orders and the 

order in which it routes them. The 

definition reflects the fact that the 

Exchange, like other options exchanges, 

maintains different routing tables for 

different routing strategies and modifies 

them on a regular basis to reflect 

assessments about the destination 

markets. Such assessments consider 

factors such as a destination’s latency, 

fill rates, reliability, and cost. 

Accordingly, the definition specifies 

that the Exchange reserves the right to 

maintain a different routing table for 

different routing strategies and to 

modify routing tables at any time 

without notice. 

Although the current rule language for 

Exchange routing strategies describes 

the available variations of strategies in 

general terms, the Exchange believes 

that understanding of these strategies 

would be enhanced by describing the 

different versions as separately named 

routing strategies. 

Below is a description of the various 

routing strategies proposed pursuant to 

new paragraph (a)(2) of Rule 21.9. 

• CYCLE. CYCLE is a routing strategy 

offered by the Exchange under which an 

order checks the System for available 

shares and then is sent sequentially to 

destinations on the System routing table 

for the full remaining size of such order. 

• Parallel D. Parallel D is a routing 

strategy offered by the Exchange under 

which an order checks the System for 

available shares and then is sent to 

destinations on the System routing 

table. The System may route to multiple 

destinations at a single price level 

simultaneously through Parallel D 

routing. 

• Parallel 2D. Parallel 2D is a routing 

strategy offered by the Exchange under 

which an order checks the System for 

available shares and then is sent to 

destinations on the System routing 

table. The System may route to multiple 

destinations and at multiple price levels 

simultaneously through Parallel 2D 

routing. 

• Parallel T. Parallel T is a routing 

strategy offered by the Exchange under 

which an order checks the System for 

available displayed shares and then is 

sent only to Protected Quotations and 

only for displayed size. The System may 

route to multiple destinations and at 

multiple price levels simultaneously 

through Parallel T routing. 

• ‘‘Destination Specific Orders’’ and 

‘‘Directed ISOs’’ are routed orders 

described in Rule 21.1. 

In addition to the changes described 

above, the Exchange is proposing 

additional modifications to paragraph 

(a)(1) of Rule 21.9 to further align Rule 

21.9 with the corollary routing rule 

applicable to the Exchange’s equity 

securities platform. 

2. Statutory Basis 

The rule change proposed in this 

submission is consistent with the 

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