Document ID: SEC-2009-1367-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving a Proposed Rule Change To Eliminate Chapter V, Section 13 (Unusual Market Conditions) of the BOX Trading Rules and To Modify Related Rules
Posted Date: 2009-09-25T04:00Z

[Federal Register: September 25, 2009 (Volume 74, Number 185)]
[Notices]               
[Page 49051-49052]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se09-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60686; File No. SR-BX-2009-041]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving a Proposed Rule Change To Eliminate Chapter V, Section 13 
(Unusual Market Conditions) of the BOX Trading Rules and To Modify 
Related Rules

September 18, 2009.
    On August 3, 2009, NASDAQ OMX BX, Inc. (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 eliminate 
Chapter V, Section 13 (Unusual Market Conditions) of the Trading Rules 
of the Boston Options Exchange Group, LLC (``BOX'') and to modify 
related rules. The proposed rule change was published for comment in 
the Federal Register on August 18, 2009.\3\ The Commission received no 
comments on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60465 (August 10, 
2009), 74 FR 41765 (``Notice'').
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    The proposed rule eliminates Chapter V, Section 13, as well as 
certain ancillary rules, which deal with fast markets.\4\ Chapter V, 
Section 13 provides for an Options Official to determine that the level 
of trading activity or the existence of unusual

[[Page 49052]]

market conditions is such that BOX is incapable of collecting, 
processing, and making available to quotation vendors the data for the 
option in a manner that accurately reflects the current state of the 
market on BOX. If an Options Official determined the market in the 
option to be ``fast,'' the Official could take various steps including 
suspending minimum size requirements for quotations, turning off the 
Price Improvement Period (``PIP'') process, or taking other actions in 
order to promote a fair and orderly market. BOX represents that a fast 
market is characterized by heavy trading and high price volatility in 
which orders may be submitted to market makers at such a rapid pace 
that a backlog of orders builds, causing delays in execution. If such a 
fast market occurred, delays could in turn cause significant price 
differentials between the quoted price and executed price.
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    \4\ In addition to removing Chapter V, Section 13, the proposed 
rule change also removes certain rules related to fast markets. 
Specifically, the Exchange proposes to modify Chapter VI, Section 
6(a) to remove a fast market rule exception to the general rule that 
all Market Maker bids or offers must be of a size of at least ten 
(10) contracts. The Exchange also proposes to: (1) Remove Section 
6(c)(ii)(2) of Chapter VI to reflect the previously described 
removal of Chapter V, Section 13; (2) replace references to Rule 
11Ac1-1 with Rule 602 of Regulation NMS under the Exchange Act; and 
(3) modify Section 9(b) (Trading Sessions) of Chapter XIV (Index 
Rules) by eliminating the declaration of a fast market as a factor 
in determining whether to delay the opening of the index options 
market.
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    BOX notes in its filing that in an electronic market such as BOX, 
during trading hours, orders generally are matched automatically with 
quotes on the other side of the market according to time priority, and 
executed immediately.\5\ BOX states that any backlog in processing 
orders would be a result of a systems malfunction rather than from fast 
market conditions, and should any such backlog occur, the Exchange 
would halt trading on BOX until the issue could be resolved.\6\
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    \5\ See BOX Trading Rules, Chapter V, Section 16. BOX further 
states that because there is no trading floor and all orders are 
received and managed electronically, orders on BOX are executed with 
matching contra orders within a fraction of a second after the 
matching quote is received, subject to certain exceptions written 
into the BOX Trading Rules, such as Directed Orders (Chapter VI, 
Section 5(b)-(c)), and other exposure periods. See generally Chapter 
V, Section 16 (Execution and Price/Time Priority).
    \6\ See BOX Trading Rules, Chapter V, Section 10(a).
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    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\8\ which requires, among 
other things, that a national securities exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, 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 stated in its 
filing that it has never declared a fast market and that any backlog of 
orders would be the result of a system malfunction. The Commission 
notes that if there were a backlog of orders, the Exchange would halt 
trading until such issue could be resolved pursuant to Chapter V, 
Section 10(a) of the BOX Trading Rules. For the foregoing reasons, the 
Commission finds the proposed rule change is consistent with the Act.
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-BX-2009-041) is approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23147 Filed 9-24-09; 8:45 am]

BILLING CODE 8010-01-P