Document ID: SEC-2009-0741-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Order Routing
Posted Date: 2009-06-04T04:00Z

[Federal Register: June 4, 2009 (Volume 74, Number 106)]
[Notices]               
[Page 26903-26905]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04jn09-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59999; File No. SR-BX-2009-026]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Order Routing

May 28, 2009.
    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 May 21, 2009, 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 Exchange has designated the proposed rule 
change as constituting a non-controversial rule change under Rule 19b-
4(f)(6) under the Act,\3\ 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to modify the terms and conditions under 
which the Exchange is affiliated with NASDAQ Options Services, LLC 
(``NOS''). The Exchange proposes to implement the proposed rule change 
when NASDAQ OMX PHLX, Inc. (``PHLX'') implements its XL II trading 
system.\4\ There is no proposed rule language.
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    \4\ Securities Exchange Act Release No. 59721 (April 7, 2009), 
74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); Securities Exchange 
Act Release No. 59779 (April 16, 2009), 74 FR 18600 (April 23, 2009) 
(SR-Phlx-2009-32, Amendment No. 1).
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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 NASDAQ OMX Group, Inc. (``NASDAQ OMX'') acquired the Exchange 
in August 2008. Prior to the acquisition, the Exchange owned a 21.87% 
interest in Boston Options Exchange Group, LLC (``BOX LLC''), the 
operator of the Boston Options Exchange facility (``BOX''). BOXR is a 
wholly-owned subsidiary of the Exchange, to which the Exchange has 
delegated, pursuant to a delegation plan, certain self-regulatory 
responsibilities related to the BOX.
    At the closing of the acquisition by NASDAQ OMX, the Exchange 
transferred its interest in BOX LLC to

[[Page 26904]]

MX US, a wholly-owned subsidiary of the Montreal Exchange Inc. Although 
the Exchange no longer holds an ownership interest in BOX LLC, it 
continues to hold self-regulatory obligations with respect to BOX. The 
Exchange, together with BOXR, retains regulatory control over BOX and 
the Exchange, and remains responsible for ensuring compliance with the 
federal securities laws and all applicable rules and regulations.
    In its order approving certain proposed rule changes necessary to 
allow the acquisition of the Exchange by NASDAQ OMX, the Commission 
approved the adoption of Chapter XXXIX, Section 2 of the Exchange's 
rules, which provides that, subject to certain exceptions, the Exchange 
may not become an affiliate of one of its members unless the terms and 
conditions of such affiliation are the subject of an effective filing 
with the Commission.\5\ Also in the Acquisition Approval Order, the 
Commission approved the Exchange becoming an affiliate of Nasdaq 
Options Services, LLC (``NOS''), which is an indirect subsidiary NASDAQ 
OMX, a registered broker-dealer, a member of the Exchange, and a BOX 
market participant.\6\
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    \5\ Securities Exchange Act Release No. 58324 (August 7, 2008), 
73 FR 46936 (August 12, 2008) (SR-BSE-2008-02, -23, -25; SR-BSECC-
2008-01) (the ``Acquisition Approval Order'').
    \6\ In connection with the adoption of new rules to govern 
trading of cash equity securities on the Exchange, the Exchange 
adopted Equity Rule 2140, which, like Chapter XXXIX, Section 2, 
restricts affiliation between the Exchange and its members. 
Securities Exchange Act Release No. 59154 (December 23, 2008), 73 FR 
80468 (December 31, 2008) (SR-BSE-2008-48). In the same filing, the 
Exchange designated Chapter XXXIX, Section 2 for inclusion in the 
``Grandfathered Rules'' of the Exchange, which are rules in effect 
prior to the acquisition of the Exchange by NASDAQ OMX that continue 
to apply to BOX market participants, while designating Rule 2140 as 
an ``Equity Rule'' applicable to members of the Exchange. Because 
NOS is both an Exchange member and a BOX market participant, this 
filing should be construed to relate both to Rule 2140 and Chapter 
XXXIX, Section 2.
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    The NASDAQ Options Market (``NOM'') is an options market operated 
by The NASDAQ Stock Market (the ``NASDAQ Exchange''), and NOS is the 
approved outbound routing facility of the NASDAQ Exchange for NOM. The 
Commission has approved NOS's affiliation with the Exchange subject to 
the conditions that: (i) NOS remains a facility of the NASDAQ Exchange; 
(ii) use of NOS's routing function by NASDAQ Exchange members continues 
to be optional; and (iii) NOS does not provide routing of orders in 
options from NOM to the Exchange or any trading facilities thereof, 
unless such orders first attempt to access any liquidity on the NOM 
book. In addition, the Commission noted in the Acquisition Approval 
Order that NOS is a member of a self-regulatory organization that is 
unaffiliated with the NASDAQ Exchange and that serves as NOS's 
designated examining authority.
    In SR-PHLX-2009-32,\7\ PHLX, another exchange subsidiary of NASDAQ 
OMX, has proposed establishing NOS as PHLX's routing facility (the 
``Routing Facility''). The sole use of the Routing Facility by the 
PHLX's new proposed Phlx XL II system will be to route orders in 
options listed and open for trading on the Phlx XL II system to away 
markets pursuant to PHLX rules on behalf of PHLX. Proposed PHLX Rule 
1080(m)(iii)(B) would provide that the use of NOS to route orders to 
other market centers is optional. Parties that do not desire to use NOS 
must designate orders as not available for routing (i.e., a Do Not 
Route Order, as described in proposed PHLX Rule 1080(m)(iv)(A)).
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    \7\ Securities Exchange Act Release No. 59721 (April 7, 2009), 
74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); Securities Exchange 
Act Release No. 59779 (April 16, 2009), 74 FR 18600 (April 23, 2009) 
(SR-Phlx-2009-32, Amendment No. 1).
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    Proposed PHLX Rule 1080(m)(iii)(C) would provide that PHLX will 
establish and maintain procedures and internal controls reasonably 
designed to adequately restrict the flow of confidential and 
proprietary information between PHLX and the Routing Facility, and any 
other entity, including any affiliate of the Routing Facility, and, if 
the Routing Facility or any of its affiliates engages in any other 
business activities other than providing routing services to the 
Exchange, between the segment of the Routing Facility or affiliate that 
provides the other business activities and the routing services. In SR-
PHLX-2009-32, PHLX further noted that NOS is a member of a self-
regulatory organization that is unaffiliated with PHLX and that serves 
as NOS's designated examining authority.\8\
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    \8\ The Financial Industry Regulatory Authority (``FINRA'') 
serves as NOS's designated examining authority. FINRA is 
unaffiliated with the Exchange, PHLX, the NASDAQ Exchange, and BOX.
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    Finally, proposed PHLX Rule 1080(m)(iii)(D) would state that the 
books, records, premises, officers, directors, agents, and employees of 
the Routing Facility, as a facility of PHLX, will be deemed to be the 
books, records, premises, officers, directors, agents, and employees of 
PHLX for purposes of and subject to oversight pursuant to the Act. The 
books and records of the Routing Facility, as a facility of PHLX, will 
be subject at all times to inspection and copying by PHLX and the 
Commission.
    PHLX has also adopted a rule restricting affiliation between PHLX 
and its members, comparable to the Exchange's rules. See PHLX Rule 
985(b). In SR-Phlx-2009-32, PHLX has requested that the Commission 
allow PHLX to use NOS to provide routing services for orders routed to 
all destinations, provided they first attempt to access liquidity on 
PHLX's systems before routing to other exchanges. Thus, the terms and 
conditions of PHLX's order routing would be substantially similar to 
those already approved with respect to routing by NOM through NOS.
    Because orders from PHLX may be routed to BOX through NOS, it is 
necessary for the Exchange to submit this filing to establish that BOX 
may receive such routed orders. Accordingly, the Exchange proposes that 
NOS be permitted to route orders from PHLX to BOX subject to the 
following: (i) NOS is approved as and remains a facility of PHLX; (ii) 
use of NOS's Routing Facility function by PHLX members continues to be 
optional; (iii) NOS does not provide routing of orders in options from 
PHLX to the Exchange or any trading facilities thereof, unless such 
orders first attempt to access any liquidity on the PHLX book, and (iv) 
NOS is a member of a self-regulatory organization that is unaffiliated 
with PHLX and the Exchange and that serves as NOS's designated 
examining authority. The terms and conditions under which BOX would 
receive orders from PHLX through NOS are the same as the terms and 
conditions under which it has been approved to receive them from NOM 
through NOS.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Section 6(b)(5) of the Act,\10\ in particular, in that the proposal is 
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 regulating, clearing, 
settling, processing information with respect to, and 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 proposed 
rule change would permit

[[Page 26905]]

inbound routing of orders from PHLX to BOX through NOS in accordance 
with the terms and conditions governing order routing that have been 
approved by the Commission with respect to routing of orders from NOM 
through NOS.
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    \9\ 15 U.S.C. 78f.
    \10\ 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 
result in any burden on competition that is 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission notes that 
the Exchange's proposal is substantially similar to the proposal of 
another national securities exchange previously approved by the 
Commission and does not raise any new substantive issues.\15\ The 
Exchange proposes to implement the proposed rule change when PHLX 
implements its XLII trading system, and states that waiving the 
operative delay will ensure that the Exchange is able to implement the 
proposed rule change at such time.\16\ For these reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and designates the proposed rule change to be operative upon filing 
with the Commission.\17\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of 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.
    \14\ Id.
    \15\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31).
    \16\ See SR-BX-2009-026, Items 2 and 7.
    \17\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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 rule-comments@sec.gov. Please include 
File Number SR-BX-2009-026 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-2009-026. 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 inspection and 
copying 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 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-2009-026 and should be 
submitted on or before June 25, 2009.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12999 Filed 6-3-09; 8:45 am]

BILLING CODE 8010-01-P