Document ID: SEC-2010-0112-0001
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 the Fee Schedule of the Boston Options Exchange Facility
Posted Date: 2010-01-21T05:00Z

[Federal Register: January 21, 2010 (Volume 75, Number 13)]
[Notices]               
[Page 3503-3506]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21ja10-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61342; File No. SR-BX-2009-088]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Fee Schedule of the Boston Options Exchange Facility

January 13, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 3504]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 31, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') 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 self-regulatory organization. The Exchange 
filed the proposed rule change pursuant to 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 from 
interested persons.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Fee Schedule of the Boston 
Options Exchange Group, LLC (``BOX''). The text of the proposed rule 
change is available from the principal office of the Exchange, at the 
Commission's Public Reference Room, on the Exchange's Internet Web site 
at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/, and on 
the Commission's Web site at http://www.sec.gov.

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 BOX Fee Schedule currently lists certain execution fees as 
``standard'' trading fees, meaning that these execution fees are not 
dependent upon whether the transaction added or removed liquidity on 
BOX.\5\ These standard fees, specifically within Sections 2 and 3 of 
the BOX Fee Schedule, are applicable for Broker Dealer proprietary 
accounts and Market Maker accounts, respectively, and are currently set 
at $0.20 per contract executed.\6\ The Exchange proposes to make the 
following adjustments to standard trading fees:
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    \5\ See Section 7 of the BOX Fee Schedule which sets forth any 
applicable ``liquidity fees and credits.''
    \6\ According to Section 1 of the BOX Fee Schedule a Public 
Customer is charged $0.15 per executed contract of an Improvement 
Order on its behalf in the PIP where that order is not submitted as 
a Customer PIP Order (``CPO'') whereby it is labeled as a ``non-
CPO.'' There are no other trading fees for any other Public Customer 
Orders which may be executed on BOX, including CPOs and Public 
Customer orders on the Book, except for the charges and credits 
described in Section 7 of the BOX Fee Schedule.
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Broker Dealer Trading Fees
    Section 2 of the BOX Fee Schedule describes the current standard 
transaction fee applicable to Broker Dealer transactions which is 
currently set at $0.20. The Exchange proposes that the standard fee for 
Broker Dealer transactions in all options classes, excluding 
transactions in Standard & Poor's Depositary Receipts[reg] (``SPY''), 
Powershares[reg] QQQ Trust Series 1 (``QQQQ'') and iShares Russell 
2000[reg] Index Fund (``IWM'') and transactions in the Price 
Improvement Period (``PIP''), be set at $0.25 per contract.
Market Maker Trading Fees:
    The Exchange proposes to amend Section 3 of the BOX Fee Schedule 
relating to transaction fees applicable to BOX Market Makers.\7\ 
Specifically, the Exchange proposes to adopt a per contract transaction 
fee that is based on the number of contracts a BOX Market Maker 
executes in a month, excluding transactions in SPY, QQQQ and IWM and 
transactions within the PIP, as follows: \8\
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    \7\ The fees proposed herein for Market Makers vary from the 
fees proposed for Broker Dealers as the obligations for the two are 
different. For example, Market Makers must maintain active two-sided 
markets in options classes to which they are assigned and also have 
certain restrictions regarding trading activity in classes outside 
of their assignment, both of which do not apply to Broker Dealers on 
BOX.
    \8\ The current standard Market Maker fee is $0.20 per contact.

------------------------------------------------------------------------
                                                                  Per
         Average daily volume (ADV) for Market Maker           contract
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ADV of 150,001 contracts and greater........................       $0.13
ADV of 100,001 contracts to 150,000 contracts...............        0.16
ADV of 50,001 contracts to 100,000 contracts................        0.18
ADV of 10,001 contracts to 50,000 contracts.................        0.20
ADV of 0 contracts to 10,000 contracts......................        0.25
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    This proposed tiered fee schedule is designed to incent BOX Market 
Makers to increase their quoting and trading activity on BOX. As a 
Market Maker's monthly trading volume increases the per-contract fee 
that a Market Maker is charged for such executions is decreased. The 
Exchange proposes that the new tiered fees apply to all BOX Market 
Makers for transactions in all classes traded on BOX (excluding 
executions which occur in the PIP auction and executions in SPY, QQQQ, 
& IWM). The BOX Market Maker's ADV will be calculated at the end of 
each trading month. All executions for that month will be charged the 
same per-contract fee rate according to the respective ADV achieved by 
the Market Maker.
    Section 3(b) of the BOX Fee Schedule currently sets forth a volume 
discount that is applicable to the execution fees of BOX Market Makers. 
The volume discount currently is $0.03 and $0.05 per contract upon the 
Market Maker achieving an ADV of 25,000 and 50,000 contracts per month, 
respectively. The tiered fee schedule, as outlined above, will 
effectively apply the same goal as the Market Maker volume discount, 
which is to incent more quoting activity and trading volume by Market 
Makers on BOX. The Exchange therefore proposes to eliminate, in its 
entirety, the Market Maker volume discount of Section 3(b) of the BOX 
Fee Schedule.
Reduction of Fees and Credits in Section 7
    The Exchange proposes to reduce the existing credits and fees 
within Section 7 for both Non-Penny Pilot Classes and Penny Pilot 
Classes, from $0.75 to $0.55 and from $0.20 to $0.15, respectively and 
for transactions in the PIP, from $0.20 to $0.15.\9\ These credits and 
fees apply equally to all account types, whether Public Customer, Firm 
or Market Maker and are in addition to any applicable trading fees, as 
described in Sections 1 through 3 of the BOX Fee Schedule.
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    \9\ The Exchange notes that prior to this proposal the fees and 
credits of Section 7 did not apply to transactions in SPY, QQQQ and 
IWM. Similarly, the reduction in fees discussed in this section 
(``Reduction of Fees and Credits in Section 7'') do not apply to 
transactions in SPY, QQQQ and IWM.
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    For example, a Public Customer Order in a Non-Penny Pilot Class is 
entered

[[Page 3505]]

into the BOX Trading Host and executes against a Broker Dealer's order 
resting on the BOX Book. The Public Customer is the remover of 
liquidity and the Broker Dealer is the adder of liquidity. The Public 
Customer will receive a $0.55 ``removal'' credit and the Broker Dealer 
will be charged a $0.55 ``add'' fee. The Public Customer will receive a 
$0.55 total credit (zero charge from Section 1 plus the $0.55 
``removal'' credit) and the Broker Dealer will be charged $0.80 total 
(the $0.55 fee for adding liquidity in addition to the standard $0.25 
transaction fee).\10\
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    \10\ This example presupposes that the proposed increase in 
Broker Dealer fees, from $0.20 to $0.25, is in effect.
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Fees and Charges to SPY, QQQQ, and IWM
    The Exchange Traded Fund Shares (``ETFs'') SPY, QQQQ and IWM are 
among the most actively traded multiply listed options classes across 
all of the options exchanges. The Exchange believes that the 
characteristics that these ETFs share among themselves make it 
appropriate that pricing for transactions in these classes be set on 
par with each other. Furthermore, the Exchange believes that the volume 
and liquidity exhibited in these classes is such that the pricing 
applicable to these classes be set apart from the pricing applicable to 
all other options classes listed and traded on BOX.
    Therefore, the Exchange proposes that the standard fee for 
transactions in SPY, QQQQ and IWM be set at $0.10 per contract for 
Broker Dealers and at $0.05 per contract for BOX Market Makers.\11\ The 
proposed different rate as between Broker Dealers and BOX Market Makers 
is based upon the obligations that Market Makers undertake on BOX, such 
as posting continuous two-sided quotes, which Broker Dealers are not 
subject to.
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    \11\ Currently the standard fees charged for transactions in 
SPY, QQQQ and IWM are $0.20 for both Market Maker and Broker Dealer 
transactions. As is currently the case, most executions on BOX on 
behalf of Public Customers will be free.
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    The credits and fees of Section 7 of the BOX Fee Schedule currently 
do not apply to executions in the classes SPY, QQQQ or IWM. The 
Exchange proposes to apply Section 7's credits and fees to transactions 
in these three classes as is currently applied to transactions in all 
other classes on BOX. The Exchange proposes that the fees and credits 
apply equally for these three classes at $0.05 for both the fees and 
credits.
Transactions in the PIP
    The BOX PIP is a mechanism by which BOX Participants can obtain 
executions and price improvement of their customers' orders. Because 
executions in the PIP are separate and distinct from non-PIP executions 
the Exchange believes that pricing for executions that take place 
within the PIP also be separate and distinct from non-PIP execution 
rates.\12\ Therefore, the Exchange proposes that the standard fee for 
transactions within the PIP, including transactions in SPY, QQQQ and 
IWM, be set at $0.20 per contract, both for Broker Dealers and for BOX 
Market Makers.\13\
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    \12\ BOX Options Participants are able to compete within the PIP 
auction for a portion of the order on the opposite side of the 
Public Customer PIP Order that must be filled by submitting 
Improvement Orders.
    \13\ Transactions within the PIP are presently subject to a 
$0.20 fee. This proposal merely breaks fees for PIP transactions 
into their own distinct line item in the Fee Schedule. See Ex. 5. 
Transactions within the PIP will also be subject to the fees and 
credits of Section 7 of the BOX Fee Schedule, as proposed and 
discussed above.
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Non-Substantive Changes
    The Exchange is also proposing various non-substantive changes to 
the BOX Fee Schedule. These changes are necessary for reasons such as 
the elimination of certain Fee Schedule text (e.g. the proposed 
elimination of the Market Maker Volume Discount of Section 3(b)) or the 
renumbering of certain sections of the Fee Schedule (e.g. Section 2(b) 
renumbered to Section 2(c)). Further non-substantive changes have been 
proposed either to add greater clarity or remove language from the Fee 
Schedule which is now considered confusing in light of the substantive 
changes that are being proposed herein.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\14\ in general, and Section 
6(b)(5) of the Act,\15\ in particular, as well as Section 6(b) of the 
Act,\16\ in general, and Section 6(b)(4) of the Act,\17\ in particular 
in that it provides for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. In particular, the proposed change will allow the 
fees charged on BOX to remain competitive with other exchanges as well 
as apply such fees in a manner which is equitable based upon the 
particular account type, e.g. Market Maker or Broker Dealer, for which 
such transactions are executed. The obligations of Market Makers on BOX 
and Brokers Dealers that execute transactions on BOX are different. For 
example, BOX Market Makers must maintain active two-sided markets in 
options classes to which they are assigned and also have certain 
restrictions regarding trading activity in classes outside of their 
assignment, both of which do not apply to Broker Dealers on BOX.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition 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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act \18\ and Rule 19b-4(f)(2) \19\ 
thereunder, because it establishes or changes a due, fee, or other 
charge applicable only to a member.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further 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-2009-088 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 3506]]

Securities and Exchange Commission, 100 F Street, NE., Washington DC 
20549-1090.

All submissions should refer to File Number SR-BX-2009-088. 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 such 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 No. SR-BX-2009-088 and should be 
submitted on or before February 11, 2010.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1015 Filed 1-20-10; 8:45 am]
BILLING CODE 8011-01-P