Document ID: SEC-2010-0583-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2010-04-20T04:00Z

[Federal Register: April 20, 2010 (Volume 75, Number 75)]
[Notices]               
[Page 20647-20649]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20ap10-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61891; File No. SR-BX-2010-026]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Chapter V, Section 7 (Customer Orders and Order Flow Providers)

Date: April 13, 2010.
    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 March 31, 2010, 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 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes NASDAQ OMX BX, Inc. (the ``Exchange'') 
proposes to amend Chapter V, Section 17 (Customer Orders and Order Flow 
Providers) of the Rules 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 and also on the Exchange's Internet Web site at http://
nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 Exchange is proposing to amend Chapter V, Section 17 (Customer 
Orders and Order Flow Providers) of the BOX Rules in order to eliminate 
some of its restrictions. Section 17(c) currently provides that an 
Order Flow Provider (``OFP'') \3\ shall not enter into BOX, as 
principal or agent, Limit Orders in the same options series, for the 
account or accounts of the same or related beneficial owners, in such a 
manner that the OFP or the beneficial owner(s) effectively is operating 
as a market maker by holding itself out as willing to buy and sell such 
options contract on a regular or continuous basis.
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    \3\ See Chapter I, Section 1 (Definitions) of the BOX Rules 
which defines the term ``Order Flow Provider'' or ``OFP'' to mean 
those Options Participants representing as agent Customer Orders on 
BOX and those non-Market Maker Participants conducting proprietary 
trading.
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    The Exchange is proposing that these restrictions be eliminated so 
that they are no longer applicable to instances where an OFP is acting 
as principal on its own behalf or is acting as agent on behalf of other 
broker-dealer or Public Customer orders.\4\ Because broker-dealer and 
Public Customer orders are not subject to priority on the BOX Book that 
is any better than Market Makers, BOX does not believe it is necessary 
to impose the Rule's restrictions on the entry of broker-dealer and 
Public Customer orders. The Exchange believes that the elimination of 
these restrictions will permit entities other than Market Makers to 
enter orders on both sides of the market more freely, which may result 
in more orders on the BOX Book and therefore increased liquidity on the 
BOX market, all to the benefit of investors.
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    \4\ The Exchange notes that the Securities and Exchange 
Commission (``Commission'') has previously found that it is 
consistent with the Securities Exchange Act of 1934 (``the Act'') 
for an options exchange not to prohibit a user of its market from 
effectively operating as a market maker by holding itself out as 
willing to buy and sell options contracts on a regular or continuous 
basis without registering as a market maker. See Securities Exchange 
Act Release No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) 
(SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080) (Order Approving, among 
other things, a Proposed Rule Change to Establish Rules Governing 
the Trading of Options on the NASDAQ Options Market (``NOM'')).

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[[Page 20648]]

    The Exchange notes that OFPs must register as BOX Options 
Participants as well as registering with the Commission under Section 
15 of the Act,\5\ and the rules and regulations thereunder.\6\ Further, 
an entity which acts as a ``dealer,'' as defined in Section 3(a)(5) of 
the Act,\7\ must also register with the Commission under Section 15 of 
the Act,\8\ and the rules and regulations thereunder, or alternatively 
qualify for any exception or exemption from such registrations.\9\
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    \5\ 15 U.S.C. 78o.
    \6\ The Exchange notes that this rule change would only 
eliminate the restrictions of Chapter V, Section 17 in the manner 
proposed. BOX Options Participants would continue to remain subject 
to the requirements of Chapter III, Section 4(a) (which requires BOX 
Options Participants to establish, maintain and enforce written 
policies and procedures reasonably designed, taking into 
consideration the nature of the Participant's business, to prevent 
the misuse of material nonpublic information by such Participant or 
persons associated with such Participant); Chapter III, Section 4(f) 
(which may consider it conduct inconsistent with just and equitable 
principles of trade for any Participant or person associated with a 
Participant who has knowledge of all material terms and conditions 
of (i) an order and a solicited order, (ii) an order being 
facilitated or submitted to the Price Improvement Period, or (iii) 
orders being crossed; the execution of which are imminent, to enter, 
based on such knowledge, an order to buy or sell an option for the 
same underlying security as any option that is the subject of the 
order, or an order to buy or sell the security underlying such 
class, or an order to buy or sell any related instrument until (a) 
the terms and conditions of the order and any changes in the terms 
and conditions of the order of which the Participant or person 
associated with the Participant has knowledge are disclosed to the 
trading crowd, or (b) the trade can no longer reasonably be 
considered imminent in view of the passage of time since the order 
was received); Supplementary Material .02 to Chapter V, Section 17 
(which provides that if an Options Participant fails to expose its 
Customer Order[s] on BOX, it will be a violation of Section 17 for 
an Options Participant to cause the execution of an order it 
represents as agent on BOX through the use of orders it solicited 
from Options Participants and/or non-Participant broker-dealers to 
transact with such orders, whether such solicited orders are entered 
into the BOX market directly by the Options Participant or by the 
solicited party (either directly or through another Participant), 
unless the agency order is first exposed to the BOX Book for at 
least one (1) second); and Supplementary Material .03 to Chapter V, 
Section 17 (which provides that an OFP may not execute as principal 
an order it represents as agent unless, (i) the agency order is 
first exposed to the BOX Book for at least one (1) second, or (ii) 
the OFP has been bidding or offering on BOX for a least one (1) 
second prior to receiving an agency order that is executable against 
such bid or offer; or (iii) the OFP sends the agency order to the 
Price Improvement Period or Universal Price Improvement Period 
process pursuant to Sections 18 and 29 of Chapter V of the BOX 
Rules).
    \7\ 15 U.S.C. 78c(a)(5).
    \8\ 15 U.S.C. 78o.
    \9\ Activity that may cause a person to be deemed a dealer 
includes ``quoting a market in or publishing quotes for securities 
(other than quotes on one side of the market on a quotations system 
generally available to non-broker-dealers, such as a retail screen 
broker for government securities).'' See Definition of Terms in and 
Specific Exemptions for Banks, Savings Associations, and Savings 
Banks Under Sections 3(a)(4) and 3(a)(5) of the Securities Exchange 
Act of 1934, Securities Exchange Act Release No. 47364, 68 FR 8685, 
8689, note 26 (February 24, 2003) (quoting OTC Derivatives Dealers, 
Securities Exchange Act Release No. 40594, 63 FR 59362, 59370, note 
61 (November 3, 1998)).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\10\ in general, and Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed 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 for a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
The proposed changes should continue to contribute to the Exchange's 
ability to maintain a fair and orderly market in a manner that will 
limit unfair advantage and encourage competition. Specifically, because 
broker-dealer and Public Customer orders are not subject to priority on 
the BOX Book that is any better than Market Makers, the Exchange does 
not believe it is necessary to impose the Rule's restrictions on the 
entry of broker-dealer and Public Customer orders. The Exchange 
believes that the elimination of these restrictions will permit 
entities other than Market Makers to enter orders on both sides of the 
market more freely, resulting in more orders on the BOX Book and 
therefore increased liquidity on the BOX market, all to the benefit of 
investors.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 
impose any burden on competition 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    Because broker-dealer and Public Customer orders are not subject to 
priority on the BOX Book that is any better than Market Makers, the 
Exchange does not believe it is necessary to impose the Rule's 
restrictions on the entry of broker-dealer and Public Customer orders. 
The Exchange believes that the elimination of these restrictions will 
permit entities other than Market Makers to enter orders on both sides 
of the market more freely, resulting in more orders on the BOX Book and 
therefore increased liquidity on the BOX market, all to the benefit of 
investors.
    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-2010-026 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-2010-026. This file 
number should be included on the subject line if e-mail is used. To 
help the

[[Page 20649]]

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,\14\ 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, 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-
2010-026 and should be submitted on or before May 11, 2010.

    \14\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9031 Filed 4-19-10; 8:45 am]
BILLING CODE 8011-01-P