Document ID: SEC-2015-0228-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2015-02-09T05:00Z

[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Notices]
[Pages 7048-7050]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02502]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74195; File No. SR-BX-2015-007]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add New 
Section 20, Exchange Sharing of Participant-Designated Risk Settings, 
to Chapter VI, Trading Systems

February 3, 2015.
    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 January 28, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to add new Section 20, Exchange Sharing of 
Participant-Designated Risk Settings, to Chapter VI, Trading Systems, 
of the Exchange's Options rules to authorize the Exchange to share any 
Participant-designated risk settings in the Exchange's Trading System 
with the Clearing Participant that clears transactions on behalf of the 
Participant.\3\
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    \3\ A ``Participant'' or ``Options Participant'' is a firm or 
organization that is registered with the Exchange pursuant to 
Chapter II of the BX Rules for purposes of participating in options 
trading on BX Options as a ``BX Options Order Entry Firm'' or ``BX 
Options Market Maker''. The term ``BX Options Market Maker'' or 
``Options Market Maker'' means an Options Participant registered 
with the Exchange for the purpose of making markets in options 
contracts traded on the Exchange and that is vested with the rights 
and responsibilities specified in Chapter VII of the BX Rules. The 
terms ``BX Options Order Entry Firm'' or ``Order Entry Firm'' or 
``OEF'' mean those Options Participants representing as agent 
Customer Orders on BX Options and those non-Market Maker 
Participants conducting proprietary trading. A ``Clearing 
Participant'' means a Participant that is self-clearing or a 
Participant that clears BX Options Transactions for other 
Participants of BX Options. The term ``Trading System'' or 
``System'' means the automated trading system used by BX Options for 
the trading of options contracts. See Chapter I, Section 1, 
Definitions, of the BX Rules.
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    The text of the proposed rule change is below; proposed new 
language is

[[Page 7049]]

italicized; proposed deletions are in brackets.
* * * * *

NASDAQ OMX BX Rules

Options Rules

* * * * *

Chapter VI, Trading Systems

    Sec. 1-19. No change.
    Sec. 20 Exchange Sharing of Participant-Designated Risk Settings.
    The Exchange may share any Participant-designated risk settings in 
the Trading System with the Clearing Participant that clears 
transactions on behalf of the Participant.
* * * * *

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 adopt new Section 20, Exchange Sharing 
of Participant-Designated Risk Settings, in Chapter VI, Trading 
Systems, of the BX Rules in order to authorize the Exchange to share 
any Participant-designated risk settings in Exchange's Trading System 
with the Clearing Participant that clears transactions on behalf of the 
Participant. Pursuant to Chapter II, Participation, Section 2, 
Requirements for Options Participation, of the BX Rules, Options 
Participants must be Options Clearing Participants or establish a 
clearing arrangement with a Clearing Participant. Every Clearing 
Participant is responsible for the clearance of BX Options Transactions 
\4\ of each Options Participant that gives up such Clearing 
Participant's name pursuant to a letter of authorization, letter of 
guarantee or other authorization (``Letter of Guarantee'') given by 
such Clearing Participant to such Options Participant, which 
authorization must be submitted to BX.\5\ Further, no Options 
Participant may make any transactions on BX Options unless a Letter of 
Guarantee providing that the issuing Clearing Participant accepts 
financial responsibilities for all BX Options Transactions made by the 
guaranteed Participant has been issued for such Participant by a 
Clearing Participant and filed with BX Regulation.\6\
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    \4\ The term ``BX Options'' means the BX Options Market, an 
options trading facility of the Exchange under Section 3(a)(2) of 
the Exchange Act. The term ``BX Options Transaction'' means a 
transaction involving an options contract that is effected on or 
through BX Options or its facilities or systems.
    \5\ See Chapter VI, BX Trading Systems, Section 15, Submission 
for Clearance, Subsection (a).
    \6\ See Chapter VII, Section 8, Letters of Guarantee.

Thus, while not all Participants are Clearing Participants, all 
Participants require a Clearing Participant's consent to clear 
transactions on their behalf in order to conduct business on the 
Exchange. Each Participant that transacts through a Clearing 
Participant on the Exchange executes a Letter of Guarantee which 
codifies the relationship between the Participant and the Clearing 
Participant and provides the Exchange with notice of which Clearing 
Participants have relationships with which Participants. The Clearing 
Member that guarantees the Participants transactions on the Exchange 
has a financial interest in understanding the risk tolerance of the 
Participant. The proposal would provide the Exchange with authority to 
directly provide Clearing Participants with information that may 
otherwise be available to such Clearing Participants by virtue of their 
relationship with the respective Participants.
    At this time, the risk settings covered by this proposal are set 
forth in Chapter VI, Trading Systems, Section 19, Risk Monitor 
Mechanism.\7\ The Exchange may adopt additional rules providing for 
Participant-designated risk settings other than those provided in 
Chapter VI, Section 19 that could be shared with a Participant's 
Clearing Participant under the proposal, and the Exchange would 
announce these additional risk settings by issuing an Options Trader 
Alert.
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    \7\ See Securities Exchange Act Release No. 67256 (June 26, 
2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030). The Mechanism 
provides protection to participants from the risk of multiple 
executions across multiple series of an option. Quoting across many 
series in an option creates the possibility of ``rapid fire'' 
executions that can create large, unintended principal positions 
that expose market makers, who are required to continuously quote in 
assigned options, to potentially significant market risk. 
Participants may establish a specified time period, not to exceed 15 
seconds, within which a counting program will count the number of 
contracts traded in an option by such Participant. When the 
Participant has traded a certain number of contracts during the 
specified time period, the Risk Monitor Mechanism will automatically 
remove such Participant's quotations from the Exchange's 
disseminated quotation in all series of the particular option.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\8\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\9\ because it is designed to promote just and equitable principles 
of trade, remove impediments to and perfect the mechanisms of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change will allow the Exchange to directly 
provide a Participant's designated risk settings to the Clearing 
Participant that clears trades on behalf of the Participant. Because a 
Clearing Participant that executes a clearing Letter of Guarantee on 
behalf of a Participant guarantees all transactions of that 
Participant, and therefore bears the risk associated with those 
transactions, it is appropriate for the Clearing Participant to have 
knowledge of what risk settings the Participant may utilize within the 
Exchange's trading system. The proposal will permit Clearing 
Participants who have a financial interest in the risk settings of 
Participants with whom the Clearing Participant has entered into a 
clearing Letter of Guarantee to better monitor and manage the potential 
risks assumed by Clearing Participants, thereby providing Clearing 
Participants with greater control and flexibility over setting their 
own risk tolerance and exposure and aiding Clearing Participants in 
complying with the Act. To the extent a Clearing Participant might 
reasonably require a Participant to provide access to its risk setting 
as a prerequisite to continuing to clear trades on the Participant's 
behalf, the Exchange's proposal to share those risk settings directly 
reduces the administrative burden on Participants and ensures that 
Clearing Participants are receiving information that is up to date and 
conforms to the settings active in the Exchange's trading system.

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

[[Page 7050]]

necessary or appropriate in furtherance of the purposes of the Act. The 
proposed rule change is not designed to address any competitive issues 
and does not pose an undue burden on non-Clearing Participants because, 
unlike Clearing Participants, non-Clearing Participants do not 
guarantee the execution of a Participant's transactions on the 
Exchange. The proposal is structured to offer the same enhancement to 
all Clearing Participants, regardless of size, and would not impose a 
competitive burden on any Participant. Any Participant that does not 
wish to share its designated risk settings with its Clearing 
Participant could avoid sharing such settings by becoming a Clearing 
Participant.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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)(ii) [sic] of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \11\ 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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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 email to rule-comments@sec.gov. Please include 
File Number SR-BX-2015-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-007. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2015-007, 
and should be submitted on or before March 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02502 Filed 2-6-15; 8:45 am]
BILLING CODE 8011-01-P