Document ID: SEC-2013-0887-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2013-05-10T04:00Z

[Federal Register Volume 78, Number 91 (Friday, May 10, 2013)]
[Notices]
[Pages 27457-27459]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11175]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69525; File No. SR-BX-2013-033]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change To Amend BX Rule 4756 and Rule 4763 To 
Stipulate How Participants in the NASDAQ OMX BX Equities Market May 
Modify Previously Entered Orders and To Describe How Modified Orders 
Are Processed

May 6, 2013.
    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 April 25, 2013, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BX Rule 4756 (Entry and Display of 
Quotes and Orders) and Rule 4763 (Short Sale Price Test Pursuant to 
Rule 201 of Regulation SHO) to stipulate how Participants in the NASDAQ 
OMX BX Equities Market may modify previously entered orders and to 
describe how modified orders are processed.
    The text of the proposed rule change is below; proposed new 
language is italicized.
* * * * *

4756. Entry and Display of Quotes and Orders

    (a) Entry of Orders--Participants can enter orders into the System, 
subject to the following requirements and conditions:
    (1)-(2) No change.
    (3) Orders can be entered into the System (or previously entered 
orders cancelled or modified) from 7:00 a.m. until 7:00 p.m. Eastern 
Time. Participants may modify a previously entered order without 
cancelling it or affecting the priority of the order on the book solely 
for the purpose of modifying the marking of a sell order as long, 
short, or short exempt; provided, however, that if an order is 
redesignated as short, a Short Sale Period is in effect under Rule 
4763, and the order is not priced at a Permitted Price or higher under 
Rule 4763(d), the order will be cancelled. In addition, a partial 
cancellation of an order to reduce its share size will not affect the 
priority of the order on the book. All other modifications of orders 
will result in the replacement of the original order with a new order 
with a new time stamp.
    (b)-(c) No change.
* * * * *

4763. Short Sale Price Test Pursuant to Rule 201 of Regulation SHO

    (a)-(c) No change.
    (d) Re-pricing of Orders during Short Sale Period. Except as 
provided below, [D]during the Short Sale Period, short sale orders that 
are limited to the national best bid or lower and short sale market 
orders will be re-priced by the System one minimum allowable price 
increment above the current national best bid (``Permitted Price''). To 
reflect declines in the national best bid, the Exchange will continue 
to re-price a short sale order at the lowest Permitted Price down to 
the order's original limit price, or if a market order, until the order 
is filled. Non-displayed orders between the BX bid and offer will also 
be re-priced upward to a Permitted Price to correspond with a rise in 
the national best bid.
    (1) No change.
    (2) During the Short Sale Period, if an order was entered as a long 
sale order or a short sale exempt order but is subsequently marked 
pursuant to Rule 4756(a)(3) as a short sale order, the System will 
cancel the order unless it is priced at a Permitted Price or higher.
    (e)-(f) No change.
* * * * *

[[Page 27458]]

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 purpose of the proposed rule change is to stipulate how 
Participants in the NASDAQ OMX BX Equities Market may modify previously 
entered orders and to describe how modified orders are processed. 
Currently, Rule 4756 permits previously entered orders to be cancelled, 
a fact that has been interpreted by BX to allow a Participant to cancel 
an order in full or in part. However, new language is being added to 
the rule to make it clear that a partial cancellation of an order 
(i.e., a reduction in the share size of the order) does not cause the 
order to lose priority on the BX book. BX believes that it is 
reasonable to allow the partial cancellation of an order without the 
order losing priority because the Participant that entered the order 
continues to express its willingness to trade at the price entered when 
the order first came onto the book. Moreover, if the order is 
displayed, other Participants quoting at the same price are aware of 
the priority of their orders relative to the partially cancelled order. 
While a partial cancellation may provide these other Participants with 
greater opportunities to provide a fill, BX does not believe that it 
would be reasonable for the Participants to jump ahead of an order with 
time priority merely because the size of the order has been reduced. 
Similarly, if the partially cancelled order is non-displayed, other 
Participants would have no awareness of its price, its original size, 
or its reduced size. Again, while other Participants at that price may 
have an increased opportunity to provide a fill when the order's size 
is reduced, they would not have an expectation that the priority of 
their orders would change vis-[agrave]-vis that of an order that 
arrived on the book at an earlier time. Finally, with respect to 
Participants seeking to access liquidity, the reduced size of the order 
would be disseminated (if a displayed order) or not disseminated (if a 
non-displayed order) via market data feeds, but these Participants 
would be indifferent as to the order's priority vis-[agrave]-vis other 
orders with the same price.
    In addition, BX is modifying Rule 4756 to provide that a sell order 
may be modified in order to change its marking as long, short, or short 
exempt without affecting its priority on the book.\3\ Participants 
sometimes wish to modify the marking of a sell order on the book due to 
changes in the Participant's holdings of the security in question. At 
present, such a modification may only be achieved by the cancellation 
of the existing order and its replacement with a new order with a 
different time stamp. BX believes that it is reasonable to allow the 
modification of an order for this purpose without affecting its 
priority, since the order's marking has no bearing on the timing of its 
entry onto the book vis-[agrave]-vis other orders at the same price.\4\ 
In the event, however, that a long or short exempt order is 
redesignated as a short sale order and the security that is the subject 
of the order is in a Short Sale Period, as provided for in Rule 4763 
and Rule 201 under Regulation SHO,\5\ the order will be evaluated to 
determine whether its price would be a Permitted Price within the 
meaning of Rule 4763(d). If not, the order will be cancelled rather 
than repriced.\6\ BX believes that cancelling the order under these 
circumstances is preferable to repricing it, because it alerts the 
Participant entering the order to the existence of the Short Sale 
Period and forces the Participant to evaluate its intentions with 
regard to the order.
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    \3\ The proposed rule does not affect Participants' obligations 
contained in Regulation SHO under the Act, and Participants must 
continue to comply with such obligations, including the order 
marking and locate requirements. See 17 CFR 242.200 et seq.
    \4\ A change to the marking of the order would be effected 
through the submission of a ``modify order'' message.
    \5\ 17 CFR 242.201.
    \6\ If an order originally marked as long or short is marked as 
short exempt, the order will not be cancelled or repriced. Rule 
4763(f).
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    Finally, BX is amending Rule 4756 to make it clear that all other 
modifications of previously submitted orders, including increases in 
size \7\ and changes in price, will result in the cancellation of the 
original order and its replacement with a new order with a new time 
stamp. Although the addition of this rule language does not reflect a 
change in the way the BX system currently operates, BX believes that 
the clarity of the rule will be enhanced by including the new language. 
BX further believes that the functionality described by the rule 
language is important to ensuring that Participants cannot use an 
existing order unfairly to retain priority with respect to a materially 
different order.
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    \7\ BX reminds Participants that if a seller increases the size 
of a pending sell order, the resulting modified order is considered 
a new order and must be marked by the broker-dealer to reflect the 
seller's net position at the time of order modification pursuant to 
Rule 200 of Regulation SHO.
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2. Statutory Basis
    BX believes that its proposal is consistent with Section 6(b) of 
the Act \8\ in general, and furthers the objectives of Section 6(b)(5) 
of the Act \9\ in particular, in that it is designed to promote just 
and equitable principles of trade, 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. 
Specifically, BX believes that permitting Participants to change the 
marking of sell orders without affecting their priority on the BX book 
will eliminate an aspect of the NASDAQ OMX BX Equities Market that had 
unnecessarily made it more difficult for posted sell orders to execute. 
Thus, the change will enhance the fairness and efficiency of the BX 
market without affecting the ability of Participants to comply with 
applicable regulatory requirements. In addition, the changes to the 
rule that describe the effect of a partial order cancellation promote 
the clarity of the rule with respect to the ability of a Participant to 
reduce the size of an existing order without affecting its priority. BX 
further believes that allowing an order to retain priority under these 
conditions is consistent with the operation of a free and open market 
and the protection of investors and the public interest, since the 
Participant that entered an order that is partially cancelled has 
nevertheless expressed a continued willingness to trade at a specified 
price, and therefore should retain priority over Participants that 
joined that price at a later time. Finally, BX believes that the 
proposed addition of language to clearly stipulate that all other order 
modifications will result in the cancellation and replacement of the 
original order with a new order with new time priority is consistent 
with the protection of investors and the public interest because the 
new language will make clear an existing feature of the market that BX 
believes is important to ensuring that Participants cannot use an 
existing order unfairly to retain priority

[[Page 27459]]

with respect to a materially different order.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BX 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, as amended. Specifically, BX 
believes that the change with respect to allowing Participants to 
modify the long, short, or short exempt marking of a sell order without 
affecting its priority will assist BX in competing with the BATS 
Exchange and the BATS Y-Exchange, which already allow their 
Participants to do so. BX further believes that the other changes will 
not have any effect on competition.

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) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ 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.
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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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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-2013-033 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-2013-033. 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 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-2013-033 and 
should be submitted on or before May 31, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11175 Filed 5-9-13; 8:45 am]
BILLING CODE 8011-01-P