Document ID: SEC-2009-1752-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Chapter XI (Communications With Public Customers)
Posted Date: 2009-12-14T05:00Z

[Federal Register: December 14, 2009 (Volume 74, Number 238)]
[Notices]               
[Page 66179-66182]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14de09-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61124; File No. SR-BX-2009-074]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Chapter XI (Communications With Public Customers)

December 7, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on November 19, 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 substantially prepared by the Exchange. The Exchange has 
designated the proposed rule change as a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) 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 change 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).
    \4\ 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 proposes to remove or otherwise amend elements of 
Chapter XI, Section 24 \5\ (``Communications with Public Customers'') 
of the Boston Options Exchange Group, LLC (``BOX'') Trading Rules that 
incorporate provisions of the Securities Act of 1933 (the ``Securities 
Act'') \6\ because options traded on BOX consist solely of standardized 
options issued by the Options Clearing Corporation (``OCC''), a 
registered clearing agency, and are exempt under Securities Act Rule 
238 from all provisions of the Securities Act

[[Page 66180]]

except the antifraud provisions of Section 17. In addition, the 
proposed amendments expand the types of communications governed by 
Section 24 to include independently prepared reprints and other 
communications between a participant or participant organization and a 
customer. The proposed amendments also exempt certain options 
communications from the pre-approval requirement by a Registered 
Options Principal (``ROP''). Additionally, the Exchange proposes to 
correct certain internal citation and typographical errors associated 
with earlier rule filings.\7\ 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/.
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    \5\ For ease of reference, Chapter XI, Section 24 will simply be 
referred to as ``Section 24.''
    \6\ 15 U.S.C. 77a et seq.
    \7\ See Securities Exchange Act Release No. 58221 (July 24, 
2008), 73 FR 44296 (July 30, 2008) (SR-BSE-2008-29) and Securities 
Exchange Act Release No. 59434 (February 23, 2009), 74 FR 9012 
(February 27, 2009) (SR-BSE-2008-56).
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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
    On December 23, 2002, the Commission published final rules that 
exempt standardized options, as defined in Rule 9b-1 \8\ of the 
Exchange Act,\9\ that are issued by a registered clearing agency and 
traded on a national securities exchange or on a registered national 
securities association, from all provisions of the Securities Act 
(other than the anti-fraud provisions) and from the registration 
requirements of the Exchange Act.\10\ Because the Securities Act and 
the rules thereunder (other than the anti-fraud provisions) are no 
longer applicable to such standardized options, the Exchange proposes 
to remove elements of the Securities Act that are embedded in Section 
24 of the BOX Rules. In particular, the Exchange proposes to remove all 
references to a ``prospectus'' from Section 24. Prospectuses are no 
longer required for such standardized options, and the OCC has, in 
fact, ceased publication of a prospectus.\11\ In addition, the proposed 
amendments will update and reorganize Section 24 of the BOX Rules. The 
proposed amendments are similar to amendments filed by the 
International Securities Exchange (``ISE'') and Chicago Board Options 
Exchange (``CBOE'') and approved by the Commission and would provide a 
more uniform approach to communications to customers regarding 
standardized options.\12\
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    \8\ 17 CFR 240.9b-1.
    \9\ 15 U.S.C. 78a et seq.
    \10\ See ``Exemption for Standardized Options From Provisions of 
the Securities Act of 1933 and From the Registration Requirements of 
the Securities Exchange Act of 1934; Final Rule,'' Securities Act 
Release No. 8171 (December 23, 2002), 68 FR 188 (January 2, 2003).
    \11\ The options disclosure document (``ODD'') prepared in 
accordance with Rule 9b-1 under the Exchange Act is not deemed to be 
a prospectus. 17 CFR 230.135b. See, e.g., Securities Act Release No. 
8049 (December 21, 2001).
    \12\ See Securities Exchange Act Release No. 58823 (October 21, 
2008), 73 FR 63747 (October 27, 2008) (SR-CBOE-2007-30); and 
Securities Exchange Act Release No. 59600 (March 19, 2009), 74 FR 
13286 (March 26, 2009) (SR-ISE-2009-09).
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Deletion of Certain Provisions
    As noted above, Section 24 of the BOX Rules contains a number of 
references to the delivery of a prospectus and other Securities Act 
requirements. The Exchange proposes to delete the following from 
Chapter XI: Section 24(a)(iv), which references the Securities Act 
definition of prospectus; Section 24(e), which incorporates Securities 
Act principles in that it prohibits written material concerning options 
from being furnished to any person who has not previously or 
contemporaneously received the ODD; Section 24(b)(ii), which defines 
the term ``Educational Material;'' \13\ Section 24(g), which outlines 
what is permitted in an ``Advertisement;'' and Section 24(h), which 
concerns the use of educational material.
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    \13\ This paragraph essentially incorporates language of 
Securities Act Rule 134a. While this amendment would eliminate the 
separate educational material category, as discussed below the 
Exchange also proposes to revise the definition of Sales Literature 
to include educational material.
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Redesignation of Section 24(a) to Proposed Section 24(d) and Related 
Amendments
    Section 24(a) currently contains an outline of the ``General Rule'' 
for options communications. The Exchange proposes to redesignate 
paragraph (a) as paragraph (d), and to incorporate limitations on the 
use of options communications contained in Section 24(f) into proposed 
Section 24(d). In addition, proposed Section 24(d)(iii) would amend 
Section 24(a)(iii) by clarifying the types of cautionary statements and 
caveats that are prohibited. Also, as previously noted, BOX proposes to 
delete Section 24(a)(iv). Further, current Section 24(i) sets forth the 
standards applicable to Sales Literature and Section 24(i)(i) sets 
forth the requirement that Sales Literature shall state that supporting 
documentation for any claims, comparisons, recommendations, statistics 
or other technical data, will be supplied upon request. The Exchange 
proposes to redesignate Section 24(i)(i) as Section 24(d)(vii).
Redesignation of Section 24(c) to Proposed Section 24(b) and Related 
Amendments
    The Exchange proposes to redesignate paragraph (c) as paragraph 
(b). The Exchange also proposes to amend this paragraph to include the 
types of communications proposed to be added to the definition of 
``Options Communications'' in proposed Section 24(a). Proposed Sections 
24(b)(ii) and (b)(iii) would also amend the current requirements to 
obtain advance approval from a ROP for most options communications by 
exempting certain options communications, defined as ``Correspondence'' 
and ``Institutional Sales Material.'' Specifically, proposed Section 
24(b)(ii) would exempt correspondence from the pre-approval requirement 
unless the correspondence is distributed to 25 or more existing retail 
customers within any 30 calendar-day period and makes any financial or 
investment recommendation or otherwise promotes a product or service of 
the member. All correspondence would be subject to general supervision 
and review requirements. Proposed Section 24(b)(iii) would exempt 
institutional sales material from the pre-approval requirement if the 
material is distributed to ``qualified investors'' (as defined in 
Section 3(a)(54) of the Exchange Act).\14\ Pre-approval by a ROP would, 
however, be required with respect to independently prepared reprints. 
In addition, Proposed Section 24(b)(iv) would require that firms retain 
options communications in accordance with the record-keeping 
requirements of Rule 17a-4 under the Exchange Act.\15\

[[Page 66181]]

Proposed Section 24(b)(iv) would also require that firms retain other 
related documents in the form and for the time periods required for 
options communications by Rule 17a-4.
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    \14\ 15 U.S.C. 78c(a)(54).
    \15\ 17 CFR 240.17a-4. More specifically, Rule 17a-4(b)(4) 
requires that a broker-dealer retain ``originals of all 
communications received and copies of all communications sent * * * 
including all communications which are subject to rules of a self-
regulatory organization of which the member, broker or dealer is a 
member regarding communications with the public.''
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Redesignation of Section 24(d) to Proposed Section 24(c) and Related 
Amendments
    The Exchange proposes to redesignate paragraph (d) as paragraph 
(c). Section 24(d) currently requires members to obtain approval for 
every advertisement and all educational material from the Exchange. 
This requirement applies regardless of whether the options 
communications are used before or after the delivery of a current ODD. 
The Exchange proposes to amend this provision to require approval by 
the Exchange only with respect to options communications used prior to 
the delivery of a current ODD. The Exchange is proposing to eliminate 
the pre-approval requirement for options communications used subsequent 
to the delivery of the ODD because the ODD should help alert the 
customer to the characteristics and risks associated with trading in 
options and because Section 24(b) requires the ROP of a member 
organization to pre-approve options communications (with certain 
exceptions for ``Correspondence'' and ``Institutional Sales 
Material''). This provision would also be amended to include the types 
of communications added to the definition of ``Options Communications'' 
in proposed Section 24(a).
Redesignation of Section 24(b) to Proposed Section 24(a) and Related 
Amendments
    Section 24(b) currently defines terms used in Section 24. BOX 
proposes to redesignate paragraph (b) as paragraph (a). BOX also 
proposes to amend the definition of ``Options Communications'' in 
proposed Section 24(a) to expand the types of communications governed 
by Section 24 to include independently prepared reprints and other 
communications between a member or member organization and a customer. 
The Exchange proposes to amend the definitions of ``Advertisement'' and 
``Sales Literature;'' and define ``Correspondence,'' ``Institutional 
Sales Material,'' ``Public Appearances,'' and ``Independently Prepared 
Reprints'' to make the rule more clear. In addition, as previously 
noted, BOX proposes to delete the definition of ``Educational 
Material.''
Proposed Section 24(e)
    Proposed Section 24(e) would set forth (i) standards for options 
communications that are not preceded or accompanied by an ODD and (ii) 
standards for options communications used prior to delivery of an ODD. 
These requirements generally would clarify and restate the requirements 
contained in current Section 24(i). Proposed Section 24(e)(i)(2) would 
require options communications to contain contact information for 
obtaining a copy of the ODD. As previously noted, the provisions of 
Section 24(g) that outline what is permitted in an advertisement are 
proposed to be deleted and the provisions relating to standards for 
options communications used prior to delivery of the ODD are proposed 
to be incorporated into proposed Section 24(e)(ii).
Redesignation of Portions of Section 24(i) to Proposed Section 24(g), 
Proposed Section 24(h), Proposed Section 24(i), and Related Amendments
    As stated above, the Exchange proposes to redesignate Section 
24(i)(i) as proposed Section 24(d)(vii). Current Section 24(i)(ii) 
pertains to standards for Sales Literature that contains projected 
performance figures and current Section 24(i)(iii) pertains to 
standards for Sales Literature that contains historical performance 
figures. The Exchange proposes to redesignate Section 24(i)(ii) as 
proposed Section 24(g)(i) and current Section 24(i)(iii) as proposed 
Section 24(h). Section 24(i) currently requires that a copy of the ODD 
precede or accompany options related sales literature. The Exchange is 
proposing to modify the ODD delivery requirement applicable to sales 
literature to provide that an ODD must precede or accompany any 
communication that conveys past or projected performance figures 
involving options or constitutes a recommendation pertaining to 
options. A notice providing the name and address of a person from whom 
the ODD may be obtained would be required in sales literature that does 
not contain a recommendation or past or projected performance figures. 
Because BOX is proposing to merge educational material into the sales 
literature category,\16\ this amendment would continue to allow 
communications that are educational in nature to be disseminated 
without being preceded or accompanied by a copy of the ODD.
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    \16\ See Proposed Section 24 (a)(ii).
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    The Exchange proposes to redesignate current Section 24(i)(iv) as 
proposed Section 24(i). The Exchange proposes to delete Sections 
24(i)(v), (i)(vi), and (i)(vii). The Exchange believes that 
subparagraphs (i)(v) and (i)(vi) are unnecessary because worksheets are 
included in the definition of ``Sales Literature.'' The Exchange 
believes that subparagraphs (i)(vii) is no longer necessary because the 
Exchange is proposing to clarify the recordkeeping requirements 
applicable to options communications in proposed Section 24(b)(iv).
    Additionally, the Exchange proposes to amend Sections 2, 10 and 24 
to clarify certain potentially confusing or inaccurate citations from 
previous filings.\17\ References to ``Registered Options and Security 
Futures Principal'' will be amended to refer to ``Registered Options 
Principal.'' Similarly, a reference to the ``supervision of options and 
security futures sales practices'' will be amended to remove the words 
``and security futures.'' Unnecessary brackets in Section 10(a)(4) will 
be removed. In addition, references to ``Rule 10'' will be amended to 
refer to ``Section 10'' and the proper reference for the definition of 
``control'' will be added in Section 10(h). Finally, references to 
Compliance Options Principal will be amended to refer to Registered 
Options Principal.
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    \17\ See supra note 7.
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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,\18\ in general, and Section 
6(b)(5) of the Act,\19\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to prevent fraudulent and manipulative acts, 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. In particular, the proposed rule change will provide 
the investing public with options communications rules that are 
designed to provide appropriate safeguards and greater clarity by 
promoting harmonization between the Exchange's and other SROs' options 
communications rules. In addition, the corrections made will serve to 
minimize

[[Page 66182]]

potential confusion by Exchange Participants.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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

    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

    This proposed rule change was filed pursuant to paragraph (A) of 
section 19(b)(3) of the Exchange Act \20\ and Rule 19b-4(f)(6) 
thereunder.\21\ This proposed rule change does not significantly affect 
the protection of investors or the public interest, does not impose any 
significant burden on competition, and, by its terms, 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. Because the rule change is based 
upon rules in place at ISE and CBOE, and does not present any novel 
issues, and is intended to maintain consistency among the exchanges, 
the Exchange requests that the Commission waive the 30-day operative 
delay \22\ period for ``non-controversial'' proposals and make the 
proposed rule change effective and operative upon filing. The 
Commission notes that the proposed rule change is substantially 
identical to proposed rule changes approved by the Commission after an 
opportunity for public comment,\23\ and does not raise any new 
substantive issues. For these reasons, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest and designates the proposal 
operative upon filing for ``non-controversial'' proposals and makes the 
proposed rule change effective and operative upon filing.\24\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ For 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).
    \23\ The Exchange's proposed rule change is substantially 
identical to proposed rule changes by the CBOE and ISE that were 
recently approved by the Commission. See supra note 12.
    \24\ For 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 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-2009-074 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-2009-074. 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 copying and 
inspection in the Commission's Public Reference Room, on official 
business days between the hours of 10 a.m. and 3 p.m., located at 100 F 
Street, NE., Washington, DC 20549. 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 Number SR-BX-
2009-074 and should be submitted on or before January 4, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29629 Filed 12-11-09; 8:45 am]

BILLING CODE 8011-01-P