Document ID: SEC-2011-1510-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX
Posted Date: 2011-10-06T04:00Z

[Federal Register Volume 76, Number 194 (Thursday, October 6, 2011)]
[Notices]
[Pages 62111-62112]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25794]

[[Page 62111]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65447; File No. SR-BX-2011-067]

Self-Regulatory Organizations; NASDAQ OMX BX; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Provide an 
Optional Functionality for a BOX Options Participant To Prevent Its 
Market Maker or Proprietary Broker-Dealer Orders Entered in BOX From 
Trading With Quotes/Orders Originating From the Same BOX Participant 
and Were Resting on the BOX Book

September 30, 2011.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on September 27, 2011, NASDAQ OMX BX (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as constituting a non-controversial rule 
change under Rule 19b-4(f)(6) under the Act,\3\ 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\ 17 CFR 240.19b-4(f)(6).
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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 amend Chapter 5, Section 16 (Execution and 
Price/Time Priority) of the Rules of the Boston Options Exchange Group, 
LLC (``BOX'') to provide an optional functionality for a BOX Options 
Participant to prevent its Market Maker or proprietary broker-dealer 
orders entered on BOX from trading with Market Maker quotes and orders, 
and proprietary broker-dealer orders that originated from the same BOX 
Participant and were resting on the BOX Book.
    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 Commission's Web site at http://www.sec.gov, and 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 provide a voluntary function for a BOX 
Options Participant to prevent its Market Maker or proprietary broker-
dealer orders entered on BOX from trading with quotes or orders that 
originated from the same such BOX Options Participant and were resting 
on the BOX Book. Under the proposal, a BOX Options Participant entering 
Market Maker quotes or orders, or proprietary broker-dealer orders 
under its specific BOX Options Participant identifier (``Firm ID'') may 
voluntarily direct that its Market Maker or proprietary broker-dealer 
orders entered on BOX not execute against Market Maker quotes or 
orders, or proprietary broker-dealer orders resting on the BOX Book 
that were entered under the same Firm ID.\4\
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    \4\ Please note that this functionality prevents Market Maker 
quotes and orders and proprietary orders entered under the same Firm 
Id from executing against each other except where a Market Maker 
quote is entered and there is already an order on the BOX Book, in 
this instance, the trade would execute. BOX Market Makers may 
simultaneously update all of their quotes in multiple series in a 
class at the same time (``bulk quote''). BOX is not enabling this 
Options Participant Trade Prevention functionality for a Market 
Maker's incoming quotes so as to avoid the cancellation of numerous, 
automatically submitted Market Maker bulk quotes.
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    If requested in writing by a BOX Options Participant, BOX will 
execute such incoming order against eligible trading interest of other 
market participants, in price/time priority, up to the point where the 
incoming Market Maker or proprietary broker-dealer order would interact 
with a resting Market Maker quote or order, or proprietary broker-
dealer order originating from the same Firm ID and thereupon 
immediately cancel any remaining portion of the incoming Market Maker 
or proprietary broker-dealer order back to its entering party. The 
direction from an Options Participant shall be effective at the 
beginning of the trading session following the written confirmation to 
the Participant of the BOX Market Operations Center's (``MOC'') receipt 
of the Participant's written direction, and until the Participant 
receives MOC's written confirmation of the Participant's written 
direction to discontinue the effectiveness of the exception for such 
Participant. The MOC will act on all Participant directions received to 
enact or discontinue the Participant match trade prevention exception 
no later than the beginning of the trading session on the second day 
following MOC's receipt of the Participant direction. The MOC will, 
however, turn this functionality on or off for a Participant only once 
per day in response to a Participant's direction.
    This functionality is designed to assist market participants in 
reducing execution fees potentially resulting from the interaction of 
executable buy and sell proprietary trading interest from the same 
firm. Additionally, BOX notes that offering this trade prevention 
functionality may streamline certain regulatory functions for the 
Exchange by reducing false positive results that may occur on wash 
trading surveillance reports when quotes or orders are executed under 
the same Firm ID. The proposed functionality applies to Market Maker 
quotes and orders, and proprietary broker-dealer orders and cannot be 
used for Public Customer orders. This functionality does not prevent 
any Market Maker quote or order, or any proprietary broker-dealer order 
from executing against any Public Customer order. Accordingly, Public 
Customer orders will continue to be processed in price/time priority 
and will not be affected by this functionality. For these reasons, BOX 
believes this functionality offers its Options Participants enhanced 
order processing functionality that may prevent potentially undesirable 
executions.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\5\ in general, and Section 
6(b)(5) of the Act,\6\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and

[[Page 62112]]

facilitating transactions in securities, 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, the Exchange believes this proposed rule change is 
appropriate and reasonable because the functionality will assist BOX 
Options Participants in reducing execution fees resulting from the 
potential interaction of executable proprietary buy and sell trading 
interest from the same firm. Additionally, the Exchange believes that 
offering this trade prevention functionality may streamline certain 
regulatory functions by reducing false positive results that may occur 
on wash trading surveillance reports when quotes or orders are executed 
under the same Firm ID. Further, the Exchange notes that similar 
functionality has previously been approved for BATS Options trading 
system, and exists on the Exchange's equities trading system.\7\ 
Finally, the Exchange believes the proposed rule change will benefit 
BOX Options Participants, will allow BOX to remain competitive with 
other exchanges, and that implementation should not be delayed.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ See Securities Exchange Act Release Nos. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) and 60246 
(July 6, 2009), 74 FR 34057 (July 14, 2009) (SR-BX-2009-031).
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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

    No written comments were either solicited or received.

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

    This proposed rule change is effective upon filing pursuant to 
paragraph (A) of section 19(b)(3) of the Exchange Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\ The Exchange asserts that the proposed rule 
change: (i) Does not significantly affect the protection of investors 
or the public interest; (ii) does not impose any significant burden on 
competition; and (iii) 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; provided the self-regulatory organization has given the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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 Commission notes that the Exchange satisfied this five-day pre-
filing 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 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-2011-067 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-2011-067. 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 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 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 Number SR-BX-2011-067 and should be submitted on 
or before October 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25794 Filed 10-5-11; 8:45 am]
BILLING CODE 8011-01-P