Document ID: SEC-2012-0385-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2012-03-09T05:00Z

[Federal Register Volume 77, Number 47 (Friday, March 9, 2012)]
[Notices]
[Pages 14452-14454]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5731]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66512; File No. SR-BX-2012-011]

 Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Chapter V, Section 26 of the BOX Rules

March 5, 2012.
    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 February 22, 2012, NASDAQ OMX BX, Inc. (``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 self-regulatory organization. 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 Chapter V, Section 26 (Limitation of 
Liability) 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
    Chapter V, Section 26 of the BOX Trading Rules provides, in 
general, that neither the Exchange, BOXR, BOX, nor any of their 
respective affiliates with regard to BOX will be liable to BOX Options 
Participants for any losses arising from the use of BOX or the BOX 
Trading Host. The Exchange is proposing to codify provisions within the 
BOX Trading Rules that permit BOX, for customer service reasons, to 
compensate an Options Participant, within specified limits as proposed, 
for certain identified losses. Additionally, the Exchange is proposing 
to clarify certain provisions within Section 26 regarding to whom it is 
applicable.
    Accordingly, the Exchange proposes to amend Chapter V, Section 26 
of the BOX Trading Rules to (1) clarify certain provisions within 
Section 26 regarding to whom the liability limitation applies; (2) 
codify provisions within the BOX Rules to permit BOX to compensate 
Participants for losses under certain circumstances; and (3) establish 
the maximum amount of such compensation that BOX may provide during a 
calendar month pursuant to Section 26.
    The Exchange proposes to clarify Section 26(a) by adding the 
respective directors, officers, committee members, employees, 
contractors, agents, and other persons acting on the behalf of the 
Exchange, BOXR, BOX and any of their respective affiliates to the 
paragraph that identifies the persons to which the limitation of 
liability is applicable. The Exchange proposes that ``Exchange Related 
Persons and/or Entities'' be defined to include the Exchange, BOXR,

[[Page 14453]]

BOX, and any of their respective affiliates, and their respective 
directors, officers, committee members, employees, contractors, and 
agents or other persons acting on their behalf.\3\ The Exchange 
proposes corresponding changes in Sections 26(a)(ii), 26(a)(iii), and 
in Sections 26(b), 26(c) and 26(d) to add references to the defined 
term Exchange Related Persons and/or Entities. Additionally, the 
Exchange proposes to add terrorism to the list of items beyond the 
control of Exchange Related Persons and/or Entities for which liability 
is limited.
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    \3\ See proposed Section 26(a) of Chapter V of the BOX Rules.
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    The Exchange proposes adding new Section 26(e) to establish, 
subject to the express limits set forth in Section 26(e)(1) through 
26(e)(3), that BOX may compensate Options Participants for losses 
resulting directly from the malfunction of the physical equipment, 
devices, or programming of Exchange Related Persons and/or Entities, or 
from the negligent acts or omissions of employees of the Exchange, BOXR 
or BOX.
    Under the proposal, BOX's payments for the aggregate of all claims 
made by all Options Participants during a single calendar month would 
not exceed the larger of $500,000, or the amount of any recovery 
obtained by BOX under any applicable insurance maintained by BOX. 
Additionally, in the event that all of the claims made during a single 
calendar month cannot be fully satisfied because they exceed the 
applicable maximum limitation, then the maximum permitted amount will 
be proportionally allocated among all such claims. Finally, the 
Exchange proposes that all claims for compensation under the new 
proposed provisions must be submitted in writing no later than 12 p.m. 
ET on the next business day following the day on which the use of BOX 
gave rise to such claims. Once in receipt of a claim, BOX will verify 
that: (i) a valid order was accepted into BOX; and (ii) any loss 
claimed resulted directly from the malfunction of the physical 
equipment, devices, or programming of Exchange Related Persons and/or 
Entities, or from the negligent acts or omissions of employees of the 
Exchange, BOXR or BOX during the execution or handling of that order. 
BOX will only compensate Participants for valid claims, and will 
compensate such Participants at the end of the month.
    BOX represents that the determination to compensate a BOX Options 
Participant will be made on an equitable and non-discriminatory basis 
without regard to whether the Participant is a Market Maker or Order 
Flow Provider on BOX, and that such determinations will be made 
pursuant to procedures of BOX Market Operations Center (``MOC'') with 
regulatory oversight established by BOXR. Additionally, BOX represents 
that BOX will maintain a record of Participant claims including 
documentation detailing its findings and details for approving or 
denying claims in accordance with its obligations under Section 17 of 
the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\4\ in general, and Section 
6(b)(5) of the Act,\5\ 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. 
In particular, the proposal will amend Chapter V, Section 26 of the BOX 
Trading Rules to codify provisions within the BOX Rules to permit BOX 
to compensate Participants for losses resulting directly from the 
malfunction of the physical equipment, devices, and/or programming of 
Exchange Related Persons and/or Entities, or from the negligent acts or 
omissions of employees of the Exchange, BOXR or BOX, and to establish 
the maximum amount of such compensation that BOX may provide during a 
calendar month.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes that the codification of these 
policies should add transparency to the BOX Rules and that its proposal 
to amend Chapter V, Section 26 will promote fairness in the national 
market system. The proposed change will allow BOX to address 
Participant claims under various circumstances, and allow BOX to act in 
a similar fashion as many of its competitors. Several exchanges have 
substantially similar rules and the Exchange believes that the proposed 
rule change would place BOX in a similar position to address 
Participant claims.\6\
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    \6\ See EDGA Exchange, Inc. (``EDGA'') Rule 11.12, NASDAQ Stock 
Market LLC (``NASDAQ'') Rule 4626, Chicago Board Options Exchange, 
Incorporated (``CBOE''), Rule 6.7, NYSE Arca, Inc. (``NYSE Arca''). 
Options Rule 14.2, International Securities Exchange, LLC (``ISE''), 
Rule 705, and BATS Exchange, Inc. (``BATS'') Rule 11.16.
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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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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. The Exchange has fulfilled this requirement.
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    The Exchange requested that the Commission waive the 30-day 
operative delay so that the proposed rule change would become effective 
and operative upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest.\9\ The Commission notes that the waiver will allow 
the Exchange to immediately implement the proposed rule change, which 
should promote fairness in the market by allowing BOX to compensate 
Options Participants for losses resulting directly from the 
malfunctions of the physical equipment, devices, or programming of 
Exchange Related Persons and/or Entities, or from the negligent acts or 
omissions of employees of the Exchange, BOXR, or BOX. The Commission 
also notes that the proposal is substantially similar to rules of other 
registered national

[[Page 14454]]

securities exchanges and does not raise any new regulatory issues.\10\ 
For these reasons, the Commission designates the proposed rule change 
as operative upon filing.
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    \9\ For purposes only of waiving the 30-day operative delay, the 
Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \10\ See supra note 6.
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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 email to rule-comments@sec.gov. Please include 
File Number SR-BX-2012-011 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-2012-011. 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/vsro.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 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-2012-011 and should be 
submitted on or before March 30, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5731 Filed 3-8-12; 8:45 am]
BILLING CODE 8011-01-P