Document ID: SEC-2012-0468-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2012-03-22T04:00Z

[Federal Register Volume 77, Number 56 (Thursday, March 22, 2012)]
[Notices]
[Pages 16877-16879]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6866]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66615; File No. SR-BX-2012-019]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
BOX Fee Schedule

March 16, 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 March 12, 2012, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the Exchange. The Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 
19b-4(f)(2) 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 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)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 the Fee Schedule of the Boston 
Options Exchange Group, LLC (``BOX''). The changes to the BOX Fee 
Schedule pursuant to this proposal will be effective upon filing for 
March 2012; Participants will only be assessed any applicable routing 
fee for orders on the effective date and thereafter. 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 self-regulatory organization 
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 self-regulatory organization 
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 proposes to implement a change to the BOX routing 
fees. BOX believes the proposed structure will provide an incentive to 
BOX Options Participants (``Participants'') to submit their customer 
orders for execution on BOX and will discourage potentially abusive and 
predatory order routing practices to evade fees on other exchanges.\5\ 
BOX proposes to continue to provide routing to away exchanges at no 
charge to Participants that execute more than 40% of their non-
Professional, Public Customer transactions \6\ on BOX, rather than 
those orders being executed at other exchanges after BOX routes them to 
an away exchange.
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    \5\ Note that BOX does not route broker-dealer proprietary 
orders and thus does not assess them any routing fees. Based on BOX 
market data, BOX believes certain Participants are intentionally 
submitting orders to BOX when limited liquidity is on BOX at the 
national best bid or offer (``NBBO''). This limited liquidity is not 
enough to fill the orders submitted, and thus, BOX is required, in 
accordance with its obligations to customer orders under the 
national market system plan for Options Order Protection, to route 
such orders to a market that is displaying liquidity at the NBBO.
    \6\ For the purposes of the discussion in this proposed rule 
change, these non-Professional, Public Customer Orders will be 
referred to as Public Customer Orders.
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    If BOX does not have sufficient liquidity at the NBBO to execute 
Public Customer Orders on BOX, such orders are routed to an away 
exchange for execution. Currently, BOX does not assess any fee to 
Participants for doing so. BOX, however, believes that exempting all 
outbound Public Customer Orders from routing fees is resulting in some 
Participants sending an increasing amount of orders to BOX when BOX is 
not at the NBBO, so that the orders will be routed to an away exchange; 
and BOX believes this activity pattern is designed to evade transaction 
fees on other exchanges. In order to curtail this activity that BOX 
believes is designed to take advantage of BOX routing Public Customer 
order at no charge, BOX proposes a routing fee structure that provides 
an incentive to Participants whom execute their Public Customer 
transactions on BOX. The proposed change will have no effect on the 
billing of orders of non-Participants, including any orders routed to 
BOX from away exchanges.
    The Exchange proposes that BOX will continue to route Public 
Customer Orders to an away exchange without imposing any fee, to the 
extent that more than 40% of the Participants' Public Customer Orders 
sent to BOX each month execute on BOX. Executions on BOX would include 
orders executing on the BOX Book, or through any other BOX mechanism 
that may be available to execute Public Customer Orders (e.g., Price 
Improvement Period, Solicitation or Facilitation Auction Mechanisms). 
If 60% or more of a Participants' Public Customer Orders executed 
through BOX each month are routed to and executed at an away exchange, 
BOX will assess a $0.50 per contract routing fee to all of a 
Participants' Public Customer orders routed to an away exchange for 
execution for the month. BOX will calculate the percentage of contracts 
executed on BOX compared to the

[[Page 16878]]

percentage routed and executed away at the end of each month.
    Instructing BOX to route orders away if they are not able to be 
executed on BOX is voluntary for BOX Participants. Participants may 
choose not to route their Public Customer Orders to another exchange. 
Participants may also avoid paying the proposed routing fee by choosing 
to designate their orders as Fill and Kill (``FAK''). FAK orders are 
not eligible for routing to away exchanges. FAK orders are executed on 
BOX, if possible, and then cancelled. Imposing a routing fee structure 
that provides a benefit to Participants for trading on BOX will allow 
BOX to recoup a portion of the costs incurred for providing routing 
services, while also providing an incentive to Participants to trade on 
BOX and benefit from BOX routing services for Public Customer Orders at 
no charge.
    While the changes to the BOX Fee Schedule pursuant to this proposal 
will be effective upon filing, for March 2012, Participants will only 
be assessed any applicable routing fee for orders on the effective date 
and thereafter. In determining a Participant's percentage of Public 
Customer Orders executed on BOX for March 2012, BOX will only consider 
orders submitted to BOX on the effective date and thereafter, and will 
not consider orders submitted prior to the filing date of this proposed 
fee change.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\7\ in general, and Section 
6(b)(4) of the Act,\8\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and other persons using its facilities. The Exchange 
believes the changes proposed are an equitable allocation of reasonable 
fees and charges among BOX Options Participants.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    BOX believes that the proposed routing fee structure for routing 
non-Professional, Public Customer Orders to other market venues is 
reasonable because the fee will allow BOX to recoup its transaction 
costs attendant with offering routing services. BOX uses third-party 
broker-dealers to route orders to other exchanges and incurs charges 
for each order routed to and executed at an away market, in addition to 
the transaction fees charged by other exchanges. BOX has been providing 
its routing services to Participants for Public Customer Orders at no 
cost and has been able to cover such costs with revenue generated from 
transactions on BOX. In order to better recover costs for routing such 
orders, the Exchange is proposing a routing fee structure to continue 
to provide these routing services to Participants at no charge if the 
Participants trade on BOX a certain percentage of their Public Customer 
volume traded through BOX each month, as opposed to BOX routing those 
orders away for execution.
    BOX also believes that assessing its routing fees to Participants 
based on the percentage of Public Customer Orders traded on BOX is an 
equitable allocation of a reasonable fee. Based on BOX market data, BOX 
believes certain Participants are intentionally submitting orders to 
BOX when limited liquidity is on BOX at the NBBO. This limited 
liquidity is not enough to fill the orders submitted, and thus, BOX is 
required, in accordance with its obligations to customer orders under 
the national market system plan for Options Order Protection, route 
such orders to a market that is displaying liquidity at the NBBO. BOX 
data indicates that BOX generally routes significantly less than 60% of 
a Participant's Public Customer Orders to BOX to an away exchange for 
execution. Additionally, BOX believes that permitting a Participant to 
have up to 60% of such orders routed to an away exchange for execution 
without being assessed any routing fee is reasonable and appropriate.
    The Exchange believes the proposed routing fee structure is 
equitable and not unfairly discriminatory because the incentive to 
trade on BOX it is available to all Participants on an equal basis. The 
Exchange believes it is reasonable and equitable to provide 
Participants (A) an incentive to trade on BOX, and (B) the ability to 
route customer orders at no cost, because transactions executed on BOX 
increase BOX market activity and market quality. Greater liquidity and 
additional volume executed on BOX aids the price and volume discovery 
process. Participant trading on BOX also results in revenue that BOX is 
able to use to provide routing services at no cost to Participants. 
Accordingly, the Exchange believes that the proposal is not unfairly 
discriminatory because it promotes enhancing BOX market quality. The 
changes proposed by this filing are intended to provide an incentive to 
BOX Participants to submit orders for execution on BOX and not engage 
in abusive and predatory practices to evade fees on other exchanges.
    Further, BOX operates within a highly competitive market. BOX, 
however, does not assess ongoing fees for access to BOX market data, or 
fees related to order cancellation. As stated, BOX incurs costs, 
including transaction fees at other exchanges, every time it routes a 
customer order to an away exchange for execution. Providing routing 
services draws on BOX system resources and routing more and more orders 
results in greater ongoing operational costs to BOX. As such, BOX aims 
to recover its costs by assessing Participants fees for routing Public 
Customer Orders to away exchanges, if those Participants are submitting 
such orders to BOX so as to evade other exchanges' fees and take 
advantage of BOX routing services. BOX therefore believes that 
assessing the fee only to those Participants that have 60% or more of 
their Public Customer Orders routed to an away exchange for execution 
is reasonable, and an equitable allocation of its fees for providing 
routing services.
    Finally, the Exchange notes that although routing is available to 
BOX Participants for customer orders, Participants are not required to 
use the routing services, but instead, BOX routing services are 
entirely voluntary. As discussed above, BOX Participants can manage 
their own routing to different options exchanges or can utilize a 
myriad of other routing solutions that are available to market 
participants.

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

    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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act \9\ and Rule 19b-4(f)(2) 
thereunder,\10\ because it establishes or changes a due, fee, or other 
charge applicable only to a member.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if

[[Page 16879]]

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 email to rule-comments@sec.gov. Please include 
File Number SR-BX-2012-019 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-2012-019. 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 
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-2012-019 and should be 
submitted on or before April 12, 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. 2012-6866 Filed 3-21-12; 8:45 am]
BILLING CODE 8011-01-P