Document ID: SEC-2011-0656-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27704-27706]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11616]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64427; File No. SR-BX-2011-025]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change To Amend IM-4120-3 To Include Additional 
Securities in the Pilot by Which Such Rule Operates and Amend Rule 
4613(a) To Simplify Certain Aspects of the Text While Also Conforming 
Certain of the Percentages Thereunder to the Proposed Changes to Price 
Move Percentages That Trigger a Circuit Breaker Pilot Pause

May 6, 2011.
    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 May 4, 2011, 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 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 IM-4120-3 to include additional 
securities in the pilot by which such rule operates and amend Rule 
4613(a) to simplify certain aspects of the text while also conforming 
certain of the percentages thereunder to the proposed changes to price 
move percentages that trigger a circuit breaker pilot pause.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

IM-4120-3. Circuit Breaker Securities Pilot

    The provisions of paragraph (a)(11) of this Rule shall be in 
effect during a pilot set to end on the earlier of August 11, 2011 
or the date on which a limit up/limit down mechanism to address 
extraordinary market volatility, if adopted, applies. During the 
pilot, the term ``Circuit Breaker Securities'' shall mean all NMS 
stocks[the securities included in the S&P 500[supreg] Index, the 
Russell 1000 Index, as well as a pilot list of Exchange Traded 
Products].
* * * * *

4613. Market Maker Obligations

    A member registered as an Equities Market Maker shall engage in 
a course of dealings for its own account to assist in the 
maintenance, insofar as reasonably practicable, of fair and orderly 
markets in accordance with this Rule.

(a) Quotation Requirements and Obligations

    (1) No change.
    (2) Pricing Obligations. For NMS stocks (as defined in Rule 600 
under Regulation NMS) a Market Maker shall adhere to the pricing 
obligations established by this Rule during Regular Trading Hours; 
provided, however, that such pricing obligations (i) shall not 
commence during any trading day until after the first regular way 
transaction on the primary listing market in the security, as 
reported by the responsible single plan processor, and (ii) shall be 
suspended during a trading halt, suspension, or pause, and shall not 
re-commence until after the first regular way transaction on the 
primary listing market in the security following such halt, 
suspension, or pause, as reported by the responsible single plan 
processor.
    (A)-(C) No change.
    (D) For purposes of this Rule, the [term] ``Designated 
Percentage'' shall be 8% for securities subject to Rule 4120(a)(11) 
and are securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products, 
28% for securities subject to Rule 4120(a)(11) and that are all NMS 
stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price equal to or greater than $1, and 30% for securities 
subject to Rule 4120(a)(11) and

[[Page 27705]]

that are all NMS stocks not included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products with a price less than $1,[mean the individual stock pause 
trigger percentage under Rule 4120(a)(11) (or comparable rule of 
another exchange) less two (2) percentage points.] except that 
between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close 
of trading, when Rule 4120(a)(11) is not in effect, the Designated 
Percentage shall be 20% for securities included in the S&P 
500[supreg] Index, Russell 1000[supreg] Index, and a pilot list of 
Exchange Traded Products, 28% for all NMS stocks not included in the 
S&P 500[supreg] Index, Russell 1000[supreg] Index, and a pilot list 
of Exchange Traded Products with a price equal to or greater than 
$1, and 30% for securities subject to Rule 4120(a)(11) and that are 
all NMS stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price less than $1. [For times during regular market hours 
when stock pause triggers are not in effect under Rule 4120(a)(11) 
(or comparable rule of another exchange), the Designated Percentage 
calculation will assume a trigger percentage of 22%. For NMS stocks 
that are not subject to such stock pause triggers the Designated 
Percentage will assume a trigger percentage of 32%.]
    (E) For purposes of this Rule, the [term] ``Defined Limit'' 
shall be 9.5% for securities subject to Rule 4120(a)(11) and are 
securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products, 
29.5% for securities subject to Rule 4120(a)(11) and that are all 
NMS stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price equal to or greater than $1, and 31.5% for securities 
subject to Rule 4120(a)(11) and that are all NMS stocks not included 
in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a 
pilot list of Exchange Traded Products with a price less than 
$1,[mean the individual stock pause trigger percentage under Rule 
4120(a)(11) (or comparable rule of another exchange) less one-half 
(\1/2\) percentage point.] except that between 9:30 a.m. and 9:45 
a.m. and between 3:35 p.m. and the close of trading, when Rule 
4120(a)(11) is not in effect, the Defined Limit shall be 21.5% for 
securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products, 
29.5% for all NMS stocks not included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products with a price equal to or greater than $1, and 31.5% for 
securities subject to Rule 4120(a)(11) and that are all NMS stocks 
not included in the S&P 500[supreg] Index, Russell 1000[supreg] 
Index, and a pilot list of Exchange Traded Products with a price 
less than $1. [For times during regular market hours when stock 
pause triggers are not in effect under Rule 4120(a)(11) (or 
comparable rule of another exchange), the Defined Limit calculation 
will assume a trigger percentage of 22%. For NMS stocks that are not 
subject to such stock pause triggers the Defined Limit calculation 
will assume a trigger percentage of 32%.]
    (F)-(K) No change.
    (b)-(e) No change.
* * * * *

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 proposes to amend IM-4120-3 to include additional 
securities in the pilot by which such rule operates and amend Rule 
4613(a) to simplify certain aspects of the text while also conforming 
certain of the percentages thereunder to the proposed changes to price 
move percentage triggers of the trading pause recognized under Rule 
4120(a)(11).
    The Commission approved Rule 4120(a)(11) on a pilot basis on June 
10, 2010 to provide for trading pauses in individual securities due to 
extraordinary market volatility (``Trading Pause'') in all securities 
included within the S&P 500[supreg] Index (``S&P 500'') (``Trading 
Pause Pilot'' or ``Pilot'').\3\ The Exchange noted in its filing to 
adopt Rule 4120(a)(11) that during the Pilot period it would continue 
to assess whether additional securities need to be added and whether 
the parameters of Rule 4120(a)(11) would need to be modified to 
accommodate trading characteristics of different securities. The 
Exchange subsequently received approval to add to the Pilot the 
securities included in the Russell 1000[supreg] Index (``Russell 
1000'') and a specified list of Exchange Traded Products (``ETPs'').\4\
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    \3\ The Commission approved the Trading Pause Pilot for all 
equities exchanges and FINRA. See Securities Exchange Act Release 
No. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. 
SR-BATS-2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; 
SR-ISE-2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-
2010-41; SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-
CBOE-2010-047) and Securities Exchange Act Release No. 62251 (June 
10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Trading Pause 
Pilot of the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08 and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033). The Exchange submitted a 
proposed rule change shortly after the addition of the Russell 1000 
securities and ETPs to extend the operation of the Pilot, which was 
set to expire on December 10, 2010, until April 11, 2011. See 
Securities Exchange Act Release No. 63505 (December 9, 2010), 75 FR 
78302 (December 15, 2010) (SR-NASDAQ-2010-162). On March 31, 2011, 
the Exchange submitted a proposed rule change to further extend the 
pilot program until the earlier of August 11, 2011 or the date on 
which a limit up/limit down mechanism to address extraordinary 
market volatility, if adopted, applies. See Securities Exchange Act 
Release No. 64176 (April 4, 2011), 76 FR 19821 (April 8, 2011) (SR-
BX-2011-018).
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    The Exchanges have continued to assess whether additional 
securities need to be added to the Pilot and whether the parameters of 
the Pilot needs to be modified to accommodate trading characteristics 
of different securities. In consultation with other markets and the 
staff of the Commission, the Exchanges are proposing to include all NMS 
stocks within the Pilot that are not already included therein, but to 
apply a wider price move percentage to the newly added securities.\5\ 
Accordingly, the Exchange proposes to delete language concerning the 
limited application of pauses in Circuit Breaker Securities from the 
rule's text, as the text therein would no longer be necessary, and to 
define Circuit Breaker Securities as all NMS stocks.
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    \5\ Certain of the Exchanges that have market maker requirements 
are modifying their market maker obligations to fit within these new 
Pilot price move percentages.
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    The NYSE, NYSE Amex, NYSE Arca, and NASDAQ, as the listing markets, 
are proposing to set the price move required to trigger a trading pause 
for the proposed new securities to be 30% or more for such securities 
priced at $1 or higher and 50% or more for such securities priced less 
than $1.\6\ The listing markets believe that applying a broader 
percentage to securities priced less than $1 compared to those priced 
above $1 is appropriate given that lower-priced securities tend to be 
more volatile, and price movements of lower-priced securities equate to 
a higher percentage move than a similar price change for a higher-
priced security. The listing markets also believe that these 
percentages are commensurate with the

[[Page 27706]]

characteristics shared by the proposed new securities within these 
price ranges and would promote the objectives of the Trading Pause 
Pilot to reduce the negative impacts of unanticipated price movements 
in a security. In particular, the proposed additional stocks are those 
not currently included in the S&P 500 Index, Russell 1000 Index, or 
specified ETPs, and therefore are more likely to be less liquid 
securities or securities with lower trading volumes. Accordingly, the 
Exchange believes that broader price move percentages would be 
appropriate. Similarly, because leveraged ETPs trade at a ratio against 
the associated index, a broader price move percentage would also be 
appropriate for leveraged ETPs.
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    \6\ Under the proposed rule change, the price of a security 
would be based on the closing price on the previous trading day, or, 
if no closing price exists, the last sale reported to the 
Consolidated Tape on the previous trading day.
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    The proposed changes to the Pilot, if approved, would require that 
the text of Rule 4613(a), which pertains to the pricing obligations 
that Market Makers are required to adhere to, be amended to correct the 
cross-references therein to Rule 4120(a)(11) and the price move 
thereunder. Specifically, the Exchange proposes to remove any text from 
Rule 4613(a) addressing NMS stocks that are not subject to the Pilot 
because no such securities would exist and such text would therefore be 
unnecessary. The Exchange also proposes to simplify Rule 4613(a) by 
explicitly stating the percentages that are applicable thereunder and 
the times during the trading day when Rule 4120(a)(11) is not in 
effect. The Exchange notes that part of this proposed change would be 
substantive, in that the percentages under Rule 4613(a) would decrease 
slightly for the proposed new securities priced at $1 or greater. The 
Exchange believes that this proposed substantive change would not have 
a significant impact on Market Maker pricing obligations and is 
reasonable because it would ensure that the designated quoting 
percentages in Rule 4613(a) are within a narrower range than the 
percentages necessary to trigger a Trading Pause.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5),\8\ in particular, in that it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \9\ of the Act 
in that it seeks to ensure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule meets these requirements because it expands the scope of the Pilot 
to cover all NMS stocks. Additionally, the proposed changes would 
ensure that the designated quoting percentages in Rule 4613(a) are 
within a narrower range than the percentages necessary to trigger a 
Trading Pause.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
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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, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2011-025 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-2011-025. 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 publicly available. All 
submissions should refer to File Number SR-BX-2011-025 and should be 
submitted on or before June 2, 2011.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
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pursuant to delegated authority.\10\

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11616 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P