Document ID: SEC-2010-0740-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2010-05-19T04:00Z

[Federal Register: May 19, 2010 (Volume 75, Number 96)]
[Notices]               
[Page 28088-28090]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my10-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62103; File No. SR-BX-2010-036]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Reduce 
the Required Number of Market Makers Appointed in a Particular Class 
for the Opening of Trading

May 13, 2010.
    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, 2010, 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 
prepared by the self-regulatory organization. The Exchange filed the 
proposed 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 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

    NASDAQ OMX BX, Inc. (the ``Exchange'') proposes to amend Chapter 
IV, Section 5 (Minimum Participation Requirement for Opening Trading of 
Option Classes) of the Rules of the Boston Options Exchange Group, LLC 
(``BOX'') to reduce the required number of Market Makers appointed in a 
particular class for the opening of trading in series of an options 
class from at least two (2) Market Makers to at least one (1) Market 
Maker. The text of the proposed rule change is attached as Exhibit 
5.\5\ 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\ The Commission notes that the text of the proposed rule 
change is attached as Exhibit 5 to the Form 19b-4, but is not 
attached to this Notice.
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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 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 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 IV, Section 5(a) of the BOX Rules currently provides, in 
relevant part, that after a particular class of options has been 
approved for listing on BOX, BOXR \6\ will open trading in series of 
options in that class only if there are at least two (2) Market Makers 
\7\

[[Page 28089]]

appointed for trading that particular class. Additionally, Chapter IV, 
Section 5(c) of the BOX Rules currently provides, in relevant part, 
that BOXR may continue trading in a class where subsequently only one 
(1) Market Maker remains appointed to that class.\8\
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    \6\ The term ``BOXR'' or ``BOX Regulation'' means Boston Options 
Exchange Regulation LLC, a wholly-owned subsidiary of the Exchange. 
See Chapter I, Section 1(a)(9) of the BOX Rules.
    \7\ The term ``Market Maker'' means an Options Participant 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the BOX 
Rules. All Market Makers are designated as specialists on the 
Exchange for all purposes under the Exchange Act or Rules 
thereunder. See Chapter I, Section 1(a)(31) of the BOX Rules. The 
term ``Options Participant'' or ``Participant'' means a firm, or 
organization that is registered with the Exchange pursuant to 
Chapter II of the BOX Rules for purposes of participating in options 
trading on BOX as an ``Order Flow Provider'' or ``Market Maker''. 
See Chapter I, Section 1(a)(48) of the BOX Rules.
    \8\ If an Options Official makes an affirmative determination 
that halting of trading in such class is detrimental to the 
remaining Market Maker, and that continued trading in such class by 
one Market Maker is in the interest of maintaining a fair and 
orderly marketplace and would not create adverse consequence to an 
existing Customer of BOX or an Options Participant. The term 
``Options Official'' means an officer of BOXR vested by the BOXR 
Board with certain authority to supervise option trading on BOX. See 
Chapter I, Section 1(a)(44) of the BOX Rules.
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    The Exchange is proposing to reduce the requirement of Section 
5(a), from at least two (2) Market Makers to at least one (1) Market 
Maker, in order to expand the number of options classes available to 
investors for trading on BOX and for hedging risks associated with 
securities underlying those options classes, as well as to enhance the 
BOX Market in products which are likely to receive customer order flow. 
Reducing this listing requirement on BOX to one (1) Market Maker would 
provide BOX with the opportunity to trade options classes that may have 
interest but that do not have the presently required interest to meet 
the two (2) Market Maker requirement.
    Additionally, the reduction of the requirement of Section 5(a), 
from at least two (2) Market Makers to at least one (1) Market Maker, 
requires that Section 5(c) be amended to reflect that once a class is 
opened for trading and subsequently zero (0) Market Makers remain 
appointed to that class, an Options Official shall halt trading in such 
options class until such time when at least one (1) Market Maker is 
again appointed for trading in that particular class. In such a case 
BOX will not execute any orders whatsoever, whether against the BOX 
Book, or otherwise, and will not accept any incoming orders from BOX 
Options Participants or from Away Exchanges.\9\
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    \9\ The term ``Away Exchange'' means a national securities 
exchange that trades listed options, other than the Exchange. See 
Chapter XII, Section 1(a) of the BOX Rules.
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    The Exchange also proposes adding new rule text to Section 5 to 
address the circumstance where a particular class of options has been 
approved for listing on BOX and there is not at least one (1) series of 
options in that class open for trading. In this circumstance the class 
shall be halted from trading until such time as a series of options in 
that class may be opened for trading and BOX will neither execute 
orders on its book nor accept inbound orders from BOX Options 
Participants or from away markets.\10\
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    \10\ The Exchange proposes inserting this rule text as new 
Section 5(b). This proposed insertion requires that current Sections 
5(b) and (c) be re-numbered as Sections 5(c) and (d), respectively.
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    The Commission previously stated, in its approval order for the 
proposed rule change establishing the NASDAQ Options Market (``NOM''), 
that it does not believe that the Act requires an exchange to have 
market makers and that although market makers could be an important 
source of liquidity on NOM, they likely would not be the only 
source.\11\ Furthermore, the Commission also recently approved a 
proposed rule change establishing rules governing the trading of 
standardized options contracts on the BATS Exchange (``BATS''). 
Specifically, after a particular class of options has been approved for 
listing on BATS Options a series of options in that class will be 
opened for trading only if there is at least one (emphasis added) 
options market maker registered for trading that particular series.\12\ 
Both NOM and BATS Options trading rules also place an options class in 
a `regulatory execution suspension,' or halt, when there are no longer 
any NOM Market Makers or BATS Options Members, respectively, registered 
or appointed in the particular class as well in a `non-regulatory 
suspension,' or halt, in the circumstance where a particular class of 
options has been approved for listing and there is not at least one (1) 
series of options in that class open for trading.\13\
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    \11\ See Securities Exchange Act Release No. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004). As the 
Commission noted in its approval order for the NOM market, in its 
release adopting Regulation ATS, the Commission rejected the 
suggestion that a guaranteed source of liquidity was a necessary 
component of an exchange. See Securities Exchange Act Release No. 
40760 (December 8, 1998), 63 FR 70844 (December 22, 1998) 
(``Regulation ATS Release''). The Exchange notes that NASDAQ 
recently submitted a proposed rule change with the Commission which, 
among other things, would eliminate, in its entirety, the 
requirement that at least one options market maker be registered for 
trading a particular series before it may be opened for trading on 
NOM.
    \12\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1 Thereto, to Establish Rules Governing the Trading 
of Options on the BATS Options Exchange).
    \13\ See Chapter IV, Section 5 of the NOM Rules and BATS Options 
Rule 19.5, respectively.
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    With regard to the impact on system capacity, the Exchange has 
analyzed BOX's capacity and represents that BOX and the Options Price 
Reporting Authority have the necessary systems capacity to handle any 
additional traffic associated with the listing and trading of an 
expanded number of options classes, and series within those classes, 
which may result from approval of this proposal.
2. Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\14\ in general, and Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
In particular, the proposal would expand the ability of investors to 
hedge risks associated with securities underlying options which are 
currently not listed on BOX and allow the BOX Rules to more closely 
conform to the rules of other options exchanges.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 
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

    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

[[Page 28090]]

with the protection of investors and the public interest, the proposed 
rule change has become effective pursuant to Section 19(b)(3)(A) \16\ 
of the Act and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 Commission deems this requirement to have been met.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-2010-036 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-2010-036. 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,\18\ 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-
2010-036 and should be submitted on or before June 9, 2010.
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    \18\ The text of the proposed rule change is available on the 
Commission's Web site at https://www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11941 Filed 5-18-10; 8:45 am]
BILLING CODE 8010-01-P