Document ID: SEC-2015-1895-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2015-11-12T05:00Z

[Federal Register Volume 80, Number 218 (Thursday, November 12, 2015)]
[Notices]
[Pages 70054-70057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28692]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76375; File No. SR-BX-2015-64]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Price Improving and Post-Only Orders

November 5, 2015.
    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 October 30, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to remove a ``Price Improving Order'' and a 
``Post-Only Order'' as eligible order types for entry into the 
automated system for order execution and trade reporting owned and 
operated by BX (``System'').
    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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.

[[Page 70055]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is seeking to remove references to ``Price Improving 
Orders'' in the Rulebook. Specifically, the Exchange is seeking to 
amend the following sections of the Rulebook: Chapter III, Section 4, 
entitled ``Prevention of the Misuse of Material Nonpublic 
Information;'' Chapter VI, Section 1, entitled ``Definitions,'' Section 
6, entitled ``Acceptance of Quotes and Orders'' and Section 7, entitled 
``Entry and Display of Orders;'' and Chapter VII, Section 12, entitled 
``Order Exposure Requirements.''
    The Exchange is also seeking to remove references to ``Post-Only 
Orders'' in the Rulebook. Specifically, the Exchange is seeking to 
amend the following sections in the Rulebook: Chapter VI, Section 1, 
entitled ``Definitions,'' Section 6, entitled ``Acceptance of Quotes 
and Orders'' and Section 9 entitled ``Price Improvement Auction 
(``PRISM'').''
    Each order type will be explained in more detail below.
Price Improving Orders
    Price Improving Orders are orders to buy or sell an option at a 
specified price at an increment smaller than the minimum price 
variation in the security. Today, Price Improving Orders may be entered 
in increments as small as one cent and are available for display at the 
minimum price variation (``MPV'') in that security and shall be rounded 
up for sell orders and rounded down for buy orders. Without this order 
type, market participants would not be able to submit orders or quotes 
priced between the MPV; those orders or quotes would be rejected.
    The Exchange proposes to amend Chapter III, Section 4, entitled 
``Prevention of the Misuse of Material Nonpublic Information'' to 
remove Price Improving Orders as an example of an order type that would 
be violative of this rule. The Exchange proposes to remove the 
definition of a Price Improving Order from the list of order types that 
are acceptable on BX in Chapter VI, Section I, entitled 
``Definitions.'' The Exchange proposes to amend Chapter VI, Section 6, 
entitled ``Acceptance of Quotes and Orders'' to remove Price Improving 
Orders as an acceptable order type. The Exchange proposes to amend 
Chapter VI, Section 7, entitled ``Entry and Display of Orders'' to 
remove language describing the manner in which Price Improving Orders 
are displayed in the System. Finally, the Exchange proposes to amend 
Chapter VII, Section 12, entitled ``Order Exposure Requirements'' to 
remove the reference to the exposure time for Price Improving Orders.
    Today, Price Improving Orders on BX represent less than 1.5% of the 
BX volume. The Exchange is removing this order type in connection with 
its recent filing of a price improving auction (PRISM).\4\ This 
proposed auction mechanism will offer participants an alternative means 
of entering price improving interest.
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    \4\ See Securities Exchange Act Release No. 76301 (October 29, 
2015) (SR-BX-2015-032) (Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to 
Adopt a New Price Improvement Auction, BX PRISM) (not yet published) 
[sic].
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    The Exchange believes that PRISM should promote and foster 
competition and provide more options contracts with the opportunity for 
price improvement. As a result of the increased opportunities for price 
improvement, the Exchange believes that participants will use PRISM to 
increase the number of Public Customer orders that are provided with 
the opportunity to receive price improvement over the NBBO.
Post-Only Orders
    Post-Only Orders are orders that will not remove liquidity from the 
System. Post-Only Orders are to be ranked and executed on the Exchange 
or cancelled, as appropriate, without routing away to another market. 
Post-Only Orders are evaluated at the time of entry with respect to 
locking or crossing other orders as follows: (i) If a Post-Only Order 
would lock or cross an order on the System, the order will be re-priced 
to $.01 below the current low offer (for bids) or above the current 
best bid (for offers) and displayed by the System at one minimum price 
increment below the current low offer (for bids) or above the current 
best bid (for offers); and (ii) if a Post-Only Order would not lock or 
cross an order on the System but would lock or cross the NBBO as 
reflected in the protected quotation of another market center, the 
order will be handled pursuant to Chapter VI, Section 7(b)(3)(C). 
Participants may choose to have their Post-Only Orders returned 
whenever the order would lock or cross the NBBO or be placed on the 
book at a price other than its limit price. Post-Only Orders received 
prior to the opening cross or after market close will be rejected. 
Post-Only Orders may not have a time-in-force designation of Good Til 
Cancelled or Immediate or Cancel.
    The Exchange proposes to remove the definition of a Post-Only Order 
from the list of order types that are acceptable on BX in Chapter VI, 
Section I, entitled ``Definitions.'' The Exchange proposes to amend 
Chapter VI, Section 6, entitled ``Acceptance of Quotes and Orders'' to 
remove Post-Only Orders as an acceptable order type. Finally, the 
Exchange proposes to amend Chapter VI, Section 9, entitled ``Price 
Improvement Auction (``PRISM'')'' to remove an explanation on the 
manner in which Post-Only Orders will interact in the auction process.
    Today, the Exchange transacts a small number of Post-Only Orders on 
BX.\5\ The Exchange adopted the Post-Only Order to encourage displayed 
liquidity and offer BX market participants greater flexibility to post 
liquidity on BX. Participants are not utilizing this order type very 
frequently. As previously mentioned, the Exchange is removing the 
Price-Improving Order in connection with its recent filing of a price 
improving auction (PRISM).\6\ This proposed auction mechanism will 
offer participants a new means of entering price improving interest. 
Aside from Price-Improving Orders, the Post-Only Order is the only 
other non-displayed order type currently on BX. At this time, the 
Exchange proposes to also remove the Post-Only Order from BX which 
would result in all remaining order types on BX being displayed similar 
to NASDAQ OMX PHLX LLC (``Phlx'') order types.
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    \5\ The Exchange transacted on 90 Post-Only Orders from July 
through September 2015.
    \6\ See note 4.
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    This proposed rule change would remove Price Improving Orders and 
Post-Only Orders as acceptable order types for orders or quotes entered 
into BX's System for all market participants.
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) of the Act \8\ 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, 
by removing Price Improving and Post-Only Orders as acceptable order 
types for all market participants.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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Price-Improving Orders
    With the removal of Price Improving Orders, market participants 
would not

[[Page 70056]]

be able to submit orders or quotes priced between the MPV; those orders 
would be rejected. Other options exchanges currently do not offer a 
similar order type.\9\ The Exchange believes that the removal of the 
Price Improving Order does not otherwise create an impediment to a free 
and open market. The Exchange believes this proposed amendment is non-
controversial. By not accepting Price Improving Orders, BX's true BBO 
will be transparent. All orders will be disseminated at the prices and 
sizes submitted by market participants at the time of entry into the 
System.\10\ The Exchange believes that market participants will 
continue to quote at their best prices and the market will be more 
transparent. The Exchange believe that despite the removal of the 
availability and use of Price Improving Orders, the Exchange will 
remain competitive.
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    \9\ See Phlx and BOX Options Exchange LLC, which do not have a 
similar type of price improving order.
    \10\ If this results in a price which locks or crosses an away 
market, then it will be repriced in accordance with BX Rules at 
Chapter VI, Section 7(C).
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    Today, Price Improving Orders are not displayed at their limit 
price, and Participants are unable to ascertain the BX BBO with 
certainty. The removal of the Price Improving order type will result in 
greater transparency. In addition, BX recently received approval for a 
new auction mechanism, PRISM, which offers Participants an alternative 
means of entering price improving interest.\11\
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    \11\ See note 4.
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Post-Only Orders
    With the removal of Post-Only Orders, market participants would not 
be able to submit orders or quotes priced between the MPV; those orders 
would be rejected. Other options exchanges currently do not offer a 
similar order type.\12\ The Exchange believes that the removal of the 
Post-Only Order does not otherwise create an impediment to a free and 
open market. The Exchange believes this proposed amendment is non-
controversial. By not accepting Post-Only Orders, BX's true BBO will be 
transparent. All orders will be disseminated at the prices and sizes 
submitted by market participants at the time of entry into the 
System.\13\ The Exchange believes that market participants will 
continue to quote at their best prices and the market will be more 
transparent. The Exchange believe that despite the removal of the 
availability and use of Post-Only Orders, the Exchange will remain 
competitive.
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    \12\ See Phlx and BOX Options Exchange LLC, which do not have a 
similar type of post-only order.
    \13\ See note 10.
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    Today, Post-Only Orders are not displayed at their limit price, and 
Participants are unable to ascertain the BX BBO with certainty. The 
removal of the Post-Only order type will result in greater 
transparency. With the removal of both the Price-Improving order type 
and Post-Only order type, the remaining order types will be displayed.
    The Exchange's removal of Price Improving and Post-Only Orders will 
reduce the complexity surrounding the repricing of such non-displayed 
order types within the auction mechanism. The Exchange's proposal would 
result in all orders being displayed on BX and the elimination of non-
displayed order types. Notwithstanding the foregoing, the BBO shall be 
the Best Bid or Best Offer on BX. The BBO is repriced and displayed in 
accordance with BX Rules at Chapter VI, Section 7(C).

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. The Exchange does not believe 
that the proposal to remove Price Improving Orders as an acceptable 
Order type creates an undue burden on inter-market competition because 
despite the removal of Price Improving Orders, BX will remain 
competitive. By not accepting Price Improving Orders, BX's true BBO 
will be more transparent. Orders will be disseminated at the prices and 
sizes submitted by market participants at the time of entry into the 
System. Market participants would not be able to submit orders or 
quotes priced between the MPV.
    The Exchange does not believe that the proposal to remove Post-Only 
Orders as an acceptable order type creates an undue burden on inter-
market competition because despite the removal of Post-Only Orders, BX 
will remain competitive. Similarly, by not accepting Post-Only Orders, 
BX's true BBO will be more transparent. Orders will be disseminated at 
the prices and sizes submitted by market participants at the time of 
entry into the System. Market participants would not be able to submit 
orders or quotes priced between the MPV with the removal of this order 
type.
    The Exchange does not believe that the proposal to remove Price 
Improving Orders and Post-Only Orders as acceptable order types creates 
an undue burden on intra-market competition because the proposed rule 
change would thereby remove Price Improving Orders and Post-Only Orders 
as acceptable order types for orders enters into BX's System for all 
market participants.

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 does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\ 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the filing can be operative prior to the implementation of BX PRISM. 
The Exchange states that it intends to launch the newly approved BX 
PRISM auction without the ability to enter either of these order types. 
The Exchange further states that BX PRISM will benefit from the 
transparency of the orders entered into the auction. The Exchange also 
states that the removal of Post-Only Orders and Price-Improving Orders 
will reduce complexity surrounding the repricing of such non-displayed 
order types within BX PRISM. The Commission believes that waiver of the 
30-day operative delay is appropriate so that Post-Only Order and 
Price-Improving Orders may be removed as order types on the Exchange 
prior to the implementation of BX PRISM. Based on the foregoing, the 
Commission

[[Page 70057]]

believes that the waiver of the operative delay is consistent with the 
protection of investors and the public interest.\18\ The Commission 
hereby grants the waiver and designates the proposal operative upon 
filing.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ 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).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File No. SR-BX-2015-64 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-BX-2015-64. 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 
10:00 a.m. and 3:00 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 No. SR-BX-2015-64, and should be 
submitted on or before December 3, 2015.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28692 Filed 11-10-15; 8:45 am]
BILLING CODE 8011-01-P