Document ID: SEC-2011-1127-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX
Posted Date: 2011-08-05T04:00Z

[Federal Register Volume 76, Number 151 (Friday, August 5, 2011)]
[Notices]
[Pages 47635-47637]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19855]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65001; File No. SR-BX-2011-050]

Self-Regulatory Organizations; NASDAQ OMX BX; Notice of Filing 
and Immediate Effectiveness of a Proposal to Amend Chapter VI, Section 
15 (Automatic Quote Cancellation) of the BOX Trading Rules

August 1, 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 July 28, 2011, NASDAQ OMX BX (the ``Exchange'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Exchange has designated the proposed rule 
change as constituting a non-controversial rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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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 amend Chapter VI, Section 15 (Automatic 
Quote Cancellation) of the Rules of the Boston Options Exchange Group, 
LLC (``BOX'') to provide additional flexibility for BOX Market Makers 
to manage their risk. BOX will notify its Options Participants by 
Information Circular when the implementation schedule is finalized.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings, 
at the principal office of the Exchange, at the Commission's Public 
Reference Room, and on the Commission's Web site at http://www.sec.gov.

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 purpose of the proposed rule change is to reflect in the BOX 
Trading Rules that BOX Market Makers will be able to establish new risk 
control parameters to better manage their quotations and related risk. 
Specifically, the Exchange proposes to amend Chapter VI, Section 15, 
Automatic Quote Cancellation. As explained below, the proposed 
functionality is substantially similar to that currently existing on 
the International Securities Exchange, LLC (``ISE'').
    Chapter VI, Section 6 of the BOX Trading Rules requires BOX Market 
Makers to enter and maintain continuous quotations for the options 
classes to which they are appointed. To comply with this requirement, 
each Market Maker may employ its own proprietary quotation and risk 
management system to determine the prices and sizes at which it quotes. 
As Market Makers are required to continuously quote in assigned 
options, quoting across many series in an option creates the 
possibility of ``rapid fire'' executions that can create large and 
unintended principal positions that expose the Market Maker to 
unnecessary market risk. The proposed functionality enhancements to 
Automatic Quote Cancellation will provide BOX Market Makers protection 
from the risk of multiple executions across multiple series of an 
option, and is intended to assist them in managing their market risk. 
BOX Market Makers will not be required to use the proposed 
functionality and can program their own systems to perform similar 
functions if they prefer.
    The risk to Market Makers is not limited to a single option series. 
Market Makers have exposure in all series of a particular options class 
in which they are appointed, requiring them to offset or hedge their 
overall position in each option to minimize risk. By limiting a Market 
Maker's exposure across series, BOX believes that a Market Maker will 
be better able to provide quotations at better prices. BOX believes 
that the proposed functionality should help BOX Market Makers, as key 
liquidity providers, to better manage their risk, aiding them in 
providing deeper and more liquid markets, beneficial to all BOX market 
participants.
    Pursuant to the amended Chapter VI, Section 15 of the BOX Trading 
Rules, Automatic Quote Cancellation permits each Market Maker to 
establish specific parameters that, if triggered, will cause the BOX 
Trading Host to cancel the Market Maker's quotes in the specified 
class(es). To enable Automatic Quote Cancellation, a Market Maker must 
send an Automatic Quote Cancellation enabling message to the BOX 
Trading Host, including specific information setting forth the 
parameters the Market Maker would like to establish. Unless enabled, 
Automatic Quote Cancellation is disabled for all options classes.
    The Market Maker may establish triggering parameters for when the 
Market Maker's quotes may be cancelled. The parameters the Market Maker 
may set include a time period of

[[Page 47636]]

between one and nine seconds during which the Market Maker experiences 
a duration of no technical connectivity. This specific parameter 
currently exists on BOX and the Exchange is not proposing any change to 
this particular function. The Exchange is, however, proposing certain 
changes to reorganize the existing rule text of Section 15 related to 
this function. Additionally, the Exchange proposes to delete the text 
in current Section 15(b) as the proposed amendments to Section 15 will 
render this provision unnecessary.
    The Exchange is proposing new text be added to Section 15 to 
reflect that a Market Maker may enable Automatic Quote Cancellation by 
establishing additional triggering parameters for when the Market 
Maker, during a time period specified by each Market Maker:
    (a) Trades a specified number of contracts in the aggregate across 
all series of an options class;
    (b) Trades a specified absolute dollar value of contracts bought 
and sold in a class;
    (c) Trades a specified number of contracts in a class of the net 
between (i) Calls purchased plus puts sold, and (ii) calls sold and 
puts purchased; or
    (d) Trades a specified absolute dollar value of the net position in 
a class between (i) calls purchased and sold, (ii) puts and calls 
purchased; (iii) puts purchased and sold; or (iv) puts and calls sold.
    The specified time period will commence for an options class when a 
transaction occurs in any series in such class. When a Market Maker has 
traded the value or volume of an options class as specified in the 
Automatic Quote Cancellations enabling message, during the specified 
time period, the Trading Host will cancel such Market Maker's quotes in 
all series of the specified options class(es). While the proposed 
functionality is a useful feature that serves an important risk 
management purpose, it will not relieve a Market Maker of its 
obligations to provide continuous, two-sided quotes under Chapter VI, 
Section 6 of the BOX Trading Rules.
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 the proposal is designed 
to prevent fraudulent and manipulative acts and practices, 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. 
Specifically, the Exchange believes that the proposed rule change is 
appropriate and reasonable because it will provide greater flexibility 
for BOX Market Makers in managing their risk, and in how they quote and 
trade. The Exchange believes this will enhance the overall market 
quality for options traded on BOX.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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

    No written comments were either solicited or received.

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

    This proposed rule change was filed pursuant to paragraph (A) of 
Section 19(b)(3) of the Exchange Act \6\ and Rule 19b-4(f)(6) 
thereunder.\7\ The Exchange asserts that the proposed rule change: (i) 
Does not significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days after the date of the 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided the self-regulatory organization has given the Commission 
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.\8\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ 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. The Exchange has satisfied this 
requirement.
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    The Exchange believes that this proposed rule change is 
substantially similar to Supplementary Material .01 to ISE Rule 804, 
already in effect, and does not raise any new, unique, or substantive 
regulatory issues from those raised in the ISE filing.\9\ For the 
foregoing reasons, the Exchange believes this rule filing qualifies for 
immediate effectiveness as a ``non-controversial'' rule change under 
paragraph (f)(6) of Rule 19b-4.
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    \9\ See Securities Exchange Act Release No. 63117 (October 15, 
2010), 75 FR 65042 (October 21, 2010) (Notice of Filing and 
Immediate Effectiveness Relating to Enhancements to the ISE 
Electronic Trading Platform).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2011-050 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-2011-050. 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

[[Page 47637]]

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-2011-050 and should be 
submitted on or before August 26, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19855 Filed 8-4-11; 8:45 am]
BILLING CODE 8011-01-P