Document ID: SEC-2011-0306-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2011-03-08T05:00Z

[Federal Register Volume 76, Number 45 (Tuesday, March 8, 2011)]
[Notices]
[Pages 12771-12773]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5141]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64009; File No. SR-BX-2011-014]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
BOX Trading Rules To Expand the Short Term Option Series Program

March 2, 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 March 1, 2011, 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 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 Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) and Chapter XIV, Section 10 (Terms 
of Index Option Contracts) of the Rules of the Boston Options Exchange 
Group, LLC (``BOX'') to expand the Short Term Option Series Program 
(``Weeklys Program'') so that BOX may select fifteen option classes on 
which Weekly options may be opened. The text of the proposed rule 
change is available from the principal office of the Exchange, on the 
Commission's Web site at http://www.sec.gov, 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 purpose of this proposed rule change is to amend Chapter IV, 
Section 6 (Series of Options Contracts Open for Trading) and Chapter 
XIV, Section 10 (Terms of Index Option Contracts) of the Rules of the 
Boston Options Exchange Group, LLC (``BOX'') to expand the Short Term 
Option Series Program (``Weeklys Program'') so that BOX may select 
fifteen option classes on which Weekly options may be opened.\3\ The 
Weeklys Program is codified in the Supplementary Material to the BOX 
Rules Sections identified above. These rules provide that after an 
option class has been approved for listing and trading on BOX, BOX may 
open for trading on any Thursday or Friday that is a business day 
series of options on no more than five option classes that expire on 
the Friday of the following business week that is a business day. In 
addition to the five-option class limitation, there is also a 
limitation that no more than twenty series for each expiration date in 
those classes that may be opened for trading.\4\ Furthermore, the 
strike price of each Weekly option has to be fixed with approximately 
the same number of strike prices being opened above and below the value 
of the underlying security at about the time that the Weekly options 
are initially opened for trading on BOX, and with strike prices being 
within thirty percent (30%) above or below the closing price of the 
underlying security from the preceding day. The Exchange does not 
propose any changes to these additional Weeklys Program limitations. 
The Exchange proposes only to increase from five to fifteen the number 
of option classes that may be opened pursuant to the Weeklys Program.
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    \3\ The Exchange's Weeklys Program became effective on July 15, 
2010. See Securities Exchange Act Release No. 62505 (July 15, 2010), 
75 FR 42792 (July 22, 2010) (SR-BX-2010-047).
    \4\ However, if BOX opens less than twenty (20) Weekly options 
for a Weekly Option Expiration Date, additional series may be opened 
for trading on BOX when the Exchange deems it necessary to maintain 
an orderly market, to meet customer demand or when the market price 
of the underlying security moves substantially from the exercise 
price or prices of the series already opened. Any additional strike 
prices listed by the Exchange shall be within thirty percent (30%) 
above or below the current price of the underlying security. BOX may 
also open additional strike prices of Weekly Option Series that are 
more than 30% above or below the current price of the underlying 
security provided that demonstrated customer interest exists for 
such series, as expressed by institutional, corporate or individual 
customers or their brokers (market-makers trading for their own 
account shall not be considered when determining customer interest 
under this provision).
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    The principal reason for the proposed expansion is customer demand 
for adding, or not removing, Weekly option classes from the Program. 
Since there is reciprocity in matching other exchanges' Weekly option 
choices, BOX discontinues trading Weekly option classes that other 
exchanges change from week-to-week. BOX believes that these class pick 
changes have negatively impacted investors and traders, particularly 
retail public customers, who have, on occasion requested that BOX add 
Weekly option classes.
    BOX understands that a retail investor recently requested another 
exchange to reinstate a Weekly option class that the exchange had 
removed from trading because of the five-class option limit within the 
Weekly Program. The investor advised that the removed class was a 
powerful tool for hedging a market sector, and that various strategies 
that the investor put into play were disrupted and eliminated when the 
class was removed. BOX feels that it is essential that such negative, 
potentially very costly impacts on retail investors are eliminated by 
modestly expanding the Program to enable additional classes to be 
traded.
    With regard to the impact of this proposal on system capacity, BOX 
has analyzed its capacity and represents that it and the Options Price 
Reporting Authority (``OPRA'') have the necessary systems capacity to 
handle the potential additional traffic associated with trading of an 
expanded number of classes in the Weeklys Program.
    BOX believes that the Weeklys Program has provided investors with 
greater trading opportunities and flexibility and the ability to more 
closely tailor their investment and risk management strategies and 
decisions. Furthermore, BOX has had to eliminate option classes on 
numerous occasions because of the limitation imposed by the

[[Page 12772]]

Program.\5\ For these reasons, the Exchange requests an expansion of 
the current Weeklys Program and the opportunity to provide investors 
with additional short term option classes for investment, trading, and 
risk management purposes.
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    \5\ As discussed above, because of the reciprocity provision of 
the Weeklys Program, the classes that BOX lists to participate in 
the Weeklys Program change when another exchange changes its class 
selections for the Weeklys Program.
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    Finally, the Commission has requested, and BOX has agreed for the 
purposes of this filing, to submit a report to the Commission providing 
an analysis of the Weeklys Program (the ``Report''). The Report will 
cover the period from the date of effectiveness of the Weeklys Program 
through January 2011, and will describe the experience of BOX with the 
Weeklys Program in respect of the options classes that BOX included in 
such program.\6\
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    \6\ The Report would include the following: (1) Data and written 
analysis on the open interest and trading volume in the classes for 
which Short Term Option Series were opened; (2) an assessment of the 
appropriateness of the option classes selected for the Weeklys 
Program; (3) an assessment of the impact of the Weeklys Program on 
the capacity of BOX, OPRA, and market data vendors (to the extent 
data from market data vendors is available); (4) any capacity 
problems or other problems that arose during the operation of the 
Weeklys Program and how BOX addressed such problems; (5) any 
complaints that BOX or the Exchange received during the operation of 
the Weeklys Program and how they were addressed; and (6) any 
additional information that would assist in assessing the operation 
of the Weeklys Program.
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    The Report will be submitted on a confidential basis under separate 
cover at the same time as this proposed rule change.
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 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 mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that expanding 
the number of classes eligible to participate in the Weeklys Program 
will allow the investing public and other market participants to better 
manage their risk exposure, and would benefit investors by giving them 
more flexibility to closely tailor their investment decisions in a 
greater number of securities. While the expansion of the Weeklys 
Program will generate additional quote traffic, BOX does not believe 
that this increased traffic will become unmanageable since the proposal 
is limited to a fixed number of classes. Further, BOX does not believe 
that the proposal will result in a material proliferation of additional 
series because it is limited to a fixed number of classes and BOX does 
not believe that the additional price points will result in fractured 
liquidity.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\11\ 
Therefore, the Commission designates the proposal operative upon 
filing.\12\
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    \11\ See Securities Exchange Act Release No. 63875 (February 9, 
2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order 
approving expansion of Short Term Option Program).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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.

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-2011-014 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-2011-014. 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 the filing also will be available for 
inspection and

[[Page 12773]]

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-2011-014 and should be submitted on 
or before March 29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5141 Filed 3-7-11; 8:45 am]
BILLING CODE 8011-01-P