Document ID: SEC-2014-0318-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2014-02-24T05:00Z

[Federal Register Volume 79, Number 36 (Monday, February 24, 2014)]
[Notices]
[Pages 10220-10222]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03783]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71557; File No. SR-BX-2014-010]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add a 
Risk Management Tool Commonly Known as a ``Kill Switch''

February 18, 2014.
    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 February 4, 2014, 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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[[Page 10221]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add a risk management tool commonly known 
as a ``Kill Switch'' as set forth in proposed BX Rule 4764. The new 
Kill Switch feature will be optional and will be offered at no charge 
effective March 1, 2014. The text of the proposed rule change is below. 
Proposed new language is italicized; proposed deletions are in 
brackets.
* * * * *

4764. BX Kill Switch

    (a) Definition. The BX Kill Switch is an optional tool offered at 
no charge that enables participants to establish a pre-determined level 
of Net Notional Risk Exposure (``NNRE''), to receive notifications as 
the value of executed orders approaches the NNRE level, and to have 
order entry ports disabled and open orders administratively cancelled 
when the value of executed orders exceeds the NNRE level.
    (b) Net Notional Risk Exposure. Participants may set a NNRE for 
each MPID individually. Each participant is responsible for 
establishing and maintaining its NNRE. Participants may adjust NNRE 
values intra-day.
    (c) Notification. Participants will receive notifications when the 
total value of executed orders associated with an MPID exceeds 50, 75, 
85, 90, and 95 percent of the NNRE value. When the NNRE is exceeded, 
the notification will include the total number of orders cancelled and 
remaining open in the System.
    (d) Operation. When triggered, a Kill Switch shall result in the 
immediate cancellation of all open orders of any type or duration 
entered by the participant via the affected MPID, and in the immediate 
prevention of order entry of any type via the affected MPID. The 
participant must request reactivation of the MPID before trading will 
be reauthorized.
* * * * *

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
    Background. BX currently offers a Pre-Trade Risk Management 
(``PRM'') toolset to assist participants efforts to control risk and 
comply with the SEC Market Access Rule.\3\ PRM provides participant 
firms with the ability to set a wide range of parameters for orders to 
facilitate pre-trade protection by creating a PRM module defined to 
represent checks desired. Using PRM, firms can increase controls on 
their trading activity and the trading activity of their clients and 
customers at the order level, including the opportunity to prevent 
potentially erroneous transactions. PRM validates orders entered on 
PRM-enabled ports prior to allowing those orders into its matching 
engine and, using parameters set by the subscriber, determines if the 
order should be sent for fulfillment. PRM users may choose to set PRM 
Order Checks, Aggregate Total Checks within a PRM Module, and subscribe 
to PRM Workstation Add-ons to an existing BX Workstation or WeblinkACT 
2.0. PRM manages risk by checking each order, before it is accepted 
into the System, against certain parameters pre-specified by the user 
within a module, such as maximum order size or value, order type 
restrictions, market session restrictions (pre/post market), security 
restrictions, including per-security limits, restricted stock lists, 
and certain other criteria.
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    \3\ SEC Rule 15c3-5.
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    In order for a Participant to subscribe, at least one PRM Module 
per market participant ID (``MPID'') is required, but a user may have 
multiple PRM Module subscriptions per MPID, depending on the type and 
number of ports designated as PRM ports. A PRM Module is created to 
validate individual orders against pre-specified parameters. Aggregate 
Total Checks allow users to limit overall daily trading activity based 
on Buy, Sell, and/or Net trading limits. These daily trading activity 
limits may be established at an aggregate limit and/or security 
specific limit per PRM Module. Participant may subscribe to the PRM 
Workstation Add-on to an existing BX Workstation or WeblinkACT 2.0 for 
a fee.
    Current Proposal. BX will provide a tool to allow market 
participants to control, for each Market Participant Identifier 
(``MPID''), the total Net Notional Risk Exposure (``NNRE'') they are 
prepared to accept per trading session, from 8:00 a.m. to 8:00 p.m. 
EST. If a market participant exceeds their pre-established NNRE the 
access ports associated with that MPID will be disabled and open 
exposure on the BX market under that MPID will be administratively 
cancelled.
    The Kill Switch tool will operate on an MPID level, meaning that 
participants will need to set a unique NNRE for each MPID used for 
order entry. Participants can set limits for none, one, some, or all 
MPIDs registered to their firm. The tool will operate on all orders 
attributable to each MPID. Therefore, participants that utilize a 
single MPID for multiple trading desks will be unable to establish a 
different NNRE for each trading desk. Participants may adjust their 
NNRE values intraday. The NNRE will be calculated daily, meaning that 
it will reset at the start of each trading day.
    The Kill Switch will operate at all times and on all orders when 
the BX System is open (i.e., 8:00 a.m. to 8:00 p.m.) and it will cancel 
all open interest of all order types and all time-in-force durations.
    The tool will generate and send an email to a market participant as 
it approaches and then exceeds the pre-determined NNRE for an MPID. As 
a Participant executes trades during the trading session, an email will 
be sent to associated Infocenter accounts containing their current 
proximity to the NNRE limit they had previously established. Such 
notification will occur when the executed value reaches 50, 75, 85, 90, 
and 95 percent of the pre-determined NNRE limit.
    In the event the NNRE limit is exceeded, the order entry port 
associated with the affected MPID will be disabled and open orders in 
the System will be administratively cancelled. A notification will be 
sent that indicates that the breach has occurred and that order flow 
from that port has been stopped. It will also include a count of the 
total number of orders cancelled. The notification will also be 
delivered to BX's trading operations team so that BX personnel are 
aware and can assist participants in managing their risk exposure.
    After a Kill Switch has been triggered, the participant will be 
required to contact BX operations staff in order to re-authorize 
trading under the affected MPID. Participants will be required to 
explain why a Kill Switch was triggered and why it is safe for the 
Exchange to re-authorize the MPID for order entry. Upon such request, 
BX operations staff

[[Page 10222]]

will be reactivate the order entry port associated with the affected 
MPID.
    BX plans to offer the Kill Switch functionality by March 1, 2014.
2. Statutory Basis
    The rule change proposed in this submission is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\4\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\5\ 
because it would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest. The Kill Switch is designed to protect firms and 
investors alike by limiting the risk and damage of potential 
technological or other erroneous trading activity. As such, the Kill 
Switch is an important compliance tool that participants may use to 
help maintain the regulatory integrity of the markets.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78 (f)(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BX 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. To the contrary, 
the Exchange does not believe that the provision of Kill Switch 
functionality should be the subject of competitive analysis. In that 
regard, the Exchange notes that it has coordinated with other national 
securities exchanges and the Financial Industry Regulatory Authority to 
deliver a standard level of risk management functionality commonly 
known as the Kill Switch.

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 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)(ii) of the Act \6\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\7\ 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: (i) Necessary or appropriate in the 
public interest; (ii) for the protection of investors; or (iii) 
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.
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    \6\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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.
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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-2014-010 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-2014-010. 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 Number SR-BX-2014-010 and should be 
submitted by March 17, 2014.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03783 Filed 2-21-14; 8:45 am]
BILLING CODE 8011-01-P