Document ID: SEC-2011-1459-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2011-09-29T04:00Z

[Federal Register Volume 76, Number 189 (Thursday, September 29, 2011)]
[Notices]
[Pages 60569-60572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25073]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65387; File No. SR-BX-2011-034]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change Amending Chapter V, Section 31 of the 
Rules of the Boston Options Exchange Group, LLC To Establish 
Facilitation and Solicitation Auction Mechanisms

September 23, 2011.

I. Introduction

    On June 17, 2011, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend Chapter V (Doing Business on BOX), Section 31 (Block Trading) of 
the Rules of the Boston Options Exchange Group, LLC (``BOX''), to 
establish facilitation and solicitation auction mechanisms. The 
proposed rule change was published for comment in the Federal Register 
on June 29, 2011.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 64734 (June 23, 
2011), 76 FR 38226 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    Facilitation Auction--The Facilitation Auction will allow Order 
Flow Providers (``OFPs'') on BOX to enter crossing transactions in 
which an OFP represents, as agent, an order (``Agency Order'') of 50 
contracts or more and (a) is trading against the Agency Order as 
principal, and/or (b) has solicited an order to take the opposite side 
of the Agency Order. To utilize the Facilitation Auction, an OFP must 
be willing to execute the entire size of the Agency Order through the 
submission of a contra ``Facilitation Order.''
    Upon the entry of an Agency Order and Facilitation Order into the 
Facilitation Auction, a broadcast message, which will include the 
proposed execution price of the cross (the ``Facilitation Price''), 
will be sent to Options Participants giving them one second to enter 
responses (``Responses'') \4\ with the prices and sizes at which they 
would be willing to participate in the facilitation opposite the Agency 
Order. At the end of the one second period for the entry of Responses, 
the Agency Order will be automatically executed, as follows:
---------------------------------------------------------------------------

    \4\ Responses are permitted to be entered on behalf of any 
customer.
---------------------------------------------------------------------------

    Unless there is sufficient size to execute the entire Agency Order 
at a price better than the Facilitation Price, Public Customer bids 
(offers) and Public Customer Responses on BOX at the time the Agency 
Order is executed that are priced higher (lower) than the Facilitation 
Price will be executed at the facilitation price. Non-Public Customer 
and Market Maker bids (offers) and Non-Public Customer and Market Maker 
Responses on BOX at the time the Agency Order is executed that are 
priced higher (lower) than the Facilitation Price will be executed 
against the Agency Order at their stated price.
    The facilitating OFP will execute at least forty percent of the 
original size of the Facilitation Order, but only after better-priced 
bids (offers) and Responses on BOX, as well as Public Customer bids 
(offers) and Responses at the facilitation price, are executed in full. 
After the facilitating OFP has executed its forty percent, Non-Public 
Customer and Market Maker bids (offers) and Responses on BOX at the 
Facilitation Price will participate in the execution of the Agency 
Order based upon price and time priority.\5\
---------------------------------------------------------------------------

    \5\ The Exchange provided a more detailed explanation regarding 
the Facilitation Auction in the Notice. See Notice, supra note 3.
---------------------------------------------------------------------------

    Solicitation Auction--The Solicitation Auction will allow OFPs to 
attempt to execute Agency Orders of 500 or more contracts against 
contra orders that the OFP has solicited (``Solicited Orders'').\6\ 
Executions will occur only if the price is at or between the national 
best bid or offer (``NBBO''). Each Agency Order entered into the 
Solicitation Auction must be an all-or-none order.
---------------------------------------------------------------------------

    \6\ The Exchange provided a more detailed explanation of how the 
Solicitation Auction will work, with examples, in the Notice. See 
Notice, supra note 3.
---------------------------------------------------------------------------

    When a proposed solicited cross is entered into the Solicitation 
Auction, BOX will broadcast a message, which will include the proposed 
execution price of the cross, to Options Participants, and they will 
have one second to enter Responses with the prices and sizes at which 
they would be willing to participate in the execution of the Agency 
Order. At the end of the one second period for the entry of Responses, 
the Agency Order will be automatically executed in full or cancelled.
    The Agency Order will be executed against the Solicited Order at 
the proposed execution price unless (a) There is sufficient size to 
execute the entire Agency Order at a better price or prices, or (b) 
there is a Public Customer order resting on the BOX Book at a price 
equal to or better than the proposed execution price within the depth 
of the BOX Book that would have traded with the Agency Order if the 
Agency Order had been submitted to the BOX Book instead of to the 
mechanism (a ``Book Priority Public Customer Order'').\7\
---------------------------------------------------------------------------

    \7\ See chapter V, Section 31(b)(ii)(1) of the BOX Rules.
---------------------------------------------------------------------------

    If there is sufficient size to execute the entire Agency Order at a 
better price or prices at the time of execution, the Agency Order will 
be executed at the improved price(s) and the Solicited Order will be 
cancelled. The aggregate size of all bids (offers) and Responses at 
each price will be used to determine whether the entire Agency Order 
can be executed at an improved price (or prices).\8\
---------------------------------------------------------------------------

    \8\ See chapter V, section 31(b)(ii)(3) of the BOX Rules.
---------------------------------------------------------------------------

    If there is not sufficient size to execute the entire Agency Order 
at a better price or prices, whether the Agency Order will be executed 
against the Solicited Order at the proposed execution price depends on 
whether there is one or more Book Priority Public Customer Order(s) on 
the BOX Book at the time of execution. If no such Book Priority Public 
Customer Orders are on the BOX Book at the time of execution, the 
Agency Order will be executed against the Solicited Order at the 
proposed execution price.\9\ However, if there is one or more Book 
Priority Public Customer Orders on the Book, then BOX will calculate 
whether sufficient size exists to execute the Agency Order at its 
proposed price. In making this calculation, the Exchange will include 
the aggregate size of all bids (offers) on the BOX Book at or better 
than the proposed execution price but exclude Responses.\10\
---------------------------------------------------------------------------

    \9\ See chapter V, section 31(b)(ii)(1) of the BOX Rules. In 
addition, the Agency Order will not be executed against the 
Solicited Order unless the execution price is equal to or better 
than the NBBO at the time of execution. If an execution would take 
place at a price that is inferior to the best bid or offer on BOX or 
the NBBO, both the Solicited Order and Agency Order will be 
cancelled. Id. Thus, a Solicited Order cannot trade through a better 
price on an away market or on the BOX Book.
    \10\ See chapter V, section 31(b)(ii)(2) of the BOX Rules.

---------------------------------------------------------------------------

[[Page 60570]]

    After this calculation, if there is sufficient size available on 
the BOX Book, including non-public customer interest, to execute the 
entire Agency Order at the proposed price, the Agency Order will be 
executed against the BOX Book.\11\ If there is not sufficient size 
available on the BOX Book, including non-public customer interest, to 
execute the entire Agency Order at the proposed price, the Agency Order 
and the Solicited Order will be cancelled and no executions will 
occur.\12\
---------------------------------------------------------------------------

    \11\ Id.
    \12\ See chapter V, section 31(b)(ii)(1) of the BOX Rules.
---------------------------------------------------------------------------

    BOX's Solicitation Auction proposal includes a ``Surrender 
Quantity'' function for Solicitation Auctions. An OFP may use this 
function when starting a Solicitation Auction by designating, for the 
Solicited Order, the quantity of contracts of the Agency Order for 
which the OFP is willing to ``surrender'' to the BOX Book (``Surrender 
Quantity''). In effect, the Surrender Quantity reduces the size of the 
Solicited Order in order to permit (a) Book Priority Public Customer 
Orders on the BOX Book at the proposed price or better, and/or (b) any 
bids (offers) on the BOX Book at any price better than the proposed 
execution price, to execute against the Agency Order.\13\ The surrender 
of contracts to the interest described in (a) and (b) of the prior 
sentence permits the Solicited Order to execute against the balance of 
contracts remaining in the Agency Order when otherwise the Solicited 
Order would not participate in the transaction at all or the Agency 
Order and Solicited Order both would be cancelled.
---------------------------------------------------------------------------

    \13\ See chapter V, section 31(b)(ii)(4) of the BOX Rules.
---------------------------------------------------------------------------

    The following examples describe how a Solicitation Auction could be 
impacted by the presence of a Surrender Quantity:
     When a Book Priority Public Customer Order(s) is resting 
on the BOX Book at a price equal to or better than the proposed price, 
and, when aggregating all other interest on the BOX Book (i.e. 
including non-public customer interest but not including Responses), 
there is sufficient size to execute against the Agency Order at least 
at the proposed price, the Agency Order is executed against the BOX 
Book and the Solicited Order is cancelled.\14\ However, if the OFP has 
designated a Surrender Quantity, and the aggregate size of Book 
Priority Public Customer Orders, and other interest on the BOX Book at 
prices better than the proposed price, is equal to or less than the 
Surrender Quantity--i.e., such interest represents no more than the 
maximum quantity that the OFP is willing to surrender--the Agency Order 
will first execute against all such Book Priority Public Customer 
Orders and all other interest on the BOX Book at a better price,\15\ 
and then against the Solicited Order.
---------------------------------------------------------------------------

    \14\ See supra notes 10-11 and accompanying text.
    \15\ Public Customer bids (offers) on the BOX Book at the time 
of Surrender Quantity execution that are priced higher (lower) than 
the proposed execution price will be executed at the proposed 
execution price. Non-Public Customer and Market Maker bids (offers) 
on the BOX Book at the time of Surrender Quantity execution that are 
priced higher (lower) than the proposed execution price will be 
executed at their stated price, See Chapter V, Section 
31(b)(ii)(4)(b) of the BOX Rules. The Surrender Quantity does not 
need to accommodate non-Public Customer interest at the proposed 
price, which would not, in itself, block a transaction with the 
Solicited Order. The Surrender Quantity also does not need to 
accommodate Responses even at a better price. (Responses at a better 
price are aggregated only to determine if the entire Agency Order 
can be executed at a better price.)
---------------------------------------------------------------------------

     When a Book Priority Public Customer Order(s) is resting 
on the BOX Book at a price equal to or better than the proposed 
execution price but there is otherwise insufficient quantity on the BOX 
Book to execute the entire Agency Order the Solicited Order is not 
permitted to bypass the Book Priority Public Customer(s) on the BOX 
Book, and both the Solicited Order and the Agency Order are 
cancelled.\16\ With the Surrender Quantity, however, the Book Priority 
Public Customer Order(s) will be executed first (assuming that it is 
not larger than the Surrender Quantity) and the remainder of the Agency 
Order will be executed against the Solicited Order.
---------------------------------------------------------------------------

    \16\ See supra note 12.
---------------------------------------------------------------------------

     When the proposed execution price is inferior to the best 
bid or offer on the BOX Book, the Solicited Order is not permitted to 
trade through the better-priced order(s) on the BOX Book, and both the 
Solicited Order and the Agency Order are cancelled.\17\ With the 
Surrender Quantity, however, the better priced order(s) on the BOX Book 
will be executed first (assuming that the size of such order(s) is not 
larger than the Surrender Quantity) and the remainder of the Agency 
Order will be executed against the Solicited Order.
---------------------------------------------------------------------------

    \17\ See supra note 9.
---------------------------------------------------------------------------

    The proposed rule change also will require OFPs to deliver to 
customers a written notification (in a form approved by the Exchange) 
describing the terms and conditions of the Solicitation Auction before 
executing Agency Orders using the Solicitation Auction.
    Proposed Supplementary Material to Section 31 states that it will 
be a violation of an Options Participant`s duty of best execution if it 
were to cancel a Facilitation Order to avoid execution of the order at 
a better price. Also, Options Participants will be prohibited from 
using the Solicitation Auction to circumvent chapter V, section 17, 
which limits principal transactions.\18\ Such prohibited actions may 
include, but are not limited to, Options Participants entering 
Solicitation Orders that are solicited from (i) Affiliated broker-
dealers, or (ii) broker-dealers with which the Options Participant has 
an arrangement that allows the Options Participant to realize similar 
economic benefits from the solicited transaction as it would achieve by 
executing the customer order in whole or in part as principal. Any 
Solicited Orders entered by Options Participants to trade against 
Agency Orders may not be for the account of a BOX market maker that is 
assigned to the options class.
---------------------------------------------------------------------------

    \18\ As amended by the proposed rule change, Chapter V, Section 
17, among other things, contains provisions that (a) Prohibit an 
Options Participant from executing agency orders to increase its 
economic gain from trading against the order without first giving 
other trading interest; (b) provide that it will be a violation of 
the BOX Rules for an Options Participant to cause the execution of 
an order it represents as agent on BOX through the use of orders it 
solicited from Options Participants and/or non-Participant broker-
dealers to transact with such orders, whether such solicited orders 
are entered into the BOX market directly by the Options Participant 
or by the solicited party (either directly or through another 
Participant), unless (i) The agency order is first exposed to the 
BOX Book for at least one (1) Second, (ii) the Options Participant 
utilizes the Solicitation Auction, or (iii) the Options Participant 
utilizes the Price Improvement Period; and (c) provides that the 
agency order be first exposed to the BOX Book for at least one (1) 
second, (ii) the OFP has been bidding or offering on BOX for a least 
one (1) Second prior to receiving an agency order that is executable 
against such bid or offer, (iii) the OFP sends the agency order to 
the Price Improvement Period or Universal Price Improvement Period, 
or (iv) the Options Participant utilizes the Solicitation Auction.
---------------------------------------------------------------------------

    In addition, the Supplementary Material provides that the proposed 
rule change will allow orders and Responses to be entered into the BOX 
Facilitation and Solicitation Auctions and receive executions at penny 
increments. Finally, the proposed rule change adds references to the 
Facilitation and Solicitation Auction mechanisms to Chapter V, Section 
17 (Customer Orders and Order Flow Providers), and to Chapter III, 
Section 4(f) (Prevention of the Misuse of Material Nonpublic 
Information).

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to

[[Page 60571]]

a national securities exchange.\19\ In particular, the Commission finds 
that the proposed rule change is consistent with Section 6(b) of the 
Act,\20\ in general, and Section 6(b)(5) of the Act,\21\ in particular, 
which requires that the rules of an exchange be designed, among other 
things, 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.
---------------------------------------------------------------------------

    \19\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposed Facilitation Auction is substantially 
similar to the facilitation mechanism currently operative at the 
International Securities Exchange, Inc. (``ISE''), which the Commission 
has found consistent with the Act.\22\ The Commission notes, however, 
that, on BOX, should any portion of Agency Order remain available for 
execution against Non-Public Customer and Market Maker bids (offers), 
such Non-Public Customer and Market Maker bids (offers) will be 
executed against the Agency Order on a price-time priority basis, 
instead of on a pro-rata priority basis, as is done on ISE. The use of 
price-time priority on BOX is consistent with the priority rules of 
BOX's trading system, whereas the use of pro-rata priority on ISE is 
consistent with the principles generally of that exchange. The 
Commission believes that this functionality is consistent with the Act.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11388 (March 2, 2000) (concerning registration of the 
ISE, and, among other features of the exchange, the ISE's 
facilitation mechanism).
---------------------------------------------------------------------------

    The proposed Solicitation Auction on BOX also is modeled on similar 
mechanisms on other exchanges. The Commission previously has found such 
mechanisms consistent with the Act,\23\ stating that they should allow 
for greater flexibility in pricing large-sized orders and may provide a 
greater opportunity for price improvement.\24\ BOX has made certain 
modifications to its solicitation auction, in part to reflect its 
price-time priority system, and the Commission believes that these 
changes are also consistent with the Act.
---------------------------------------------------------------------------

    \23\ See id., and see Securities Exchange Act Release Nos. 49141 
(January 28, 2004), 69 FR 5625 (February 5, 2004) (SR-ISE-2001-22) 
(approval of ISE Solicited Order Mechanism) and 57610 (April 3, 
2008), 73 FR 19535 (April 10, 2008) (SR-CBOE-2008-14) (approval of 
CBOE Solicitation Auction Mechanism).
    \24\ See Securities Exchange Act Release No. 57610 (April 3, 
2008), 73 FR 19535 (April 10, 2008) (File No. SR-CBOE-2008-14).
---------------------------------------------------------------------------

    The first modification relates to the interaction between Public 
Customer Orders and the Solicitation Auction. Specifically, in BOX's 
proposed Solicitation Auction, a Public Customer Order resting on the 
BOX Book within the depth that would have traded with the Agency Order 
had the Solicitation Auction not been in place (i.e., a Book Priority 
Public Customer Order) would prevent the Solicited Order from executing 
against the Agency Order, while a Public Customer Order resting on the 
BOX Book below a depth that would be traded with the Agency Order had 
the Solicitation Auction not been in place (i.e., a public customer 
order that is not a Book Priority Public Customer Order) would not 
prevent such execution. Similar to ISE's solicitation mechanism, BOX's 
Solicitation Auction will not permit Public Customer orders to be 
bypassed, but, unlike ISE's mechanism, BOX's Solicitation Auction will 
only preclude the bypassing of Public Customers orders to the extent 
that such orders would have been entitled to participate in the 
execution of the Agency Order had the Agency Order been sent to the BOX 
Book.\25\
---------------------------------------------------------------------------

    \25\ See Notice, supra note 3, at note 8.
---------------------------------------------------------------------------

    The differential treatment of Public Customers orders that are not 
Book Priority Public Customer Orders and Book Priority Public Customer 
Orders is consistent with the price-time priority structure of the BOX 
market.\26\ In particular, Public Customer orders that are not Book 
Priority Public Customer Orders would not have been executed against 
the Agency Order had it been sent to the BOX Book. Thus, the Commission 
believes that it is reasonable for BOX and consistent with the Act not 
to provide for the execution of such orders against the Agency Order 
and not to allow such orders to prevent the execution of a Solicited 
Order with an Agency Order.
---------------------------------------------------------------------------

    \26\ The consistency with the Act of a price-time priority 
system that gives Public Customers no priority in trading rights is 
discussed, in the context of BOX, in Securities Exchange Act Release 
No. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (SR-BSE-
2002-15) (Order Establishing Trading Rules for the Boston Options 
Exchange facility).
---------------------------------------------------------------------------

    The second modification relates to how Responses are aggregated 
with orders on the BOX Book. Specifically, the ISE's solicitation 
mechanism always aggregates Responses with orders when determining 
whether sufficient size exists to execute the entire Agency Order. BOX, 
however, aggregates Responses with orders only if such Responses are at 
an improved price over the price proposed for the transaction. 
Responses are not aggregated with orders on the BOX Book when 
determining whether sufficient size exists to execute the entire Agency 
Order at the proposed solicitation price.\27\
---------------------------------------------------------------------------

    \27\ See supra note 10.
---------------------------------------------------------------------------

    Regarding the differential treatment of Responses in these two 
scenarios, the Commission notes that the solicitation mechanisms on 
other exchanges, on which BOX's proposed Solicitation Auction generally 
is modeled, assure that when sufficient interest can be attracted 
through the exposure of an agency order to obtain a price better than 
the proposed execution price for the entire agency order, the agency 
order should receive that price improvement.\28\ On the other hand, in 
the case where price improvement is not elicited for the entire agency 
order, such solicitation mechanisms provide for the execution to the 
solicited order against the agency order, even when non-public customer 
interest (including responses) in the aggregate would provide enough 
size to fill the entire agency order.\29\ It is only the presence of a 
public customer order at the proposed price that prevents the execution 
of the solicited order against the agency order, so as not to bypass 
that public customer.
---------------------------------------------------------------------------

    \28\ See supra note 23.
    \29\ For a more complete discussion of the rationale for these 
aspects of the Solicited Order Mechanism, see generally Securities 
Exchange Act Release Nos. 49141 (January 28, 2004), 69 FR 5625 
(February 5, 2004) (SR-ISE-2001-22) (Notice); and 49943 (June 30, 
2004), 69 FR 41317 (July 8, 2004) (SR-ISE-2001-22) (Approval Order).
---------------------------------------------------------------------------

    Responses exist only as a result of a solicitation auction and only 
for the possibility of eliciting a better price for an agency order in 
its entirety. Responses were not designed to elicit interest to fill 
the agency order at the same price as that proposed by the solicited 
order. In particular, a distinctive feature of solicitation mechanisms 
is that the solicited order is executed against the agency order even 
when non-public customer orders could fill the agency order at the 
proposed price, so long as those orders do not improve the price for 
the entire size of the agency order. On BOX, Public Customer orders 
generally are not granted any more deference than other orders on the 
BOX Book. Nonetheless, in its Solicitation Auction, consistent with the 
operation of solicitation mechanisms at other exchanges, BOX will not 
permit a Solicited Order to trade against the Agency Order when it 
would bypass a Public Customer Order

[[Page 60572]]

at the same price, so long as that order was on the Book within the 
depth of interest that would have traded with the Agency Order had the 
Agency Order been submitted unmatched. If other interest on the Book 
can fill the balance of the Agency Order, BOX further will permit the 
Public Customer Order, together with such other interest, to fill the 
Agency Order. The Commission believes that it is reasonable and 
consistent with the Act for BOX to not aggregate Responses in this case 
because the sole purpose in eliciting Responses in the Solicitation 
Auction is to explore whether any possibility exists to obtain price 
improvement for the entire Agency Order.
    Regarding BOX's introduction of the Surrender Quantity, the 
Commission believes that this function could help facilitate the 
execution of block-sized orders, while avoiding trade-throughs of 
better priced bids (offers) on the BOX Book and not bypassing Public 
Customer orders that would have traded with the Agency Order if the 
Agency Order had been submitted to the BOX Book.
    The Exchange has adopted an interpretive provision to make clear 
that it would be a violation of an Options Participant's duty of best 
execution to its customer if it were to cancel a facilitation order to 
avoid execution of the order at the better price. Use of the 
Facilitation Auction does not modify an Options Participant's best 
execution duty to obtain the best price for its customer. Accordingly, 
while Facilitation Orders may be canceled during the facilitation 
timeframe, if an Options Participant was to cancel a facilitation order 
when there was a superior price available on the Exchange and 
subsequently re-enter the facilitation order at the same facilitation 
price after the better price was no longer available without attempting 
to obtain that better price for its customer, there would be a 
presumption that the member did so to avoid execution of its customer 
order by other market participants.
    The Commission believes that this interpretation is important to 
ensure that brokers proposing to facilitate orders as principal fulfill 
their best execution duties to their customers. In the Commission's 
view, withdrawing a facilitated order that may be price improved simply 
to avoid execution of the order at the superior price is a violation of 
a broker's duty of best execution.\30\ The Commission expects the 
Exchange to establish procedures to surveil for violations of this best 
execution obligation.\31\
---------------------------------------------------------------------------

    \30\ See, e.g., Securities Exchange Act Release No. 49175 
(February 3, 2004), 69 FR 6124 (February 9, 2004) (Commission 
concept release on ``Competitive Developments in the Options 
Markets''), citing In the Matter of the Application of the 
International Securities Exchange, LLC For Registration as a 
National Securities Exchange, Release No. 42455 (Feb. 24, 2000).
    \31\ The Commission realizes that ensuring that Options 
Participations do not re-enter facilitated orders on markets other 
than the Exchange may be difficult. Nevertheless, the Commission 
expects the Exchange to work with the other options markets through 
the Intermarket Surveillance Group to develop methods and procedures 
to monitor their Options Participants trading on other markets for 
possible best execution violations in this context.
---------------------------------------------------------------------------

    Finally, the Commission believes that it is reasonable and 
consistent with the Act for orders and Responses to be entered into the 
Exchange's Facilitation and Solicitation Auctions and receive 
executions at penny increments (the ``Penny Increment functionality''). 
The Commission notes that the Exchange is not restricting the ability 
of any Options Participant to enter orders and Reponses in penny 
increments into the Exchange's Facilitation and Solicitation Auctions 
on its own behalf or on behalf of any other person, including 
customers. The Commission believes that the Penny Increment 
functionality could provide greater flexibility in pricing for block-
size orders and could provide enhanced opportunities for block-sized 
orders to benefit from price improvement, while ensuring broad access 
to persons that would like to participate in a one-cent increment. In 
addition, the Commission notes that it has previously approved rules 
relating to exchange crossing mechanisms that allow orders and 
executions in penny increments.\32\
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release Nos. 49068 (January 14, 
2003), 68 FR 3062 (January 22, 2003) (Commission approval 
establishing trading rules for BOX, including rules for the Price 
Improvement Period); 49323 (February 26, 2004), 69 FR 10087 (March 
3, 2004) (Commission approval establishing rules for ISE's Price 
Improvement Mechanism); and 53222 (February 3, 2006), 71 FR 7089 
(February 10, 2006) (Commission approval establishing rules for 
CBOE's Automated Improvement Mechanism). These mechanisms allow for 
the execution of orders at penny increments even when the standard 
minimum trading increment is greater than one penny.
---------------------------------------------------------------------------

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-BX-2011-034) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
 Elizabeth M. Murphy,
Secretary.
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2011-25073 Filed 9-28-11; 8:45 am]
BILLING CODE 8011-01-P