[Federal Register Volume 74, Number 158 (Tuesday, August 18, 2009)]
[Notices]
[Pages 41765-41766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19732]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60465; File No. SR-BX-2009-041]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change To Eliminate Chapter V, Section 13 
(Unusual Market Conditions) of the BOX Trading Rules and To Modify 
Related Rules

August 10, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on August 3, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III 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\ 15 U.S.C. 78a.
    \3\ 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 purpose of the proposed rule change is to eliminate Chapter V, 
Section 13 (Unusual Market Conditions) of the Trading Rules of the 
Boston Options Exchange Group, LLC (``BOX'') and to modify related 
rules. The text of the proposed rule change is available from the 
principal office of the Exchange, 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 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 is to eliminate Chapter V, Section 
13, as well as certain ancillary rules, which deal with so-called 
``fast markets.'' The Exchange believes that ``fast market'' conditions 
do not occur on the electronic and automated BOX market. In cases in 
which a system malfunction or other occurrence caused a delay in 
disseminating accurate quotes, rather than relying on the current rules 
in Chapter V, Section 13, the Exchange would halt trading until the 
issue could be resolved.
    The Exchange proposes to eliminate Chapter V, Section 13, as well 
as certain ancillary rules relating to fast markets. The Exchange has 
never declared a fast market. Generally, a fast market is characterized 
by heavy trading and high price volatility in which orders may be 
submitted to market makers at such a rapid pace that a backlog of 
orders builds, causing delays in execution. If such a fast market 
occurred, delays could in turn cause significant price differentials 
between the quoted price and executed price. Generally, Chapter V, 
Section 13 provides that if the Exchange declared a fast market, it may 
inform traders that quotes are not firm and to take other actions as 
necessary in furtherance of a fair and orderly market.
    Chapter V, Section 13 provides for an Options Official to determine 
that the level of trading activity or the existence of unusual market 
conditions is such that BOX is incapable of collecting, processing, and 
making available to quotation vendors the data for the option in a 
manner that accurately reflects the current state of the market on BOX. 
Pursuant to current rules, if an Options Official determined the market 
in the option to be ``fast,'' the Official could take various steps 
including suspending minimum size requirements for quotations, turning 
off the Price Improvement Period (``PIP'') process, or taking other 
actions in order to promote a fair and orderly market.
    In an electronic market such as BOX, during trading hours, orders 
are

[[Page 41766]]

matched automatically with quotes on the other side of the market 
according to time priority, and executed immediately.\4\ Because there 
is no trading floor and all orders are received and managed 
electronically, all orders on BOX are executed with matching contra 
orders within a fraction of a second after the matching quote is 
received.\5\ Any backlog in processing orders would be a result of a 
systems malfunction rather than from fast market conditions. Should any 
such backlog occur, the Exchange would halt trading on BOX until the 
issue could be resolved.\6\ Accordingly, the Exchange believes Chapter 
V, Section 13 is unnecessary in the BOX Rules and should be removed.
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    \4\ See BOX Trading Rules, Chapter V, Section 16.
    \5\ Subject to certain exceptions written into the BOX Trading 
Rules, such as Directed Orders (Chapter VI, Section 5(b)-(c)), and 
other exposure periods (See generally Chapter V, Section 16 
(Execution and Price/Time Priority).
    \6\ See BOX Trading Rules, Chapter V, Section 10(a).
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    In addition to removing Chapter V, Section 13, the proposed rule 
change would also remove certain rules related to fast markets. The 
Exchange proposes to modify Chapter VI, Section 6(a) to remove a fast 
market rule exception to the general rule that all Market Maker bids or 
offers must be of a size of at least ten (10) contracts. The Exchange 
also proposes to amend Section 6(c). First, Section 6(c)(ii)(2) will be 
removed to reflect the previously described removal of Chapter V, 
Section 13. Second, references to Rule 11Ac1-1 will be replaced with 
Rule 602 of Regulation NMS under the Exchange Act (``Rule 602''). With 
the implementation of Regulation NMS, Rule 11Ac1-1, in pertinent part, 
has been incorporated into Rule 602. The proposed rule change would 
also modify Chapter XIV (Index Rules), Section 9(b) (Trading Sessions) 
by eliminating the declaration of a fast market as a factor in 
determining whether to delay the opening of the index options market.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\7\ in general, and 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, 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 proposal will 
align the BOX Rules to more accurately reflect the circumstances 
surrounding trading on an electronic exchange and promote transparency.
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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 
result in any burden on competition that is 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 Exchange 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 [email protected]. Please include 
File Number SR-BX-2009-041 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-2009-041. 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 inspection and 
copying 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-2009-041 and should be 
submitted on or before September 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19732 Filed 8-17-09; 8:45 am]
BILLING CODE 8010-01-P