[Federal Register Volume 74, Number 211 (Tuesday, November 3, 2009)]
[Notices]
[Pages 56897-56899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-26357]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60886; File No. SR-BX-2009-067]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Effective Date of and Expand the Penny Pilot Program on the Boston 
Options Exchange Facility

October 27, 2009.
    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 October 19, 2009, 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 self-regulatory organization. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and 
Rule 19b-4(f)(6) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 V, Section 33 (Penny Pilot 
Program) of the Rules of the Boston Options Exchange Group, LLC 
(``BOX'') to (i) extend the Penny Pilot Program in options classes 
(``Penny Pilot Program'' or ``Pilot'') previously approved by the 
Securities and Exchange Commission (``Commission'') through December 
31, 2010; (ii) expand the number of classes included in the Pilot; and 
(iii) replace on a semi-annual basis any Pilot Program classes that 
have been delisted. 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 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 Exchange hereby proposes to extend the time period of the Pilot 
Program \5\ which is currently scheduled to expire on October 31, 2009, 
through December 31, 2010.
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    \5\ See Securities Exchange Act Release No. 60213 (July 1, 
2009), 74 FR 32998 (July 9, 2009) (SR-BX-2009-032).
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Top 300
    The Exchange also proposes to expand the number of classes included 
in the Pilot Program. Specifically, the Exchange proposes to add the 
top 300 most actively traded multiply listed options classes that are 
not yet included in the Pilot Program (``Top 300''). The Exchange 
proposes to determine the identity of the Top 300 based on national 
average daily volume in the prior six calendar months preceding their 
addition to the Pilot Program, except that the month immediately 
preceding their addition to the Pilot would not be utilized for 
purposes of the six month analysis.\6\ In determining the identity of 
the Top 300, the Exchange will exclude options classes with high 
premiums. Pursuant to Chapter V, Section 33 of the BOX Rules, the Pilot 
Program classes will be announced to BOX Participants via Regulatory 
Circular and published by the Exchange on its Web site.\7\ This will 
bring the total number of options classes quoted pursuant to the Pilot 
Program to 363. The Exchange represents that BOX has the necessary 
system capacity to support any additional series listed as part of the 
Pilot Program.
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    \6\ The Exchange will not include options classes in which the 
issuer of the underlying security is subject to an announced merger 
or is in the process of being acquired by another company, or if the 
issuer is in bankruptcy. For purposes of assessing national average 
daily volume, the Exchange will use data compiled and disseminated 
by the Options Clearing Corporation.
    \7\ The Exchange shall also identify the classes to be added to 
the Pilot Program, per each phase, in a filing with the Commission.
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    The Exchange believes that it is appropriate to exclude high priced 
underlying securities, as the benefit to the public from including such 
classes is minimal because of the high price of at-the-money 
options.\8\ The Exchange believes an appropriate threshold for 
designation as ``high priced'' at the time of selection of new classes 
to be included in the Pilot is $200 per share or a calculated index 
value of 200. At $200 per share or a calculated index value of 200, 
strike prices are in $10 increments, so the ``at the money'' strike is 
more likely to carry an intrinsic value of $3 or more, and thus not 
trade in a penny increment. With a greater distance between strikes, 
there are fewer series that are actively traded. The determination of 
whether a security is trading above $200 or above a calculated index 
value of 200 shall be based on the price at the close of trading on the 
Expiration Friday prior to being added to the Pilot. This approach is 
consistent with the approach the Exchange has

[[Page 56898]]

taken for high-priced classes when selecting Pilot classes in the past.
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    \8\ For instance, as of August 12, 2009, the near term at the 
money call in GOOG (August 460 Calls) was trading at $6.50 with the 
underlying at $459.84. The lowest strike price September call 
trading below $3 (with the underlying at the same price) was the 
September 500 Call.
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Phased Implementation
    The Exchange proposes to phase-in the additional classes to the 
Pilot Program over four successive quarters. Specifically, the Exchange 
proposes to add 75 classes in November 2009, February 2010, May 2010, 
and August 2010.\9\
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    \9\ The Exchange is proposing that the quarterly additions would 
be effective on November 2, 2009, February 1, 2010, May 3, 2010 and 
August 2, 2010, respectively. The Exchange has proposed these 
specific dates based upon a proposal of NYSE Arca recently submitted 
to the Commission. (See SR-NYSEArca-2009-91). For purposes of 
identifying the classes to be added per quarter, the Exchange shall 
use data from the prior six calendar months preceding the 
implementation month, except that the month immediately preceding 
their addition to the Pilot would not be utilized for purposes of 
the six month analysis. For example, the quarterly additions to be 
added on November 2, 2009 shall be determined using data from the 
six month period ending September 30, 2009.
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Delistings
    Additionally, the Exchange proposes that any Pilot Program classes 
that have been delisted may be replaced on a semi-annual basis by the 
next most actively traded multiply listed options classes that are not 
yet included in the Pilot, based on trading activity in the previous 
six months. The replacement classes would be added to the Pilot Program 
on the second trading day following January 1, 2010 and July 1, 
2010.\10\ The Exchange will employ the same parameters to prospective 
replacement classes as approved and applicable under the Pilot Program, 
including excluding high-priced underlying securities.
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    \10\ The replacement classes will be announced to BOX 
Participants via Regulatory Circular and published by the Exchange 
on its Web site.
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Report
    The Exchange agrees to submit semi-annual reports to the Commission 
that will include sample data and analysis of information collected 
from April 1 through September 30, and from October 1 through March 31, 
for each year, for the ten most active and twenty least active options 
classes added to the Pilot Program.\11\ As the Pilot Program matures 
and expands, the Exchange believes that this proposed sampling approach 
provides an appropriate means by which to monitor and assess the Pilot 
Program's impact. The Exchange will also identify, for comparison 
purposes, a control group consisting of the ten least active options 
classes from the existing 63 Pilot Program classes. This report will 
include, but is not limited to: (1) Data and analysis on the number of 
quotations generated for options included in the report; (2) an 
assessment of the quotation spreads for the options included in the 
report; (3) an assessment of the impact of the Pilot Program on the 
capacity of BOX's automated systems; (4) data reflecting the size and 
depth of markets, and (5) any capacity problems or other problems that 
arose related to the operation of the Pilot Program and how the 
Exchange addressed them.
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    \11\ The Exchange will continue to provide data concerning the 
existing 63 Pilot Program classes.
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    The Exchange believes the benefits to public customers and other 
market participants who will be able to express their true prices to 
buy and sell options have been demonstrated to outweigh the increase in 
quote traffic.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\12\ in general, and Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
The Exchange believes that the Pilot Program promotes just and 
equitable principles of trade by enabling public customers and other 
market participants to express their true prices to buy and sell 
options.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6)(iii). 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 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 pre-filing requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing.\18\ 
However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange notes that 
the proposed rule change is substantially similar to a proposal 
submitted by another options exchange that was recently approved by the 
Commission and also incorporates a change to the initial expansion date 
filed by the other exchange. The Exchange further states that waiving 
the 30-day operative delay will allow the Pilot Program to continue 
uninterrupted and allow the Exchange to adopt the same expansion 
schedule as another exchange.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes waiving the 30-day operative delay \20\ is 
consistent with the protection of investors and the public interest 
because such waiver will allow the Exchange to implement the 75 
additional classes on November 2, 2009 and permit the Pilot Program to 
continue uninterrupted, consistent with other exchanges.\21\ For those 
reasons, the Commission designates the proposal

[[Page 56899]]

to be operative upon filing with the Commission.
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    \20\ For the 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. 
78(c)(f).
    \21\ See Securities Exchange Act Release Nos. 60711 (September 
23, 2009), 74 FR 49419 (September 28, 2009) (SR-NYSEArca-2009-44); 
and 60833 (October 16, 2009), 74 FR 54617 (October 22, 2009) (SR-
NYSEArca-2009-91).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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 [email protected]. Please include 
File Number SR-BX-2009-067 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-2009-067. 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 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 No. SR-BX-2009-067 and should be 
submitted on or before November 24, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-26357 Filed 11-2-09; 8:45 am]
BILLING CODE 8011-01-P