[Federal Register Volume 74, Number 217 (Thursday, November 12, 2009)]
[Notices]
[Pages 58358-58360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27090]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60934; File No. SR-BX-2009-071]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending the 
Fee Schedule of the Boston Options Exchange Facility

November 4, 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 30, 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 Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 
19b-4(f)(2) 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)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 the Fee Schedule of the Boston 
Options Exchange Group, LLC (``BOX''). 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
    Section 7 of the BOX Fee Schedule currently applies to all classes 
listed for trading on BOX that are not included in the Penny Pilot 
Program, as referenced in Chapter V, Section 33 of the BOX Rules 
(``Non-Penny Pilot Classes''). The Exchange proposes to amend Section 7 
to make the following changes.\5\
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    \5\ Changes to other sections of the Fee Schedule other than 
Section 7 are required for conformity purposes.
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Extend Section 7 Fees and Credits to Penny Pilot Classes
    The Exchange proposes to extend the applicability of Section 7 of 
the Fee Schedule to also include Penny Pilot Classes.\6\ The Exchange 
proposes that the applicability of this pricing will apply to Penny 
Pilot Classes and Non-Penny Pilot Classes alike, whereby transactions 
that remove liquidity from the BOX Book will receive a `removal' credit 
and transactions that add liquidity will be charged an `add' fee.
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    \6\ Except for transactions within the PIP, as discussed below, 
SPY, QQQQ and IWM will remain subject only to `standard' fees.
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    However, the Exchange proposes that the level of credits and fees 
differ for Penny Pilot Classes as compared to Non-Penny Pilot Classes. 
Specifically, the Exchange proposes that both the fees and credits for 
Penny Pilot Classes be $0.20, in addition to the `standard' fees.\7\ 
The proposed lower fees and credits for Penny Pilot Classes, as 
compared to Non-Penny Pilot Classes, is based on the

[[Page 58359]]

narrower spreads exhibited in Penny Pilot Classes.
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    \7\ The next 300 most actively traded classes, as per Options 
Clearing Corporation volume data, will be added to the Penny Pilot 
Program. See Securities Exchange Act Release No. 60886 (October 27, 
2009) (SR-BX-2009-067). The first tranche of 75 classes will be 
eligible for quoting and trading in $0.01 increments on November 2, 
2009.
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    For example, a Public Customer Order in a Penny Pilot Class is 
entered into the BOX Trading Host and executes against a Broker 
Dealer's order resting on the BOX Book. The Public Customer is the 
remover of liquidity and the Broker Dealer is the adder of liquidity. 
The Public Customer will receive a $0.20 `removal' credit and the 
Broker Dealer will be charged a $0.20 `add' fee. The Public Customer 
will receive a $0.20 total credit (free `standard' charge plus the 
$0.20 `removal' credit) and the Broker Dealer will be charged $0.40 
total (the $0.20 `add' fee for adding liquidity in addition to the 
`standard' $0.20 transaction fee).
Change the Title of Section 7 of the Fee Schedule
    The Exchange also proposes that the name of the pricing structure 
of Section 7 of the BOX Fee Schedule be changed to `Liquidity Fees and 
Credits', as the name `Non-Penny Pilot Class Pricing Structure' will no 
longer be appropriate once the inclusion of Penny Pilot Classes is 
implemented.\8\
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    \8\ The remainder of this proposal will refer to Section 7 of 
the Fee Schedule in generic terms rather than with the current Non-
Penny Pilot Class Pricing Structure moniker.
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Increase Credits and Fees for Non-Penny Pilot Classes
    The Exchange also proposes to increase both the credits and fees 
for Non-Penny Pilot Classes from $0.30 to $0.75 within Section 7 of the 
Fee Schedule. These credits and fees apply equally to all account 
types, whether Public Customer, Firm or Market Maker and are in 
addition to any applicable `standard' trading fees and/or volume 
discounts, as described in Sections 1 through 4 of the BOX Fee 
Schedule.
    For example, a Public Customer Order in a Non-Penny Pilot Class is 
entered into the BOX Trading Host and executes against a Broker 
Dealer's order resting on the BOX Book. The Public Customer is the 
remover of liquidity and the Broker Dealer is the adder of liquidity. 
The Public Customer will receive a $0.75 `removal' credit and the 
Broker Dealer will be charged a $0.75 `add' fee. The Public Customer 
will receive a $0.75 total credit (free `standard' charge plus the 
$0.75 `removal' credit) and the Broker Dealer will be charged $0.95 
total (the $0.75 fee for adding liquidity in addition to the standard 
$0.20 transaction fee).
The Price Improvement Period (``PIP'')
    Additionally, the Exchange proposes to make transactions within the 
PIP subject to Section 7, as described in new subsection 7(d) of the 
Fee Schedule.\9\ Currently, transactions on both sides of a PIP are 
exempt from Section 7 and are charged `standard' execution fees 
according to Sections 1 through 3 of the Fee Schedule. The Exchange 
proposes that the Section 7(d) fees and credits will be $0.20 for both 
Penny Pilot and Non-Penny Pilot Classes traded within the PIP.
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    \9\ This will be applicable for all classes trading on BOX, 
including transactions in the PIP in SPY, QQQQ and IWM.
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    For example, a BOX Participant submits a Public Customer Order 
(``Initiating Participant'') in a Non-Penny Pilot Class into the BOX 
PIP (``PIP Order'') with a matching contra order (``Primary Improvement 
Order'') for the full size with a price at least equal to the National 
Best Bid or Offer (``NBBO''). The PIP runs for the specified duration 
period, currently one (1) second, and the Public Customer's PIP Order, 
which must be filled, executes against the Initiating Participant's 
Primary Improvement Order. The Public Customer will be charged the 
`standard' transaction fee for orders submitted into the PIP and 
receive the `removal' credit ($0.20).\10\ The Initiating Participant 
will be charged the `add' fee ($0.20) in addition to its `standard' 
transaction fee ($0.20) for orders submitted in the PIP, resulting in a 
total fee of $0.40.
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    \10\ The PIP Order will always be treated as the remover of 
liquidity.
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    Alternatively, a Public Customer's PIP Order in a Penny Pilot Class 
executes in the PIP against a competing improvement order 
(``Improvement Order'') in the PIP from a BOX Participant other than 
the Initiating Participant. The Public Customer will be charged the 
`standard' transaction fee for orders submitted into the PIP and 
receive the `removal' credit ($0.20) and the Participant whose 
Improvement Order executed against the Public Customer's PIP Order will 
be charged the `standard' execution fee of $0.20 in addition to the fee 
for adding liquidity of $0.20, resulting in a total fee of $0.40.
    The changes proposed herein are in response to various `Payment for 
Order Flow' programs currently in operation on other options exchanges. 
The Exchange believes that the proposed fees are competitive, fair and 
reasonable, and non-discriminatory in that they apply equally to all 
BOX Participants.
    The Exchange further proposes to implement a volume discount for 
the fees charged to Initiating Participants. The volume discount will 
only apply to executions in PIP auctions initiated by the particular 
Initiating Participant which occur at a price at least better than the 
NBBO.\11\ A threshold average daily volume (``ADV'') of 50,000 
contracts per month is proposed for all such executions. Any executions 
of the Initiating Participant above this threshold will receive a $0.05 
discount.
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    \11\ For purpose of this volume discount NBBO shall be 
determined at the time the PIP is initiated.
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    For Example, suppose that at the end of a calendar month a BOX 
Participant's executions in PIP auctions which it initiated and which 
were filled at a price better than the NBBO totaled 2.5 million 
contracts. For a month with 20 trading days this would average 125,000 
such contracts per trading day. For these daily executions the 
Initiating Participant will be billed $0.20 per contract ($25,000) in 
`standard' execution fees in addition to $0.20 per contract ($25,000) 
in Section 7 `add' fees. The 75,000 contracts over the 50,000 ADV 
threshold will be discounted by $0.05 per contract ($3,750 volume 
discount). The net daily transaction cost for the Initiating 
Participant is the initial $25,000 `standard' transaction fee plus the 
$25,000 in Section 7 `add' fees less the $3,750 volume discount for a 
grand total of $46,250.
    The Exchange believes that providing a volume discount to the 
Initiating Participant's fees is appropriate to incent BOX Participants 
to submit their Public Customer Orders into the PIP for the possibility 
of price improvement. Furthermore, such a discount is necessary to 
limit the exposure that Initiating Participants will have removal fees, 
because as Initiating Participants they will be adders of liquidity 
should the Primary Improvement Order execute against the PIP Order.
    The Exchange believes that the proposed pricing changes are 
equitable in that they apply uniformly to all similarly situated 
Participants, specifically, Participants seeking price improvement for 
their customer order flow. The pricing changes are also consistent with 
industry precedent that allows for different prices to be charged for 
different orders types originated by dissimilarly classified market 
participants. The other options exchanges currently apply different 
rates to firms facilitating their own customer order flow as opposed to 
orders of other market participants.\12\

[[Page 58360]]

The degree of difference between the rates charged for different order 
types is the result of competitive forces in the marketplace and 
reflects certain competitive differences amongst market participants.
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    \12\ See Securities Exchange Act Release No. 60379 (July 23, 
2009), 74 FR 38244 (July 31, 2009) (SR-NYSEArca-2009-62). See also 
Securities Exchange Act Release No. 60378 (July 23, 2009), 74 FR 
38245 (July 31, 2009) (SR-NYSEAmex-2009-38). See also Securities 
Exchange Act Release No. 60477 (August 11, 2009), 74 FR 41777 
(August 18, 2009) (SR-Phlx-2009-67).
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    For example, under the current fee schedule of the NYSE Arca 
(``NYSE Arca'') a firm facilitation trade is charged $0.00\13\ while 
manual broker dealer executions are charged $0.25 and market maker non-
directed orders are charged $0.16. BOX believes that these differences 
exist, in part, because customers have historically been at a 
competitive disadvantage in the options markets as compared to firms 
actively engaged in the market, thus firms are appropriately 
incentivized to facilitate customer order flow.\14\
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    \13\ The NYSEArca firm facilitation fee applies to any 
transaction involving a firm proprietary trading account that has a 
customer of that same firm on the contra side of the transaction.
    \14\ See also supra note 12.
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    The Exchange believes that making executions within the PIP auction 
subject to Section 7 fees and credits as well as instituting the 
proposed volume discount follows existing precedent for rate 
differentials and further encourages BOX Participants to provide their 
customers' orders with the opportunity for price improvement, thereby 
assisting customers in their attempt to transact in the options markets 
at the best price and lower cost.
    Finally, the Exchange proposes to make additional changes to 
Section 4 and Section 7 of the BOX Fee Schedule in order to eliminate 
all references to outbound P and P/A Orders. Effective November 1, 2009 
BOX will no longer be sending outbound P and P/A Orders so references 
to these orders is no longer necessary.
    The proposed rule change shall be implemented on November 2, 2009.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\15\ in general, and Section 
6(b)(5) of the Act,\16\ in particular, in that it is not designed to 
permit unfair discrimination, as well as Section 6(b) of the Act,\17\ 
in general, and Section 6(b)(4) of the Act,\18\ in particular, in that 
it provides for the equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using its 
facilities. In particular, the proposed change will allow the fees 
charged on BOX to remain competitive with other exchanges and treats 
similarly situated Participants uniformly.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4).
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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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act \19\ and Rule 19b-4(f)(2) 
thereunder,\20\ because it establishes or changes a due, fee, or other 
charge applicable only to a member.
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further 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-2009-071 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-2009-071. 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 will also 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-2009-071 and should be 
submitted on or before December 3, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27090 Filed 11-10-09; 8:45 am]
BILLING CODE 8011-01-P