[Federal Register Volume 75, Number 36 (Wednesday, February 24, 2010)]
[Notices]
[Pages 8416-8418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3640]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61531; File No. SR-BX-2010-009]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to 
the Directed Order Process on the Boston Options Exchange Facility

February 17, 2010.
    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 January 25, 2010, 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 self-regulatory organization. The Exchange 
filed Amendment No 1. to the proposed rule change on February 10, 
2010.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 added clarifying language regarding the 
implementation of the proposed rule change and removed erroneously 
included information.
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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 Rules of the Boston Options 
Exchange Group, LLC (``BOX'') to modify the Directed Order process on 
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 website 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 is proposing modifications to the Directed Order 
process on BOX.\4\ When a BOX Market Maker indicates its interest in 
receiving Directed Orders, the receiving Market Maker is referred to as 
the Executing Participant (``EP''). Specifically, the Exchange is 
proposing to automate the creation of the Guaranteed Directed Order 
(``GDO'') and the manner in which the quote of the EP is handled during 
the Directed Order process.
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    \4\ A Directed Order is any Customer Order to buy or sell which 
has been directed to a particular Market Maker by an OFP. See 
Chapter I, Section 1(21) (sic) of the BOX Rules. Terms not otherwise 
defined herein shall have the meaning assigned to them in the BOX 
Rules.
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`Quote Shelving' and `GDO'
    Upon receipt of a Directed Order an EP must either submit the 
Directed Order to the PIP \5\ or send the Directed Order to the BOX 
Book. Currently, when the EP sends the Directed Order to the BOX Book 
and the EP's quotation on the opposite side of the market from the 
Directed Order is equal to the National Best Bid or Offer (``NBBO'') 
and the Directed Order is also executable against the NBBO, the EP must 
guarantee execution of the Directed Order at the current NBBO for at 
least the size of his quote. This guarantee is called the GDO. The EP 
must immediately send the Directed Order with the GDO to the Trading 
Host. Sending the GDO to the Trading Host enables it to simultaneously 
take down or `shelve' the EP's quote and any pending quote updates 
while the Directed Order is being exposed on the BOX Book.\6\
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    \5\ See Chapter V, Section 18 of the BOX Rules.
    \6\ The proposal clarifies in Section 5(c)(iii)(2)(b)(2) and (3) 
that when the EP does not PIP the Directed Order and releases it to 
the BOX Book, the Directed Order will immediately execute against 
the BOX Book if the BOX Best Bid or Offer is equal to or better than 
the NBBO and GDO. Any remaining quantity not executed will 
immediately be exposed to BOX Participants at the better of the NBBO 
or GDO price. This exposure period will last three (3) seconds, 
during which time any Options Participant, except for the EP, may 
submit an order to the BOX Book in response. Any orders submitted to 
the BOX Book during the three second period will execute immediately 
against any remaining quantity of the Directed Order, in time 
priority.

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[[Page 8417]]

    Under the proposal, the GDO will be automatically created by the 
Trading Host instead of by the EP. The Trading Host will use the 
shelved EP quote as the GDO. In addition, the GDO creation and the EP's 
quote shelving will be moved to an earlier point in the Directed Order 
process. Where presently they occur only when the Directed Order is 
sent to the BOX Book, they will now take place immediately upon the 
Trading Host's receipt of the Directed Order from the submitting OFP. 
Once the GDO has been generated by the Trading Host, the EP will 
systemically be prohibited from posting a quotation. The EP's pending 
quote will not be released until either (i) the Directed Order is 
modified by the submitting OFP;\7\ (ii) the EP PIPs the Directed 
Order;\8\ or (iii) the Directed Order is submitted to the BOX Book, and 
either one of the following occurs: (a) The Directed Order trades in 
full; (b) the Directed Order exposition ends; or (c) the Directed Order 
is modified or cancelled by the submitting OFP during such exposition.
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    \7\ See Section 5(c)(ii)(5). If the Directed Order is modified 
once the Trading Host has automatically established the GDO, then 
the modified Directed Order shall no longer be considered a Directed 
Order and shall be immediately released to the BOX Book and treated 
as a regular order. Upon modification or cancellation of the 
Directed Order, the Trading Host will immediately reestablish the 
EP's quote, including any of the EP's pending quote modifications, 
with a new time priority; or in the case of a pending quote 
cancellation, the EP's quote will be cancelled. If no GDO had been 
established, then the modified Directed Order shall be resubmitted 
to the EP pursuant to paragraph (c)(ii)(1). Also, it shall be 
considered conduct inconsistent with just and equitable principles 
of trade for any Options Participant or person to communicate with 
an EP about the terms or conditions of a Directed Order prior to its 
outcome in the BOX Trading Host (e.g. execution, cancellation).
    \8\ Under the proposal the EP's obligations when using the PIP 
remain the same, however in some instances the obligation will be 
met automatically by the Trading Host. Upon submission of the 
Directed Order to the PIP the Trading Host will only accept a 
Primary Improvement Order priced at or better than (i) the GDO or 
(ii) the NBBO at the time the EP sent the Directed Order to the PIP, 
whichever is better for the Directed/PIP Order. In addition, if a 
GDO has been automatically generated, then the Trading Host will 
prohibit the EP from adjusting his quotation prior to submitting the 
Directed Order to the PIP process.
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    Under the proposal, if a GDO has been automatically generated and 
is pending, then upon receipt by the Trading Host of a subsequent 
Directed Order for the same EP for the same series and side of the 
market such subsequent order will not be considered a Directed Order 
but be treated as a regular order. The Trading Host will not send the 
order to the EP, but will immediately release it to the BOX Book as a 
regular order. If no GDO has been automatically generated, then such 
subsequent order will be sent to the EP and treated as a new Directed 
Order.
Directed Order Exposure Period
    With this proposal the Exchange also wishes to add certain details 
in the rule regarding the treatment of Directed Orders that have been 
released to the BOX Book for exposure. If a GDO has been automatically 
generated and the Directed Order is not executable against the current 
NBBO, then the Trading Host will expose the order at the better GDO 
price for three (3) seconds.
    During the exposure period when the Directed Order is executable 
against the current NBBO, the EP must not decrement the size, worsen 
the price of his GDO or submit a contra order. Because the Trading Host 
has automatically created the GDO and shelved the EP's quote, it will 
not process such changes to the GDO or pending quote, except a 
decrementation of the GDO size down to the size of the remaining 
Directed Order after execution with the BOX Book. The EP also may 
increase the size or better the price of his GDO. The EP may also 
modify his pending quote to be reestablished, but the Trading Host 
won't apply such modifications until the quote is reestablished.
Market Maker Quoting Obligations
    The Exchange proposes to add new Supplementary Material .02 to 
Chapter VI, Section 5, stating that such time without posting a quote 
when a Market Maker's quote is shelved while acting as EP will not 
count towards fulfilling his obligations for purposes of the Market 
Maker's quoting obligations under Chapter VI, Section 6(d) of the BOX 
Rules.
Non-Substantive Changes
    The Exchange proposes to change several references to `Market 
Maker' in the Directed Order rules to `EP'. The term `EP' is first 
referenced in Chapter VI, Section 5(c)(i) as ``a Market Maker who 
desires to accept Directed Orders * * * [by] * * * indicat[ing] that it 
is an Executing Participant (`EP').'' This change is being made solely 
to provide greater clarity throughout the Directed Order rule and more 
closely aligns the rule text with the terminology used to describe the 
Directed Order process on BOX. In addition, the Exchange is adding the 
word ``current'' in the relevant instances of the use of the term NBBO 
in the Directed Order rules in order to clarify which NBBO is being 
referenced at a particular stage in the Directed Order process. Also, 
unnecessary and duplicative language about the function of the NBBO 
filter process pursuant to Chapter V, Section 16(b) will be removed 
from Section 5(c)(iii)(1). Finally, the proposal clarifies in Section 
5(c)(iii)(2)(b)(4) that the Trading Host will reestablish the quote of 
the EP with a new time priority, decremented by any executed portion of 
the GDO or as modified by the EP. After Commission approval of the 
proposal, and at least one week prior to implementation of the rule 
change, BOXR will issue a regulatory circular to Participants. The 
regulatory circular will inform Participants of the implementation 
date. This will give Participants an opportunity to make any necessary 
modifications to coincide with the implementation date.
2. Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\9\ in general, and Section 
6(b)(5) of the Act,\10\ 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. 
Specifically, under the proposal the BOX Trading Host will automate the 
creation of the GDO and the manner in which the quote of the EP is 
handled during the Directed Order process.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    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

[[Page 8418]]

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 such 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, as amended, 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-2010-009 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-2010-009. 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 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 
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 Number SR-BX-2010-009 and should be 
submitted on or before March 17, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3640 Filed 2-23-10; 8:45 am]
BILLING CODE 8011-01-P