[Federal Register Volume 76, Number 140 (Thursday, July 21, 2011)]
[Notices]
[Pages 43740-43742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18345]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64896; File No. SR-BX-2011-045]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change Requesting Permanent Approval of Pilot
Program To Permit BOX To Accept Inbound Routes by NOS
July 15, 2011.
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 July 13, 2011, NASDAQ OMX BX, Inc. (``BX'' or 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\ 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 Exchange proposes to request permanent approval of the
Exchange's pilot program to permit the Boston Options Exchange
(``BOX'') to accept inbound routes by NASDAQ Options Services, LLC
(``NOS'') of Nasdaq Options Market (``NOM'') Exchange Direct Orders
without checking the NOM book and 2) NOM non-System securities,
including Exchange Direct Orders.\3\
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\3\ Pursuant to Chapter VI, Section 1(b) of the NOM rules,
``System Securities'' are all options that are currently trading on
NOM pursuant to Chapter IV of the NOM rules. All other options are
``Non-System Securities.'' [sic] Chapter VI, Section (1)(e)(7) of
the NOM Rules, Exchange Direct Orders are orders that route directly
to other Options Markets on an immediate-or-cancel basis without
checking the NOM book for liquidity.
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
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
Currently, NOS is the approved outbound routing facility of the
NASDAQ Stock Market (the ``NASDAQ Exchange'') for NOM, providing
outbound routing from NOM to other market centers.\4\ The Exchange and
the NASDAQ Exchange have previously adopted rules to permit BOX to
receive inbound routes of certain option orders, specifically (1)
Exchange Direct Orders without checking the NOM book prior to routing,
and (2) NOM non-system securities, by NOS on a pilot basis.\5\ The
Exchange specifically has adopted a rule to prevent potential
information advantages resulting from the affiliation between BOX and
NOS, as related to NOS's authority to route orders from NOM to BOX.\6\
NOS's authority to route these orders to BOX is subject to a pilot
period ending on August 16, 2011.\7\ The Exchange hereby seeks
permanent approval to permit BOX to accept inbound routes of (1)
Exchange Direct Orders without checking the NOM book and (2) NOM non-
System securities, including Exchange Direct Orders that NOS routes
from NOM.
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\4\ NOM Rule Chapter VI, Section 11(c). Under NOM Rule Chapter
VI, Section 11(c): (1) NOM routes orders in options via NOS, which
serves as the sole ``routing facility'' of NOM; (2) the sole
function of the routing facility is to route orders in options to
away markets pursuant to NOM rules, solely on behalf of NOM; (3) NOS
is a member of an unaffiliated self-regulatory organization, which
is the designated examining authority for the broker-dealer; (4) the
routing facility is subject to regulation as a facility of the
NASDAQ Exchange, including the requirement to file proposed rule
changes under Section 19 of the Act; (5) use of NOS to route order
to other market centers is optional; (6) NOM must establish and
maintain procedures and internal controls reasonably designed to
adequately restrict the flow of confidential and proprietary
information between the NASDAQ Exchange and its facilities
(including the routing facility), and any other entity; and (7) the
books, records, premises, officers, directors, agents, and employees
of the routing facility, as a facility of the NASDAQ Exchange, shall
be subject at all times to inspection and copying by the NASDAQ
Exchange and the Commission.
\5\ See Securities Exchange Act Release Nos. 60349 (July 20,
2009), 74 FR 37071 (July 27, 2009) (SR-BX-2009-035); 60354 (July 21,
2009), 74 FR 37074 (July 27, 2009) (SR-NASDAQ-2009-065); 62555 (July
22, 2010), 75 FR 44835 (July 29, 2010) (SR-BX-2010-051); 63364
(November 23, 2010), 75 FR 74121 (November 30, 2010) (SR-BX-2010-
078); 64530 (May 20, 2011), 76 FR 30746 (May 26, 2011) (SR-BX-2011-
027).
\6\ See Chapter XXXIX, Section 2(c) of the Grandfathered Rules
of the Exchange.
\7\ See Securities Exchange Act Release No. 64530 (May 20,
2011), 76 FR 30746 (May 26, 2011) (SR-BX-2011-027).
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Pursuant to prior rule filings with the Commission, BOX and NOS
inbound routing relationship with respect to certain orders has
operated on a pilot basis. In connection with this pilot program, BX
committed to the following:
1. The Exchange and FINRA would enter into a regulatory services
agreement (``Regulatory Contract'') pursuant to which FINRA has been
allocated regulatory responsibilities to review NOS's compliance with
BOX's rules through FINRA's examination program.\8\ The Exchange,
however, retained ultimate responsibility for enforcing its rules with
respect to NOS except to the extent that they are covered by an
agreement with FINRA pursuant to Rule 17d-2 \9\ under the Act (``17d-2
Agreement''), in which case the regulatory responsibility is allocated
to FINRA as provided in Rule 17d-2(d).
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\8\ The Exchange also states that NOS is subject to independent
oversight by FINRA, its Designated Examining Authority, for
compliance with financial responsibility requirements. See
Securities Exchange Act Release No. 60349 (July 20, 2009), 74 FR
37071 (July 27, 2009) (SR-BX-2009-035).
\9\ 17 CFR 240.17d-2.
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2. The Exchange and FINRA would monitor NOS for compliance with the
[[Page 43741]]
BOX's trading rules, and collect and maintain certain related
information; \10\
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\10\ Pursuant to the Regulatory Contract, both FINRA and the
Exchange will collect and maintain all alerts, complaints,
investigations and enforcement actions in which NOS (in routing
orders to BOX) is identified as a participant that has potentially
violated applicable Commission or Exchange rules. The Exchange and
FINRA will retain these records in an easily accessible manner in
order to facilitate any potential review conducted by the
Commission's Office of Compliance Inspections and Examinations.
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3. FINRA has agreed to provide a report to the BOXR's Chief
Regulatory Officer, on at least a quarterly basis, that: (i) Quantifies
all alerts (of which the Exchange and FINRA become aware) that identify
NOS as a participant that has potentially violated Commission or
Exchange rules and (ii) quantifies the number of investigations that
identify NOS as a participant that has potentially violated Commission
or Exchange rules; \11\
4. BX adopted Chapter XXXIX, Section 2(c) of the Grandfathered
Rules of the Exchange, which requires NASDAQ OMX, as the holding
company owning NOS and affiliated with BOX through the ownership of the
Exchange, to establish and maintain procedures and internal controls
reasonably designed to ensure that NOS does not develop or implement
changes to its system on the basis of non-public information regarding
planned changes to BOX's systems, obtained as a result of its
affiliation with BOX, until such information is available generally to
similarly situated BOX participants, in connection with the provision
of inbound order routing to BOX; \12\ and
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\11\ Id.
\12\ See Chapter XXXIX, Section 2(c) of the Grandfathered Rules
of the Exchange.
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5. The Exchange proposed that NOS be authorized to route Exchange
Direct Orders without checking the NOM book; and orders in NOM non-
system securities inbound to the Exchange from NOM for a pilot period
of twelve months, as further extended to August 16, 2011.\13\
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\13\ See supra note 7.
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The Exchange has met all the above-listed conditions. By meeting
the above-conditions, the Exchange has set up mechanisms that protect
the independence of the Exchange's regulatory responsibility with
respect to NOS, as well as demonstrate that NOS cannot use any
information advantage it may have because of its affiliation with the
Exchange and BOX. Since the Exchange has met all the above-listed
conditions, it now seeks permanent approval of the BOX and NOS inbound
routing relationship. The Exchange will continue to comply with the
conditions 1-4 stated above.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\14\ in general, and with
Section 6(b)(5) of the Act,\15\ in particular, in that the proposal 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 regulating, clearing,
settling, processing information with respect to, and 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 proposed rule change would permit inbound routing of orders from
NOM to BOX through NOS in a manner consistent with prior approvals and
established protections. The Exchange believes that having met the
commitments established during the pilot program demonstrates that the
Exchange has mechanisms that protect the independence of the Exchange's
regulatory responsibility with respect to NOS, as well as demonstrate
that NOS cannot use any information advantage it may have because of
its affiliation with the Exchange and BOX.
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\14\ 15 U.S.C. 78f.
\15\ 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 45 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 Exchange consents, the Commission shall: (a) By order approve
or disapprove 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 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-2011-045 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-2011-045. 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 publicly available.
All submissions should refer to File Number SR-BX-2011-045 and
should be submitted on or before August 11, 2011.
[[Page 43742]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18345 Filed 7-20-11; 8:45 am]
BILLING CODE 8011-01-P