[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Page 6608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2800]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66306; File No. SR-BX-2011-084]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Granting Approval of Proposed Rule Change To Reduce the Duration of the 
Price Improvement Period (``PIP'') From One Second to One Hundred 
Milliseconds

February 2, 2012.

I. Introduction

    On December 7, 2011, NASDAQ OMX BX, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to reduce the 
duration of the Price Improvement Period (``PIP'') of the Boston 
Options Exchange Group, LLC (``BOX''), a facility of the Exchange, from 
one second to one hundred milliseconds. The proposed rule change was 
published for comment in the Federal Register on December 22, 2011.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65987 (December 16, 
2011), 76 FR 79734 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The PIP is an auction system that is used by BOX Options 
Participants to execute their agency orders as principal, with a 
potential for customer price improvement. The BOX Options Participant 
may submit any size customer order, along with a matching contra 
proprietary order at a price equal to the national best bid or offer, 
into the PIP. After submission of that customer order, PIP will send 
out a broadcast message to other BOX Options Participants, who may 
enter orders (``Improvement Orders'') competing against the original 
contra side proprietary order. At the conclusion of the auction, the 
customer order would be matched on a price and time priority with 
orders on the opposite side, subject to certain conditions. Currently, 
the PIP lasts one second from the dissemination of the PIP broadcast. 
The Exchange proposes to reduce the duration of the PIP from one second 
to one hundred milliseconds.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\4\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\5\ which, among other 
things, requires that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
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.
---------------------------------------------------------------------------

    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that, given advances in the electronic 
trading environment, reducing the duration of the PIP from one second 
to one hundred milliseconds could facilitate the prompt execution of 
orders while continuing to provide market participants with an 
opportunity to compete for bids and/or offers without compromising the 
ability for adequate exposure and participation in PIP. To substantiate 
that BOX Options Participants could receive, process, and communicate a 
response back to BOX within one hundred milliseconds, the Exchange 
stated that it distributed a survey to its members that would be 
affected by this proposal or that regularly participate in the PIP. 
According to the Exchange, 14 of 16 participants responded, at least in 
part, to the survey, and nine participants responded that they can 
receive, process, and communicate multiple PIP responses back to BOX 
within substantially less than 100 milliseconds.\6\
---------------------------------------------------------------------------

    \6\ See Notice, supra note 3, 76 FR at 79735.
---------------------------------------------------------------------------

    In addition, the Exchange stated that BOX reviewed PIP execution 
data by its participants during the three-month period from May to July 
of 2011. The Exchange stated that BOX's review indicated that 
approximately 85% of Improvement Orders executed at the conclusion of a 
PIP were submitted within 100 milliseconds of the initial PIP Order.\7\ 
Approximately 78% of Improvement Orders executed at the end of a PIP 
were submitted in less than ten milliseconds, and 70% were submitted in 
less than five milliseconds.\8\ Thus, according to the Exchange, 
participants whose PIP responses averaged greater than one hundred 
milliseconds made a conscious decision to delay responses, but such 
participants operate electronic systems which enable them to 
sufficiently react and respond to multiple PIP broadcasts within one 
hundred milliseconds, if they chose to do so.\9\
---------------------------------------------------------------------------

    \7\ Id.
    \8\ Id.
    \9\ Id.
---------------------------------------------------------------------------

    Based on the Exchange's statements regarding the survey results and 
the review of its PIP data, the Commission believes that market 
participants should continue to have meaningful opportunities to 
participate in the PIP if the exposure period is reduced to one hundred 
milliseconds, and accordingly, finds that the proposed rule change is 
consistent with the requirement of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-BX-2011-084), be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2800 Filed 2-7-12; 8:45 am]
BILLING CODE 8011-01-P