[Federal Register Volume 77, Number 75 (Wednesday, April 18, 2012)]
[Notices]
[Pages 23316-23317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9284]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66792; File No. SR-BX-2012-025]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Chapter V, Section 16 of the BOX Trading Rules

April 12, 2012.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on April 3, 2012, NASDAQ OMX BX, Inc. (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as constituting a non-controversial rule 
change under Rule 19b-4(f)(6) under the Act,\3\ 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\ 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

    NASDAQ OMX BX, Inc. (the ``Exchange'') proposes to amend Chapter V, 
Section 16 of the rules of the Boston Options Exchange (``BOX'') to 
address how BOX processes inbound orders when the BOX best price on the 
same side of the market locks, or is locked by the opposite side 
national best bid or offer (``NBBO''). 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/, 
and on the Commission's Web site at http://www.sec.gov.

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 Exchange 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 Exchange 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 purpose of the proposed rule change is to amend Chapter V, 
Section 16 of the BOX Rules to address how inbound orders are processed 
when the BOX best price on the same side of the market locks, or is 
locked by the opposite side national best bid or offer (``NBBO''). 
Currently, Chapter V, Section 16(b) sets forth that inbound orders on 
BOX are filtered prior to their entry on the BOX Book to ensure such 
orders will not Trade-Through the NBBO in accordance with the Options 
Order Protection and Locked/Crossed Market Plan (the ``Plan''). The 
rule provides that all of the filtering rules described are independent 
of whether the NBBO is locked or crossed, except where the BOX best 
price on the same side of the market as the inbound order has crossed, 
or is crossed by the opposite side NBBO, the order will be routed, if 
eligible, or rejected immediately. The Exchange proposes to amend the 
rule so that, in addition, where the BOX best price on the same side of 
the market as the inbound order has locked, or is locked by, the 
opposite side NBBO, the order will also be routed, if eligible, or 
rejected immediately. As such, the BOX trading engine is systemically 
either routing to an Away Exchange \4\ or immediately rejecting such an 
order. Immediately rejecting such an order, which is not eligible for 
routing, prevents that order from being exposed,\5\ and thereby removes 
the potential that such order could join the pre-existing locked 
market.
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    \4\ See BOX Trading Rules, Chapter XII, Section 5(a), providing 
in pertinent part, ``[o]nly orders that are specifically designated 
by Options Participants as eligible for routing will be routed to an 
Away Exchange (``Eligible Orders).
    \5\ See Chapter V, Section 16(b)(iii), providing that where an 
order is received which is executable against the NBBO and there is 
not a quote on BOX that is equal to the NBBO, that the order is 
exposed on the BOX Book at the NBBO for a period of one second. If 
the order is not executed during the one second exposure period, 
then the order is either routed or cancelled.
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    The following two examples illustrate how the proposed rule change 
would apply to inbound orders when the BOX best price on the same side 
of the market locks the opposite side NBBO and the orders are not 
designated as Eligible Orders: Example 1: When the NBBO is $6.65 x 
$6.60 and the BOX best price is $6.60 x $6.80, BOX receives a public 
customer order to buy at $6.60. Such an order is rejected by the 
trading engine back to the order sender. Example 2: When the NBBO is x 
$4.00 x $4.00 and the BOX best price is $4.00 x$4.05, BOX receives a 
public customer order to buy at $4.00. Such an order is rejected by the 
trading engine. In the above examples, if the order was an Eligible 
Order, then the order will be routed to an Away Exchange.
    The BOX NBBO filtering process set forth in Chapter V, Section 16 
continues to be designed in a manner to prevent a sell order from being 
executed on BOX at a price inferior to the best bid available at any 
Away Exchange; similarly, any order to buy would not be executed on BOX 
at a price worse than the best offer available at any Away Exchange. 
Finally, Section (b)(i) is being amended to reflect that the term ISO 
is defined in subsection (h) of Chapter XII

[[Page 23317]]

and not (g) as currently reflected in Section 16(b)(i).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it is designed to perfect 
the mechanisms of a free and open market and the national market 
system, protect investors and the public interest and promote just and 
equitable principles of trade by proposing the rule change to address 
how BOX processes inbound orders when the BOX best price on the same 
side of the market locks, or is locked by the opposite side national 
best bid or offer (``NBBO'').
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    \6\ 15 U.S.C 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Plan provides a framework for order protection and addressing 
locked and crossed markets. As discussed above, the proposed rule 
change provides that where the BOX best price on the same side of the 
market as an inbound order has crossed or locked, or is crossed by, or 
locked by the opposite side NBBO, the order will be routed, if 
eligible, or rejected immediately. The Exchange believes handling the 
order as described above is consistent with the objectives of the Plan 
and assists BOX Options Participant in that it systemically removes the 
potential that such an order could join a pre-existing locked market. 
As such, the Exchange believes the proposed rule change is consistent 
with the Plan, necessary and appropriate in the public interest, for 
the protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe 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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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 for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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 requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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 email to [email protected]. Please include 
File Number SR-BX-2012-025 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-2012-025. This file 
number should be included on the subject line if email 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 (PREAMB). 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 the 
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-2012-025 and should be submitted on or before May 9, 
2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9284 Filed 4-17-12; 8:45 am]
BILLING CODE 8011-01-P