[Federal Register Volume 77, Number 102 (Friday, May 25, 2012)]
[Notices]
[Pages 31413-31415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67025; File No. SR-BX-2012-032]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Rule 
4751(f)(7) Concerning the Processing of the Price To Comply Order

May 18, 2012.
    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 May 9, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``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 clarify how the processing of a Price to 
Comply Order under Rule 4751(f)(7) operates based on the method of 
entry. The Exchange will implement the change effective May 14, 2012.
    The text of the proposed rule change is below. Proposed new 
language is in italic; proposed deletions are in [brackets].
* * * * *

4751. Definitions

    The following definitions apply to the Rule 4600 and 4750 Series 
for the trading of securities listed on Nasdaq or a national securities 
exchange other than Nasdaq.
    (a)-(e)
    (f) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1)-(6) No change.
    (7) ``Price to Comply Order'' are orders that, if, at the time of 
entry, a Price to Comply Order would lock or cross the quotation of an 
external market, the order will be priced to the current low offer (for 
bids) or to the current best bid (for offers) and displayed at a price 
one minimum price increment lower than the offer (for bids) or higher 
than the bid (for offers). The displayed and undisplayed prices of a 
Price to Comply order entered through an OUCH port may be adjusted once 
or multiple times depending upon [the method of order entry and] the 
election of the member firm and changes to the prevailing NBBO. The 
displayed and undisplayed prices of a Price to Comply order entered 
through a RASH port may be adjusted multiple times, depending upon 
changes to the prevailing NBBO.
    (8)-(14) No change.
    (g)-(i) No change.
* * * * *

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
    BX is proposing to clarify the effect that the methods of order 
entry have on the processing of a Price to Comply Order, as described 
in Rule 4751(f)(7).\3\ A Price to Comply Order allows a member firm to 
quote aggressively and still comply with the locked and crossed markets 
provisions of Regulation NMS.\4\
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    \3\ ``Price to Comply Order'' is an order such that, if, at the 
time of entry, it would lock or cross the quotation of an external 
market, the order will be priced to the current low offer (for bids) 
or to the current best bid (for offers) and displayed at a price one 
minimum price increment lower than the offer (for bids) or higher 
than the bid (for offers).
    \4\ 17 CFR 242.610.
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    As part of its relaunch of an equities market in January 2009, BX 
adopted substantially similar equities rules to that of its sister 
exchange The NASDAQ Stock Market LLC (``NASDAQ''), including the Price 
to Comply Order type under Rule 4751(f)(7).\5\ NASDAQ amended its Rule 
4751(f)(7) in June 2008.\6\ Prior to June 2008, if at the time of entry 
on NASDAQ a Price to Comply Order would create a violation of SEC Rule 
610(d) by locking or crossing the protected quote of an external market 
or would cause a violation of SEC Rule 611 by trading through such a 
protected quote, the order was converted by the NASDAQ system to a Non-
Displayed Order, as defined in NASDAQ Rule 4751(e)(3),\7\ and re-priced 
to the current low offer (for bids) or to the current best bid (for 
offers). Thereafter, such a Non-Displayed Order would be cancelled by 
the NASDAQ system if the market moved through the price of the order 
after the order was accepted.
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    \5\ Securities Exchange Act Release No. 59154 (December 23, 
2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-48).
    \6\ Securities Exchange Act Release No. 57910 (June 3, 2008), 73 
FR 32776 (June 10, 2008) (SR-NASDAQ-2008-049).
    \7\ ``Non-Displayed Order'' is a limit order that is not 
displayed in the NASDAQ system, but nevertheless remains available 
for potential execution against all incoming orders until executed 
in full or cancelled. BX's definition under Rule 4751(e)(3) mirrors 
that of NASDAQ's.
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    The June 2008 amendment changed how the NASDAQ Price to Comply 
Order operates so that a locking or crossing order is no longer 
converted to a Non-Displayed Order, but rather is displayed at the most 
aggressive price

[[Page 31414]]

possible, one minimum price increment worse than the locking price. 
NASDAQ also added language to the rule, subsequently mirrored in BX 
Rule 4751(f)(7), which noted that NASDAQ may adjust the displayed and 
undisplayed prices of a Price to Comply Order once or multiple times, 
depending on the method of order entry and changes to the National Best 
Bid and Offer (``NBBO''). In the discussion of the rule change, NASDAQ 
explained that the displayed and undisplayed price of an individual 
order may be modified one or more times depending upon the manner of 
order entry into the system. In particular, if a member chooses to 
enter a Price to Comply Order via NASDAQ's RASH protocol, the order is 
priced upon entry and may be adjusted multiple times in response to 
changes in the prevailing NBBO to move the displayed price closer to 
the original entered price and display the best possible price 
consistent with the provisions of Regulation NMS. In addition, each 
time the displayed price is adjusted, the order will receive a new 
timestamp for purposes of determining its price/time priority according 
to NASDAQ's existing processing rules. If a Price to Comply Order is 
entered via NASDAQ's OUCH protocol, however, the order will be repriced 
only upon entry and the order is not repriced in the event the 
prevailing NBBO changes. The BX Price to Comply Order operates in the 
same manner as the NASDAQ Price to Comply Order.
    BX is proposing to amend Rule 4751(f)(7) to clarify the effect that 
the method of order entry has on the processing of the Price to Comply 
Order. As noted above, the method of entry of a Price to Comply Order 
determines whether the order is repriced once or multiple times. This 
will continue to be the case under the amended rule; however, an OUCH 
subscriber will be afforded the choice to have its Price to Comply 
Order be subject to repricing either only once or multiple times. 
Member firms will designate each OUCH protocol order port to use either 
the single or multiple repricing functionality for any Price to Comply 
Order entered via that port.\8\ A RASH subscriber will continue to have 
the Price to Comply Order repriced multiple times, when appropriate. 
The methodology for repricing the Price to Comply Order will not vary 
based on how the order is entered. Like a RASH-entered Price to Comply 
Order, each time the OUCH-entered order is repriced it will receive a 
new timestamp for purposes of determining its price/time priority. As 
such, a repriced Price to Comply Order is treated as a new order in 
terms of priority and, as such, there is no guarantee that the OUCH-
entered Price to Comply Order will receive priority when it becomes 
actionable after repricing.
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    \8\ In the absence of designation from a member firm, BX will 
default the member's OUCH port(s) to single repricing.
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    BX believes that the new functionality and related rule change will 
serve to reduce the order traffic received using the OUCH protocol. BX 
notes that, in certain cases, a member will submit a Price to Comply 
Order at an aggressive price that it anticipates will be at the NBBO. 
Often such an order is not submitted at the NBBO and is not executed 
after repricing because the market does not move to the adjusted order 
price. In these cases, the member firm will typically submit additional 
aggressive orders, which likewise are not executed. Because the OUCH 
protocol is used by member firms that are able to submit a large volume 
of orders, BX believes that offering such firms the ability to have BX 
reprice the Price to Comply Order multiple times will serve to reduce 
the excessive volume of orders entered into the System which are 
ultimately canceled.
    As noted, BX will continue to offer OUCH subscribers an alternative 
to the multiple repricing functionality so that such member firms may 
elect to have a locked or crossed Price to Comply Order repriced only 
once, consistent with the current process. BX believes that this will 
accommodate member firms that seek the certainty of repricing at most 
once or whose trading systems depend on the existing repricing 
mechanism.
2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\9\ in general, and with Section 
6(b)(5) of the Act \10\ 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. BX believes this proposal is 
consistent with the Exchange Act and, specifically, Rules 610 and 611 
of Regulation NMS in that it is designed to prevent orders from locking 
and crossing market or trading through protected quotes, while also 
promoting a more efficient market. In this regard, BX believes that the 
proposed rule change will promote the efficient use of the Exchange by 
reducing the number of orders entered into the market and ultimately 
canceled. The proposed rule change will accomplish this by providing 
the member firms that tend to enter the greatest number of such orders 
an option to have the Exchange reprice a single order multiple times. 
BX also believes that permitting a high volume user the option to 
continue to have the Exchange reprice its Price to Comply Order only 
upon order entry, when appropriate, will ensure member firms with 
internal systems that act in reliance of this function will continue to 
operate without disruption.
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    \9\ 15 U.S.C. 78f.
    \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 
result in any burden on competition that is 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

    Written comments were neither solicited nor received.

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

    Because the foregoing 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(6).
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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. The Exchange has 
provided the Commission written notice of its intent to file the 
proposed rule change, along with a brief

[[Page 31415]]

description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change.

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-2012-032 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-2012-032. 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 (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 
10:00 a.m. and 3:00 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-2012-032 and should be 
submitted on or before June 15, 2012

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-12793 Filed 5-24-12; 8:45 am]
BILLING CODE P