
[Federal Register: March 11, 2009 (Volume 74, Number 46)]
[Notices]               
[Page 10634-10636]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11mr09-155]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59497; File No. SR-BX-2009-015]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change Relating to Order Handling and Exposure 
Periods on the Boston Options Exchange Facility

March 4, 2009.
    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 February 27, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule 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 amend certain Rules of the Boston Options 
Exchange (``BOX'') to reduce the order handling and exposure periods 
contained within the BOX Rules from three seconds to one second. 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/.

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 purpose of the proposed rule change is to reduce the order 
handling and exposure periods from three seconds to one second in the 
Supplementary Material to Section 17 (Customer Orders and Order Flow 
Providers) and in Section 18 (The Price Improvement Period (``PIP'')) 
of Chapter V (Doing Business on BOX) of the BOX Rules. These sections 
require that orders entered into the BOX limit order book (``BOX 
Book''), or the PIP, respectively, are currently exposed to all market 
participants for three seconds before the orders are automatically 
executed, giving Options Participants (``Participants'') an opportunity 
to enter additional trading interests.
    Chapter V of the BOX Rules outlines certain requirements related to 
order handling by BOX Options Participants and Market Makers. A 
Participant may not execute an order it represents as agent with a 
facilitation or a solicited order unless it complies with the order 
exposure requirements contained in Chapter V, Section 17, Supplementary 
Materials .02 and .03. Specifically, Supplementary Material .02 to 
Section 17 provides that an Options Participant may not cause the 
execution of an order it represents as agent on BOX through the use of 
orders it solicited unless the agency order is first exposed to the BOX 
Book for at least three seconds. Furthermore, Supplementary Material 
.03 to Section 17 provides that an order flow provider (``OFP'') may 
not execute as principal an order it represents as agent unless the OFP 
(i) exposes the order to the BOX Book for three seconds; (ii) has been 
bidding or offering on BOX for at least three seconds prior to 
receiving an agency order that is executable against such bid or offer; 
or (iii) sends the agency order to the PIP or Universal Price 
Improvement Period (``UPIP''). Under the proposal, these time periods 
would be reduced to one second.
    The Exchange is also proposing to reduce the PIP in Section 18 of 
Chapter V from three seconds to one second. Currently the PIP allows 
Participants to designate certain customer orders for price improvement 
and submit such orders to the PIP with a matching contra order 
(``Primary Improvement Order''). Once an order is submitted to the PIP, 
BOX broadcasts a message to Options Participants that commences the PIP 
and (1) states that a Primary Improvement Order has been processed; (2) 
contains information concerning series, size, price and side of the 
market of the order; and (3) states when the PIP will conclude. This 
proposal would reduce the PIP to one second.
    When approving the existing three second order handling and 
exposure periods, the Commission concluded that, in the electronic 
environment of BOX, reducing these time periods to three seconds was 
fully consistent with the electronic nature of the BOX market.\3\ BOX 
recognized that three seconds would not be long enough to allow human 
interaction with orders. Rather, Participants have been operating with 
sufficiently automated electronic systems so that they can react and 
respond to orders in a meaningful way within three seconds and BOX 
fully anticipates that this will continue within the proposed one 
second time frame. BOX believes that further reducing its order 
handling and exposure periods from three seconds to one second will 
benefit all market participants. BOX believes it is in all 
participants' best interests to minimize the time of the exposure 
period while continuing to allow Participants adequate time to 
electronically respond, as both the order being exposed and 
Participants responding are subject to market risk during the exposure 
period. Indeed, most participants wait until the end of the last second 
of the current three second period before responding to exposed orders 
so as to minimize market risk. BOX believes that one second will 
continue to provide market participants with sufficient time to 
respond, compete, and provide price improvement for orders and will 
provide investors and other market participants with more timely 
executions, thereby reducing their market risk.
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    \3\ See Securities Exchange Act Release No. 53854; (May 24, 
2006), 71 FR 30975 (May 31, 2006) (SR-BSE-2006-23).
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    Recently, BOX distributed a survey to Participants that regularly 
participate in the PIP or would otherwise be affected by this proposal. 
To substantiate that its Participants could receive, process, and 
communicate a response back to BOX within one second, the survey asked 
Participants to identify (i) approximately how many milliseconds it 
takes for an order broadcast from BOX

[[Page 10635]]

to reach their systems; (ii) approximately how many milliseconds it 
takes their systems to generate a response to an order broadcast; (iii) 
approximately how many milliseconds it takes their response to an order 
broadcast to reach BOX; and (iv) whether or not a reduction of the PIP 
and facilitation and solicitation order exposure time periods to one 
second would impair their ability to participate in BOX PIPs or 
facilitation or solicitation orders. The survey results indicate that 
the time it takes a message to travel between BOX and its Participants 
typically is not more than fifty milliseconds each way.\4\ The survey 
also indicated that it typically takes not more than ten milliseconds 
for Participant systems to process the information and generate a 
response. Thus, the survey indicated that it typically takes at most 
110 milliseconds for Participants to receive, process, and respond to 
broadcast messages related to the PIP or facilitation or solicitation 
related broadcasts and for such responses to reach BOX. Additionally, 
Participants indicated that reducing the exposure period to one second 
would not impair their ability to participate in orders executed 
through the PIP or facilitation or solicitation orders.\5\ The Exchange 
believes that this information provides additional support for its 
assertion that reducing the exposure periods from three seconds to one 
second will continue to provide Participants with sufficient time to 
ensure effective interaction with orders.
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    \4\ Seventeen firms responded to the survey. Thirteen of the 
seventeen responded to the specific timing questions.
    \5\ All of the thirteen Participants that responded to the 
specific timing questions, and two of the four Participants that did 
not answer the specific timing questions, indicated that reducing 
the exposure time periods to one second would not impair their 
ability to participate in BOX PIPs or facilitation or crossing 
orders.
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    BOX Participants are able to respond to PIP orders in less than one 
second and this rule change could provide additional customer orders an 
opportunity for price improvement because it will reduce the market 
risk for Participants that are required to guarantee an execution at 
the National Best Bid/Offer (``NBBO'') or better. Accordingly, BOX does 
not believe it is necessary or beneficial to the orders being exposed 
to continue to subject them to market risk for a full three seconds.
    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 of the reduction of the 
order handling and exposure periods from three seconds to one second. 
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,\6\ in general, and Section 
6(b)(5) of the Act,\7\ 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 of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
In particular, the proposed rule change will provide investors with 
more timely execution of their options orders, while ensuring that 
there is an adequate exposure of all crossing orders on BOX.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange 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.
    The Exchange has requested accelerated approval of this proposed 
rule change prior to the 30th day after the date of publication of the 
notice in the Federal Register. The Commission is considering granting 
accelerated approval of the proposed rule change at the end of a 15-day 
comment period.

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 rule-comments@sec.gov. Please include 
File Number SR-BX-2009-015 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-2009-015. 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 inspection and 
copying in the Commission's Public Reference Room, on business days 
between the hours of 10 a.m. and 3 p.m., located at 100 F Street, NE., 
Washington, DC 20549. 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-2009-015 and should

[[Page 10636]]

be submitted on or before March 26, 2009.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-5130 Filed 3-10-09; 8:45 am]

BILLING CODE 8011-01-P
