
[Federal Register: March 31, 2009 (Volume 74, Number 60)]
[Notices]               
[Page 14604-14607]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31mr09-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59615; File No. SR-BX-2009-005]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change To Establish New Fees for Services 
Available to Members and Non-Members

March 20, 2009.

I. Introduction

    On January 14, 2009, NASDAQ OMX BX, Inc. (``BX'' or the 
``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 adopt fees applicable to members and non-
members in connection with its cash equities trading business. The 
proposed rule change was published for comment in the Federal Register 
on February 4, 2009.\3\ The Commission did not receive any comment 
letters on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59307 (January 28, 
2009), 74 FR 6069 (SR-BX-2009-005).
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II. Description of the Proposal

    Pursuant to SR-BSE-2008-48, the Exchange adopted a new rulebook 
with rules governing membership, the regulatory obligations of members, 
listing, and equities trading.\4\ The new rules, which are designated 
as the ``Equity Rules,'' are substantially based on the rules of The 
NASDAQ Stock Market LLC (the ``NASDAQ Exchange''). Through this 
proposal, the Exchange seeks to establish non-member and member fees 
for its cash equities trading business.\5\ The Exchange states that the 
proposed fee schedule is similar to the NASDAQ Exchange but differs in 
that it omits several fees that are not pertinent to the Exchange's 
business and differs in the level of certain fees.
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    \4\ Securities Exchange Act Release No. 59154 (December 23, 
2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-48).
    \5\ The Exchange previously adopted fees applicable solely to 
its members. See Securities Exchange Act Release No. 59337 (February 
2, 2009), 74 FR 6441 (February 9, 2009) (SR-BX-2009-004).
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A. Market Data

    The Exchange proposes to establish fees for its BX TotalView data 
product. Like NASDAQ TotalView, BX TotalView will provide all displayed 
quotes and orders in the market, with attribution to the relevant 
market participant, at every price level, as well as total displayed 
anonymous interest at every price level. In recognition of the start-up 
nature of the new market, the data feed will be provided free of charge 
to subscribers and distributors for the first year of operation.
    After the initial free period, subscribers to BX TotalView will pay 
a monthly charge of $20; however, new subscribers receiving BX 
TotalView for the first time after the expiration of the one-year 
introductory period will be able to use the product free of charge for 
an individual 30-day trial period.\6\ Distributors of BX TotalView will 
pay a $1,000 monthly fee to receive the data directly from the 
Exchange, since the Exchange incurs costs to support the connection to 
each direct distributor; indirect distributors (i.e., those receiving 
data from a direct distributor) would not pay this charge.\7\ 
Distributors will also pay a $500 monthly fee to distribute the data 
feed internally (i.e., to employees) and a $1,250 monthly fee to 
distribute to external customers.\8\
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    \6\ See proposed Equity Rule 7023.
    \7\ See proposed Equity Rule 7019.
    \8\ Id.
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    All of the foregoing fees will be waived during the initial free 
period.
    Upon approval of this filing, however, the Exchange will begin to 
assess a limited number of fees in connection with data provision. 
Specifically, extranet providers that connect to the Exchange to 
provide direct access connectivity to market data will be charged a 
monthly access fee of $750 for each technical configuration used to 
provide a connection to a recipient's site.\9\ In addition, data 
distributors will

[[Page 14605]]

pay an annual administrative fee of $500 for delayed distribution of 
data, and $1,000 for real-time distribution.\10\
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    \9\ See proposed Equity Rule 7025.
    \10\ See proposed Equity Rule 7035. These annual administrative 
fees can be waived for colleges and universities receiving the data 
for research and educational purposes.
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    The Exchange is establishing the foregoing fee structure to be 
similar to the structure for NASDAQ TotalView, but at lower overall 
levels than fees for NASDAQ TotalView. The Exchange states that the 
lower fee levels reflect the start-up nature of the Exchange's new 
equities trading platform, and will help to promote competition among 
exchanges with respect to the quoting and trading services. 
Specifically, the Exchange believes that the fees it sets for BX 
TotalView will help to attract order flow to the Exchange. At 
inception, the Exchange will have zero market share. The Exchange 
believes that it must set its fees, including data fees, with a view to 
attracting order flow to increase market share. The Exchange states 
that due to the existence of alternatives for market participants to 
determine market depth--such as other depth of book products that may 
be associated with markets with more liquidity, or order routing 
strategies designed to ascertain market depth--the Exchange has 
incentives to ensure that its fees for BX TotalView are set reasonably.
    The Exchange believes that proposed fee structure for BX TotalView 
is not unreasonably discriminatory, since the fees for subscribers are 
uniform for all subscribers, and the fees for distributors are uniform 
except with respect to reasonable distinctions between internal and 
external distribution and direct and indirect receipt of data. The 
Exchange also believes that the fees are fair and reasonable in that 
they compare favorably to fees charged by other exchanges for 
comparable products.

B. Port Fees

    In order to receive BX TotalView, subscribers must establish 
connectivity to the Exchange through extranets, direct connection, and 
Internet-based virtual private networks. The Exchange proposes to 
charge fees for the ports required to establish these connections, just 
as it will charge for access ports used to enter orders into the 
market.\11\ A port used for order entry cannot also be used to receive 
data; thus, a member seeking to enter orders and receive data would 
require at least two port pairs. Prior to approval of this filing, the 
Exchange will provide data ports free of charge. Thereafter, the 
Exchange will generally charge the same fees for data ports that it 
charges for order entry ports: $400 per month per port pair, plus an 
additional $200 per month for each Internet port that requires 
additional bandwidth due to the demands of the particular subscriber. 
In addition, subscribers wishing to obtain data will also have the 
option of obtaining a Multicast ITCH[supreg] port pair at a fee of 
$1000 per month.\12\ The differences between these two options relate 
to speed and processes for verifying completeness of the data. The 
standard port pair option provides one copy of the data and uses 
procedures under which the system receiving the data communicates back 
to the Exchange to verify completeness of the information. Under the 
Multicast ITCH option, two copies of the data are provided without 
these verification processes, and consequently at a higher rate of 
speed. Because the recipient of the data receives two copies, it can, 
if it wishes, undertake its own verification by programming its systems 
to compare the two copies. The fees for data ports are identical to the 
comparable fees charged by the NASDAQ Exchange.
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    \11\ See Securities Exchange Act Release No. 59337 (February 2, 
2009), 74 FR 6441 (February 9, 2009) (SR-BX-2009-004) (establishing 
Equity Rule 7015 to charge fees for ports used by members to enter 
orders).
    \12\ Equity Rule 7015.
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C. Testing

    The Exchange proposes to establish fees for its testing facility, 
to be set at levels identical to the fees for the NASDAQ Exchange's 
testing facility.\13\ In general, the Exchange will charge $285 per 
hour for an active connection during the facility's normal operating 
hours and $333 per hour for an active connection at other times. 
Because the fees are waived for testing of new, enhanced, or modified 
services and/or software offered by the Exchange, as well as for 
modifications initiated by the Exchange and for a 30-day period for new 
subscribers to existing services, the testing fees will not be charged 
until the later of (i) approval of this filing, or (ii) 30 days after 
the launch of the NASDAQ OMX BX Equities System. Thereafter, as 
provided in the rule, the fees will be waived for a 30-day period for 
each new market participant.
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    \13\ See proposed Equity Rule 7030(d).
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D. Other Fees

    Other fee rules relate to special data requests \14\ and partial 
month charges \15\ and are comparable to corresponding NASDAQ Exchange 
rules.
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    \14\ See proposed Equity Rule 7030(b). This provision allows the 
Exchange to recoup costs associated with responding to ad hoc 
requests for market data, such as requests that may be made by news 
reporters or academic researchers.
    \15\ See proposed Equity Rule 7031. This provision provides that 
market data distributors may elect to be billed on a prorated basis 
during the month of initiation or termination of service.
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III. Discussion

    The Commission has reviewed carefully the proposed rule change and 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\16\ In particular, it is consistent with 
Section 6(b)(4) of the Act,\17\ which requires that the rules of a 
national securities exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other parties using its facilities, and Section 6(b)(5) of the 
Act,\18\ which requires, among other things, that the rules of a 
national securities exchange be designed to promote just and equitable 
principles of trade, 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, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \16\ 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).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposed rule change is 
consistent with the provisions of Section 6(b)(8) of the Act,\19\ which 
requires that the rules of an exchange not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. Finally, the Commission finds that the proposed rule change 
is consistent with Rule 603(a) of Regulation NMS,\20\ adopted under 
Section 11A(c)(1) of the Act, which requires an exclusive processor 
that distributes information with respect to quotations for or 
transactions in an NMS stock to do so on terms that are fair and 
reasonable and that are not unreasonably discriminatory.\21\
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    \19\ 15 U.S.C. 78f(b)(8).
    \20\ 17 CFR 242.603(a).
    \21\ BX is an exclusive processor of BX depth-of-book data under 
Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which 
defines an exclusive processor as, among other things, an exchange 
that distributes information with respect to quotations or 
transactions on an exclusive basis on its own behalf.

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[[Page 14606]]

A. BX Market Data & Port Fees

    The Commission has reviewed the proposal using the approach set 
forth in the NYSE Arca Order for non-core market data fees.\22\ In the 
NYSE Arca Order, the Commission stated that ``when possible, reliance 
on competitive forces is the most appropriate and effective means to 
assess whether the terms for the distribution of non-core data are 
equitable, fair and reasonable, and not unreasonably discriminatory.'' 
\23\ It noted that the ``existence of significant competition provides 
a substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \24\ If an exchange ``was subject to 
significant competitive forces in setting the terms of a proposal,'' 
the Commission will approve a proposal unless it determines that 
``there is a substantial countervailing basis to find that the terms 
nevertheless fail to meet an applicable requirement of the Exchange Act 
or the rules thereunder.'' \25\
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    \22\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order''). In the NYSE Arca Order, the Commission describes in 
great detail the competitive factors that apply to non-core market 
data products. The Commission hereby incorporates by reference the 
data and analysis from the NYSE Arca Order into this order.
    \23\ Id. at 74771.
    \24\ Id. at 74782.
    \25\ Id. at 74781.
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    As noted in the NYSE Arca Order, the standards in Section 6 of the 
Act and Rule 603 of Regulation NMS do not differentiate between types 
of data and therefore apply to exchange proposals to distribute both 
core data and non-core data. Core data is the best-priced quotations 
and comprehensive last-sale reports of all markets that the Commission, 
pursuant to Rule 603(b), requires a central processor to consolidate 
and distribute to the public pursuant to joint-SRO plans.\26\ In 
contrast, individual exchanges and other market participants distribute 
non-core data voluntarily.\27\ The mandatory nature of the core data 
disclosure regime leaves little room for competitive forces to 
determine products and fees.\28\ Non-core data products and their fees 
are, by contrast, much more sensitive to competitive forces. The 
Commission therefore is able to use competitive forces in its 
determination of whether an exchange's proposal to distribute non-core 
data meets the standards of Section 6 and Rule 603.\29\ Because BX's 
instant proposal relates to the distribution of non-core data, the 
Commission will apply the market-based approach set forth in the NYSE 
Arca Order.
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    \26\ See 17 CFR 242.603(b). (``Every national securities 
exchange on which an NMS stock is traded and national securities 
association shall act jointly pursuant to one or more effective 
national market system plans to disseminate consolidated 
information, including a national best bid and national best offer, 
on quotations for and transactions in NMS stocks. Such plan or plans 
shall provide for the dissemination of all consolidated information 
for an individual NMS stock through a single plan processor.'').
    \27\ See NYSE Arca Order at 74779.
    \28\ Id.
    \29\ Id.
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    The proposal before the Commission, in part, relates to fees for BX 
TotalView which are non-core, depth of book market data products, and 
as in the Commission's NYSE Arca Order analysis at least two broad 
types of significant competitive forces applied to BX in setting the 
terms of this proposal: (i) BX's compelling need to attract order flow 
from market participants; and (ii) the availability to market 
participants of alternatives to purchasing BX's depth-of-book order 
data.
    Attracting order flow is the core competitive concern of any equity 
exchange, including BX. Attracting order flow is an essential part of a 
national securities exchange's competitive success. If a national 
securities exchange cannot attract order flow to its market, it will 
not be able to execute transactions. If a national securities exchange 
cannot execute transactions on its market, it will not generate 
transaction revenue. If a national securities exchange cannot attract 
orders or execute transactions on its market, it will not have market 
data to distribute, for a fee or otherwise, and will not earn market 
data revenue and thus not be competitive with other exchanges that have 
this ability. Table 1 below provides a useful recent snapshot of the 
state of competition in the U.S. equity markets in the month of January 
2009: \30\
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    \30\ Source: ArcaVision (available at http://
www.arcavision.com).

                   Table 1--Reported Share Volume in U.S.-Listed Equities During January 2009
                                                       [%]
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                          Trading venue                             All stocks      NYSE-Listed    NASDAQ-Listed
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NASDAQ..........................................................            27.1            20.5            39.9
All Non-Exchange................................................            26.7            26.2            31.0
NYSE Arca.......................................................            17.9            15.7            15.8
NYSE............................................................            14.8            26.2             0.0
BATS............................................................            10.7             9.0            10.8
International Stock Exchange....................................             1.3             1.4             1.4
National Stock Exchange.........................................             0.6             0.7             0.7
Chicago Stock Exchange..........................................             0.4             0.4             0.3
CBOE Stock Exchange.............................................             0.2             0.0             0.1
NYSE Alternext..................................................             0.1             0.0             0.0
NASDAQ OMX BX...................................................             0.0             0.0             0.0
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    The market share percentages in Table 1 strongly indicate that BX 
must compete vigorously for order flow to maintain its share of trading 
volume. This compelling need to attract order flow imposes significant 
pressure on BX to act reasonably in setting its fees for BX market 
data, particularly given that the market participants that must pay 
such fees often will be the same market participants from whom BX must 
attract order flow. These market participants particularly include the 
large broker-dealer firms that control the handling of a large volume 
of customer and proprietary order flow. Given the portability of order 
flow from one trading venue to another, any exchange that sought to 
charge unreasonably high data fees would risk alienating many of

[[Page 14607]]

the same customers on whose orders it depends for competitive 
survival.\31\
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    \31\ See NYSE Arca Order at 74783.
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    In addition to the need to attract order flow, the availability of 
alternatives to BX's TotalView data significantly affect the terms on 
which BX can distribute this market data.\32\ In setting the fees for 
its BX TotalView data, BX must consider the extent to which market 
participants would choose one or more alternatives instead of 
purchasing the exchange's data.\33\ Of course, the most basic source of 
information generally available at an exchange is the complete record 
of an exchange's transactions that is provided in the core data 
feeds.\34\ In this respect, the core data feeds that include an 
exchange's own transaction information are a significant alternative to 
the exchange's market data product.\35\
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    \32\ See Richard Posner, Economic Analysis of Law Sec.  9.1 (5th 
ed. 1998) (discussing the theory of monopolies and pricing). See 
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger 
Guidelines Sec.  1.11 (1992), as revised (1997) (explaining the 
importance of alternatives to the presence of competition and the 
definition of markets and market power). Courts frequently refer to 
the Department of Justice and Federal Trade Commission merger 
guidelines to define product markets and evaluate market power. See, 
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C. 
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In 
considering antitrust issues, courts have recognized the value of 
competition in producing lower prices. See, e.g., Leegin Creative 
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta 
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990); 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific 
Railway Co. v. U.S., 356 U.S. 1 (1958).
    \33\ See NYSE Arca Order at 74783.
    \34\ Id.
    \35\ Id.
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    For more specific information concerning depth, market participants 
can choose among products offered by the various exchanges and 
ECNs.\36\ The various self-regulatory organizations, the several Trade 
Reporting Facilities of FINRA, and ECNs that produce proprietary data 
are all sources of competition. In addition, market participants can 
assess depth with tools other than market data, such as ``pinging'' 
orders that search out both displayed and nondisplayed size at all 
price points within an order's limit price.\37\
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    \36\ See NYSE Arca Order at 74784.
    \37\ Id.
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    In sum, there are a variety of alternative sources of information 
that impose significant competitive pressures on the BX in setting the 
terms for distributing its depth-of-book order data. The Commission 
believes that the availability of those alternatives, as well as the 
BX's compelling need to attract order flow, imposed significant 
competitive pressure on the BX to act equitably, fairly, and reasonably 
in setting the terms of its proposal.
    Because the BX was subject to significant competitive forces in 
setting the terms of the proposal, the Commission will approve the 
proposal in the absence of a substantial countervailing basis to find 
that its terms nevertheless fail to meet an applicable requirement of 
the Act or the rules thereunder. An analysis of the proposal does not 
provide such a basis. Further, the Commission did not receive any 
comment letters raising concerns of a substantial countervailing basis 
that the terms of the proposal failed to meet the requirements of the 
Act or the rules thereunder.
    The Commission notes that BX is effectively entering the 
competitive markets for equities trading as a start-up venture. If its 
fees are not set at a level that will promote competition in these 
markets, potential users will simply continue to obtain services from 
the Exchange's multiple competitors. Accordingly, the Exchange must set 
fees for market data and transaction executions that promote the 
Exchange as a trading venue. If its fees are set at inappropriately 
high levels, market participants will seek to avoid using the Exchange, 
and the Exchange' market data will have little value to market 
participants. Thus, consistent with the analysis set forth in the NYSE 
Arca Order, the Exchange's operations, products and services must be 
designed to promote competition in order to succeed and provide market 
participants with viable and cost-effective alternatives to existing 
competitors.

B. Testing and Other Fees

    The Exchange proposes to establish new fees for its testing 
facility at the rates of $285 per hour for an active connection during 
the facility's normal operating hours and $333 per hour for an active 
connection at other times. Under the proposal, the Exchange will waive 
fees for testing of new, enhanced, or modified services and/or software 
offered by the Exchange, as well as for modifications initiated by the 
Exchange and for a 30-day period for new subscribers to existing 
services, the testing fees will not be charged until the later of (i) 
approval of this filing, or (ii) 30 days after the launch of the NASDAQ 
OMX BX Equities System. Thereafter, fees will be waived for a 30-day 
period for each new market participant. The Commission notes that the 
Exchanges's new fees for its testing facility are at levels identical 
to the fees for the NASDAQ Exchange's testing facility.\38\
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    \38\ See proposed Equity Rule 7030(d).
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    In addition, the Exchange proposes new fee rules related to special 
data requests to allow the Exchange to recoup costs associated with 
responding to ad hoc requests for market data, such as requests that 
may be made by news reporters or academic researchers.\39\ The Exchange 
also proposes fees for partial month charges to enable market data 
distributors to elect to be billed on a prorated basis during the month 
of initiation or termination of service.\40\ The Commission notes that 
these new fees for special data requests and partial month charges are 
similar to corresponding NASDAQ Exchange rules.
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    \39\ See proposed Equity Rule 7030(b).
    \40\ See proposed Equity Rule 7031.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\41\ that the proposed rule change (SR-BX-2009-005) be, and hereby 
is, approved.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7085 Filed 3-30-09; 8:45 am]
