
[Federal Register: April 6, 2009 (Volume 74, Number 64)]
[Notices]               
[Page 15551-15552]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap09-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59654; File No. SR-BX-2009-008]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change Allowing Entry of Orders Into the PIP at 
a Price Matching the National Best Bid or Offer

March 30, 2009.

I. Introduction

    On February 9, 2009, NASDAQ OMX BX, Inc. (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 allow 
Exchange Options Participants to enter orders into the Price 
Improvement Period (``PIP'') at a price that matches

[[Page 15552]]

the national best bid or offer (``NBBO''). The proposed rule change was 
published for comment in the Federal Register on February 23, 2009.\3\ 
The Commission received no comments 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. 59407 (February 13, 
2009), 74 FR 8132.
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II. Description of the Proposal

    The Exchange's PIP currently allows Options Participants to enter 
two-sided orders for execution at a price that improves upon the 
NBBO.\4\ The customer side of the order (``PIP Order'') is submitted to 
the PIP with a matching guaranteed contra order (the ``Primary 
Improvement Order''), equal to the full size of the PIP Order. Under 
the current rules of the Boston Options Exchange Group, LLC (``BOX''), 
the Primary Improvement Order must represent a higher bid (lower offer) 
than that of the NBBO at the time of the commencement of the PIP. The 
PIP Order is then exposed to all Options Participants to give them an 
opportunity to participate in the trade at the proposed cross price or 
better.
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    \4\ See BOX Rules Chapter V, Section 18(e).
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    The Exchange proposes to modify its rules to permit an Options 
Participant to enter a Primary Improvement Order into the PIP at a 
price that is equal to the NBBO at the time of the commencement of the 
PIP. In addition, the Exchange proposes that, at the commencement of 
the PIP, all quotes and orders on the BOX Book prior to the PIP 
Broadcast that are equal to or better than \5\ the Primary Improvement 
Order price (i.e., the PIP start price), except any proprietary quote 
or order from the Options Participant who submitted the Primary 
Improvement Order,\6\ will be immediately executed against the PIP 
Order in price/time priority.\7\ At the conclusion of the PIP, the PIP 
Order will be matched against the best prevailing quote(s) or order(s) 
on BOX in accordance with the current PIP rule, except the Exchange 
proposes that any pre-PIP Broadcast proprietary quote or order from the 
Options Participant who submitted the Primary Improvement Order will 
not be executed against the PIP Order.\8\
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    \5\ BOX has clarified that there are two types of quotes/orders 
that could have a price better than the PIP start price: (1) An Auto 
Auction Order (``AAO''); and (2) an order that is in the process of 
being filtered by the BOX Trading Host pursuant to BOX Rules Chapter 
V, Section 16. Electronic mail from Wayne Pestone, Chief Legal 
Officer, Boston Options Exchange, dated March 30, 2009.
    \6\ These proprietary quotes or orders will continue to be 
available for execution with all other types of quotes and orders as 
currently permissible under BOX Rules.
    \7\ See proposed BOX Rules Chapter V, Section 18(e)(i). Orders 
on the BOX Book will include AAO Limit Orders on the BOX Book. The 
AAO will immediately execute against the PIP Order at the AAO Limit 
Order Price (i.e. the displayed price at the minimum trading 
increment).
    \8\ See proposed BOX Rules Chapter V, Section 18(e)(iii).
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III. Discussion

    After careful review, the Commission 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 
and, in particular, with Section 6(b)(5) of the Act,\9\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, 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.\10\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 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).
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    The Commission believes that the proposed rule change will continue 
to provide customers with an opportunity for price improvement over the 
NBBO.\11\ The Commission notes that once a Primary Improvement Order is 
submitted into the PIP auction, the Primary Improvement Order may not 
be cancelled.\12\ Therefore, the PIP Order submitted to the PIP auction 
will be guaranteed an execution price of at least the NBBO and, 
moreover, will be given an opportunity for execution at a price better 
than the NBBO. Further, BOX's current rules provide for broad 
participation in a PIP auction,\13\ which should provide the 
opportunity for a meaningful, competitive auction. Moreover, the 
Commission believes that the proposal may encourage increased 
participation in the PIP by BOX members willing to trade with the PIP 
Order at the NBBO but not better than the NBBO. Increased participation 
would decrease the proportion of a PIP Order that would be internalized 
by the submitting Options Participant.
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    \11\ The Commission notes that it also recently approved an ISE 
proposed rule change that permits ISE members to enter an order into 
the PIM at a price that is equal to the NBBO when the ISE's best bid 
or offer is inferior to the NBBO. See Securities Exchange Act 
Release No. 57847 (May 21, 2008), 73 FR 30987 (May 29, 2008) (SR-
ISE-2008-29).
    \12\ See BOX Rules Chapter V, Section 18(e)(ii).
    \13\ See BOX Rules, Chapter V, Section 18(e)(i). Specifically, 
BOX's PIP permits market-makers to submit competing orders for their 
own account and all non-market-maker members (referred to as ``Order 
Flow Providers'') to submit competing orders for their own account 
or for the account of public customers or non-market-maker broker-
dealers.
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    The Commission also notes that the proposal will maintain the 
priority of pre-existing orders on the BOX Book by providing that all 
quotes and orders on the BOX Book prior to the PIP Broadcast that are 
equal to or better than the Primary Improvement Order price will be 
immediately executed against the PIP Order in price/time priority 
(except any proprietary quote or order from the Options Participant 
that submitted the Primary Improvement Order). Further, the Commission 
notes that by precluding these proprietary orders and quotes from 
immediately executing against the PIP Order, the proposal is consistent 
with BOX rules that provide that an Options Participant may not execute 
as principal an order it represents as agent unless the agency order is 
given an opportunity to first interact with other trading interest.\14\
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    \14\ See BOX Rules, Chapter V, Section 17.
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    Accordingly, the Commission finds that the proposed rule change is 
consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-BX-2009-008) be, and hereby 
is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-7588 Filed 4-3-09; 8:45 am]
