
[Federal Register Volume 77, Number 213 (Friday, November 2, 2012)]
[Notices]
[Pages 66204-66207]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26858]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68116; File No. SR-BX-2012-069]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Elimination of Market Maker Pre-Opening Obligations on BX Options

October 26, 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 October 16, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``BX Options'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II 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

    BX is filing with the Commission a proposal to modify Chapter VII, 
Section 6 (Market Maker Quotations), to eliminate market maker pre-
opening obligations on BX Options. The Exchange also proposes to modify 
Chapter VII, Section 5 (Obligations of Market Makers) to conform it to 
Section 6.
    The Exchange requests that the Commission waive the 30-day 
operative

[[Page 66205]]

delay period contained in Rule 19b-4(f)(6)(iii) of the Act.\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com/, at BX's principal office, and at the 
Commission's Public Reference Room.

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 modify Chapter VII, 
Section 6 of the BX Options rulebook to remove obligations imposed on 
BX Options market makers (``Market Makers'') \4\ to participate in the 
pre-opening phase in terms of continuous quotes; and to conform Section 
5 to Section 6 as modified. This is done to put Market Makers on par 
with the market makers on other options exchanges that have not had 
pre-market continuous quoting obligations.\5\
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    \4\ A Market Maker is a BX Options participant that is 
registered with the Exchange as a Market Maker and has certain 
rights and bears certain responsibilities beyond those of other 
Options Participants. All Market Makers are designated as 
specialists on BX Options. See Chapter VII, Section 2.
    \5\ NASDAQ OMX PHLX LLC (``Phlx''), and International Securities 
Exchange, LLC (``ISE'') have market pre-opening phases. However, 
Phlx and ISE do not, as discussed in the proposal, impose pre-
opening obligations on their respective options market makers; none 
of the exchanges require continuous quoting prior to the regular 
options trading market. Moreover, as discussed in the proposal, NOM 
has filed an immediately effective filing similarly eliminating pre-
opening obligations on their options market makers. See Securities 
Exchange Act Release No. 67722 (August 23, 2012), 77 FR 52375 
(August 29, 2012)(SR-NASDAQ-2012-095)(notice of filing and immediate 
effectiveness).
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    The Exchange notes that its proposal is similar to a recent rule 
change to Chapter VII, Section 6 of the NASDAQ Options Market (``NOM'') 
rulebook.\6\ The proposed rule change language to Chapter VII, Section 
6 of the BX Options rulebook is identical in all respects to that of 
the rule change language to Chapter VII, Section 6 of the NOM 
rulebook.\7\
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    \6\ See Securities Exchange Act Release No. 67722 (August 23, 
2012), 77 FR 52375 (August 29, 2012) (SR-NASDAQ-2012-095) (notice of 
filing and immediate effectiveness).
    \7\ As a result, subsequent to this amendment NOM and BX Options 
Chapter VII, Section 6 will have exactly the same amended rule 
language.
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    Currently, Section 6 of Chapter VII requires that a Market Maker 
must enter continuous bids and offers in options in which the Market 
Maker is registered on BX Options, an all-electronic market. 
Specifically, Section 6(d)i. requires that on a daily basis a Market 
Maker must: (1) Participate in the pre-opening phase; and (2) 
thereafter make markets consistent with the applicable quoting 
requirements specified in BX Options rules, on a continuous basis in at 
least sixty percent (60%) of the series in options in which the Market 
Maker is registered. Additionally, subsection 6(d)(i.1) indicates that 
to satisfy the Section 6(d)i. requirement with respect to quoting a 
series, a Market Maker must: (3) quote such series 90% of the trading 
day (as a percentage of the total number of minutes in such trading 
day) or such higher percentage as BX Options may announce in 
advance.\8\ The Exchange does not propose to change any of the 
continuous quoting requirements applicable to a Market Maker (e.g., 
continuous quoting in 60% of the Market Maker's registered series for 
90% of the trading day) \9\ other than to eliminate the requirement to 
participate in the pre-opening phase in Section 6(d)i., which is noted 
in (1) above.
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    \8\ Subsection (6)(d)(i.2) establishes that three different 
types of option series are exempted from the continuous quote 
requirements: quarterly option series, adjusted option series, and 
series with an expiration of nine months or greater.
    For continuous quotation requirements on BX Options generally, 
see Chapter XIV, Section 6(d).
    \9\ The BX Options trading day, which represents the regular 
market hours, is 9:30 a.m. to 4:00 p.m. Eastern Time, except for 
option contracts on fund shares or broad-based indexes which will 
close as of 4:15 p.m. Eastern Time. Chapter VI, Section 2. The 
regular market hours on Phlx, ISE, and NOM are similar to BX 
Options.
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    Subsequent to this proposal, a Market Maker will continue to have 
all of the other quoting obligations that the Market Maker now has 
pursuant to Section 6, and pursuant to Section 6(d)i., during regular 
market hours will be responsible to quote on a continuous basis in at 
least sixty percent (60%) of the series in options in which the Market 
Maker is registered for 90% of the trading day (as a percentage of the 
total number of minutes in such trading day). The change that the 
Exchange is proposing to Section 6(d)i. is removal of the Market Maker 
pre-opening quoting obligation and the insertion of text clarifying 
that the quoting obligation is during regular market hours.\10\ As a 
result of the Exchange's proposed rule filing, the BX Options 
continuous quoting requirement on BX Options' electronic market makers 
will not have a pre-opening quoting obligation, just as other options 
exchanges (e.g., Phlx, ISE, and NOM) do not impose a pre-opening 
obligation on their electronic market makers.
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    \10\ Section 6(d)i. currently states, in relevant part:
    i. On a daily basis, a Market Maker must participate in the pre-
opening phase and thereafter make markets consistent with the 
applicable quoting requirements specified in these rules, on a 
continuous basis in at least sixty percent (60%) of the series in 
options in which the Market Maker is registered.
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    Phlx, ISE, and NOM have a continuous quoting obligation during 
their regular market hours, which are similar to BX Options' market 
hours.\11\ However, these exchanges do not have an obligation for their 
market makers to participate in a pre-opening phase. On Phlx, for 
example, a Remote Streaming Quote Trader (``RSQT''),\12\ which is 
similar in nature to a BX Options Market Maker, has an obligation 
during trading hours to quote markets in not less than 60% of the 
series in which such RSQT is assigned (this is akin to BX Options 
Market Maker registration in a series). Unlike a BX Options Market 
Maker, which currently has a pre-opening obligation, a Phlx RSQT does 
not have a pre-opening market maker obligation.\13\ As a second 
example, there is a quoting requirement for an ISE market maker. 
However, just like Phlx, and unlike BX Options, ISE does not have a 
pre-opening market maker obligation.\14\ And as a further example, 
there is a quoting requirement for a NOM market maker. However, just 
like Phlx and ISE, and unlike BX Options, NOM does not have a pre-
opening

[[Page 66206]]

market maker obligation.\15\ The proposed filing establishes that BX 
Options Market Makers, like Phlx, ISE, and NOM market makers, will not 
have a pre-opening quoting obligation prior to market open.\16\
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    \11\ See supra note 9.
    \12\ A Phlx RSQT is a Registered Options Trader that is a member 
or member organization with no physical trading floor presence that 
may generate and submit option quotations electronically in assigned 
options. See Phlx Rule 1014(b)(ii)(B). While the designation of RSQT 
does not exist on BX Options, a BX Options Market Maker enters 
quotes electronically on BX Options just as an RSQT does on Phlx 
pursuant to specific quoting obligations. See BX Options Chapter 
VII, Section 6(d) and Phlx Rule 1014(b)(ii)(D).
    \13\ For the Phlx continuous quoting rule, see Phlx Rule 
1014(b)(ii)(D)(1).
    \14\ ISE rule 804(e)(2)(iii) states, in relevant part, that a 
Competitive Market Maker must maintain continuous quotations in an 
options class to which it is appointed and at least 60% of the 
series of the options class listed on the Exchange until the close 
of trading that day.
    \15\ ISE rule 804(e)(2)(iii) states, in relevant part, that a 
Competitive Market Maker must maintain continuous quotations in an 
options class to which it is appointed and at least 60% of the 
series of the options class listed on the Exchange until the close 
of trading that day.
    \16\ The two-sided quote obligation is noted also in Chapter 
VII, Section 5(a)i., which states that during trading hours a Market 
Maker must maintain a two-sided market, pursuant to Section 6(d)i. 
of Chapter VII, in those options in which the Market Maker is 
registered to trade, in a manner that enhances the depth, liquidity 
and competitiveness of the market.
    Recognizing the requirement to maintain a two-sided market 
during trading hours per Section 5(a)i., the Exchange is removing 
reference in Section 5(a)ii. to a Market Maker having to enter two-
sided quotes before market open by participating in opening the 
market. This is done for purposes of conforming Section 5(a)ii. with 
proposed Section 6(d)i., which eliminates quoting obligations in the 
pre-opening phase before the market opens.
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    Exchange Market Makers have noted that unlike BX Options, other 
options exchanges do not have a pre-opening quoting obligation for 
their market makers, and have requested the Exchange to eliminate the 
pre-opening obligation so that BX Options rules are similar to those of 
other options exchanges such as, for example, NOM and Phlx. This 
proposed rule change levels the playing field in respect of pre-opening 
obligations while leaving all other BX Options quoting requirements 
intact.\17\
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    \17\ Chapter VII, Section 6(d).
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    Moreover, the Exchange believes that its proposal to put BX Options 
market makers in the same position as market makers on other exchanges 
will not have a negative effect on BX Options investors and traders 
(``BX Options participants''). In particular, the Exchange believes the 
removal of pre-opening market maker obligations on BX Options will have 
no impact on the functioning of the BX Options opening process and in 
turn will not negatively impact BX Options participants. The Exchange 
generally requires two other option markets to be open prior to BX 
Options initiating an opening process.\18\ In addition, orders and 
quotes executed during the opening process on BX Options will continue 
to be protected by the National Best Bid or Offer (``NBBO''). As such, 
the Exchange believes that BX Options participants will continue to 
have a similar experience and quality of execution on the opening on BX 
Options as they do today.
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    \18\ For the BX Options opening process, see Chapter VI, Section 
8; and for a description of the two options market opening process, 
see http://www.nasdaqtrader.com/Content/TechnicalSupport/BXOptions_SystemSettings.pdf.
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    The Exchange believes further that the proposed rule change 
eliminating pre-opening obligations should be pro-competitive in that 
it will attract more Market Makers, and additional liquidity, onto BX 
Options. This should be advantageous to traders and investors executing 
trading and hedging strategies on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ in particular, in that the proposal is 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. The Exchange believes the proposal to conform Market 
Maker obligations to the requirements of competing markets will promote 
the application of consistent trading practices. Therefore, the 
Exchange believes the proposal promotes just and equitable principles 
of trade and serves to protect investors and the public interest.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes the proposal removes a market 
maker quoting requirement that is unnecessary, as evidenced by the fact 
that it does not exist on other competitive markets. The Exchange 
operates in a highly competitive market comprised of ten U.S. options 
exchanges in which sophisticated and knowledgeable market participants 
can, and do, send order flow to competing exchanges if they deem 
trading practices at a particular exchange to be onerous or cumbersome. 
With this proposal, the Market Maker will be relieved of a market maker 
requirement that does not materially improve the quality of the 
markets. On the contrary, the pre-open phase obligation creates an 
additional obligation and burden on BX Options Market Makers that does 
not exist on numerous other competitive markets. The Exchange believes 
that in this competitive marketplace, the impact of the pre-open 
trading practice that exists on the Exchange today compels this 
proposal. It will allow Market Makers on the Exchange to follow rules 
that are similar to the rules of other options exchanges that do not 
impose pre-opening obligations on their market makers, and will allow 
Market Makers to focus on aspects of their operations that contribute 
to the market in a more efficient and meaningful way.

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. To the contrary, BX Options' 
proposal to eliminate the pre-opening obligation on Market Makers is 
consistent with the market maker obligations on other options 
exchanges, which do not impose pre-opening obligations on market 
makers. The Exchange believes that its proposal is pro-competitive and 
should serve to attract market making activity and increase liquidity 
provision on BX Options.

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 from the date on which it was filed, 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 \21\ and Rule 19b-4(f)(6) 
thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \23\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6) \24\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay, noting that doing 
so will allow Market Makers on the Exchange to follow rules that are 
similar

[[Page 66207]]

to the rules of other options exchanges that do not impose pre-opening 
obligations on their market makers. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ For purposes only of waiving the 30-day operative delay, 
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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    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.

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 rule-comments@sec.gov. Please include 
File Number SR-BX-2012-069 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-2012-069. 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 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-2012-069 and should be 
submitted on or before November 23, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26858 Filed 11-1-12; 8:45 am]
BILLING CODE 8011-01-P


