
[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Notices]
[Pages 50971-50975]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72883; File No. SR-BX-2014-035]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change Relating to Market Maker Quoting 
Obligations and the Introduction of a Lead Market Maker

August 20, 2014.

I. Introduction

    On June 19, 2014, NASDAQ OMX BX, Inc. (``BX'' or the ``Exchange''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed with the Securities 
and Exchange Commission (the ``Commission'') a proposed rule change 
relating to market maker quoting obligations and the introduction of a 
lead market maker. The proposed rule change was published for public 
comment in the Federal Register on July 8, 2014.\3\ The Commission 
received no comment letters on the proposed rule change. 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\ Securities Exchange Act Release No. 72502 (Jul. 1, 2014), 79 
FR 38620 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend the current BX Market Maker quoting 
obligations and adopt rules to permit BX Market Makers to act as Lead 
Market Makers (``LMMs''), provided the LMM meets certain obligations 
and quoting requirements. In addition, the Exchange proposes to provide 
assigned LMMs with certain participation entitlements. Finally, the 
Exchange proposes to provide Public Customers with priority when the 
Price/Time execution algorithm is in effect.

A. BX Market Maker Quoting Obligations

    Currently, Chapter VII, Section 6(d)(i) of the BX Options Rules 
provides that on a daily basis, a Market Maker must during regular 
market hours make markets consistent with the applicable quoting 
requirements specified in the 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. Chapter VII, Section 6(d)(i)(1) of the BX 
Options Rules provides that, to satisfy this requirement with respect 
to quoting a series, a Market Maker must quote such series 90% of the 
trading day (as a percentage of the total number of minutes in such 
trading day).
    BX proposes to reduce the quoting requirement for BX Options Market 
Makers so a Market Maker must quote the options in which it is 
registered 60% of the trading day (as a percentage of the total number 
of minutes in such trading day) or such higher percentage as BX may 
announce in advance. In addition, this quoting obligation would apply 
to all of a Market Maker's registered options collectively on a daily 
basis. This quoting obligation would be reviewed on a monthly basis, 
and would allow the Exchange to review the Market Maker's daily 
compliance in the aggregate and determine the appropriate disciplinary 
action for single or multiple failures to comply with the continuous 
quoting requirement during the month period. However, determining 
compliance with the continuous quoting requirement on a monthly basis 
would not relieve a Market Maker of the obligation to provide 
continuous two-sided quotes on a daily basis, nor would it prohibit the 
Exchange from taking disciplinary action against a Market Maker for 
failing to meet the continuous quoting obligation each trading day.

B. Lead Market Maker Allocation

    Currently, there are two types of Options Participants on BX: 
Options Order Entry Firms and Options Market Makers. The Exchange 
proposes to add a third type of Options Participant: an LMM. An 
approved BX Options Market Maker \4\ may become an LMM in one or more 
listed options. Under the proposal, initial application(s) to become an 
LMM would be in a form and/or format prescribed by the Exchange and 
would include: (1) Background information on the LMM, including 
experience in trading options; (2) the LMM's clearing arrangements; (3) 
adequacy of capital; and (4) adherence to Exchange rules and ability to 
meet the obligations of an LMM.\5\ Subsequent applications would be in 
a form and/or format prescribed by the Exchange and would include the 
information requested therein, including, but not limited to, an 
account of the abilities and background of the applicant as well as any 
other special requirements that the Exchange may require.\6\ Once an 
applicant is approved by the Exchange as an LMM, any material change in 
capital would be reported in writing to the Exchange within two 
business days after the

[[Page 50972]]

change.\7\ BX would not place any limit on the number of entities that 
may become LMMs, but there would only be one LMM per class.
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    \4\ See Chapter VII, Section 2.
    \5\ See proposed BX Options Rules at Chapter VII, Section 
13(A)(b).
    \6\ See proposed BX Options Rules at Chapter VII, Section 
13(A)(c).
    \7\ See proposed BX Options Rules at Chapter VII, Section 
13(A)(d).
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    When an options class is to be allocated or reallocated by the 
Exchange, the Exchange would solicit applications from all eligible 
LMMs. If the Exchange determines that special qualifications should be 
sought in the successful applicant, it would indicate such desired 
qualifications in the notice.\8\
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    \8\ See proposed BX Options Rules at Chapter VII, Section 
13(B)(a).
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    Under the proposal, allocation applications would be submitted in 
writing to the Exchange's designated staff and would include, at a 
minimum, the name and background of the LMM, the LMM's experience and 
capitalization demonstrating an ability to trade the particular options 
class sought, and any other reasons why the LMM believes it should be 
assigned or allocated the security. In addition, the Exchange may also 
require that applications include other information such as system 
acceptance/execution levels and guarantees. The Exchange would be 
permitted to re-solicit applications for any reason, including if it 
determines that its initial solicitation resulted in an insufficient 
number of applicants.\9\
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    \9\ See proposed BX Options Rules at Chapter VII, Section 
13(B)(b).
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    Allocation decisions and automatic allocations would be 
communicated in writing to Exchange members. Once the LMM is allocated 
an issue, such LMM would immediately notify the Exchange in writing of 
any change to the respective system acceptance/execution levels or any 
other material change in the application for any assigned issue. If an 
LMM seeks to withdraw from allocation in a security, it would be 
required to notify the Exchange at least one business day prior to the 
desired effective date of such withdrawal.\10\ Options on Related 
Securities would be automatically allocated to the LMM that is already 
the LMM in Currently Allocated Options (as defined hereafter).\11\ Only 
one LMM would be permitted to be allocated to an options class.\12\
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    \10\ See proposed BX Options Rules at Chapter VII, Section 
13(B)(c)(d) and (e).
    \11\ See proposed BX Options Rules at Chapter VII, Section 
13(B)(g).
    \12\ The Exchange is defining the term ``Related Securities'' 
for purpose of Chapter VII, Section 13 as follows: ``Related 
Securities means, but is not limited to: securities of a partially 
or wholly owned subsidiary; securities that are convertible into the 
securities of the issuer; warrants on securities of the issuer; 
securities issued in connection with a name change; securities 
issued in a reverse stock split; contingent value rights; 
``tracking'' securities designed to track the performance of the 
underlying security or corporate affiliate thereof; securities 
created in connection with the merger or acquisition of one or more 
companies; securities created in connection with a ``spin-off'' 
transaction; convertible on non-convertible senior securities; and 
securities into which a listed security is convertible, where such 
Related Securities emanate from or are related to securities 
underlying options that are currently allocated to an LMM on the 
Exchange (``Currently Allocated Options''). The term Related 
Securities would not include Exchange Traded Funds. See proposed BX 
Options Rules at Chapter VII, Section 13(B)(f).
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    The Exchange would allocate new options classes, or reallocate 
existing options classes to applicants based on the results of such 
factors as the Exchange deems appropriate. Among the factors that the 
Exchange may consider in making such decisions are: The number and type 
of securities in which applicants are currently registered; the capital 
and other resources of the applicant; recent allocation decisions 
within the past eighteen months; the desirability of encouraging the 
entry of new LMMs into the Exchange's market; order flow commitments; 
any prior transfers of LMM privileges by the applicant and the reasons 
therefor and such policies as the Board instructs the Exchange to 
follow in allocating or reallocating securities. The Exchange would 
also be permitted to consider: Quality of markets data; observance of 
ethical standards and administrative responsibilities. Solely with 
respect to options class allocations or reallocations, past or 
contemplated voluntary delisting of options by LMMs, done in the best 
interest of the Exchange, would not be viewed negatively by the 
Exchange in making allocation and reallocation decisions. The Exchange 
would be permitted to allocate option classes for a limited period of 
time or subject to such other terms and conditions as it deems 
appropriate.\13\
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    \13\ See proposed BX Options Rules at Chapter VII, Section 
13(C).
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    Requests to allocate or transfer allocation, or transfer of an 
options class request would be made in writing to the Exchange and such 
transfer may only be made to an approved LMM. The LMM would be assigned 
to an options class for a period defined by the Exchange. The Exchange 
would communicate such period in solicitation applications. The 
Exchange may re-allocate an options class after the defined period has 
expired.\14\
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    \14\ See proposed BX Options Rules at Chapter VII, Section 
13(D).
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C. LMM Obligations and Quotations

    Under the Proposal, the Exchange would require that LMM 
transactions constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and no LMM 
should enter into transactions or make bids or offers that are 
inconsistent with such a course of dealings.\15\ Further, with respect 
to each class of options in his or her appointment, an LMM would be 
expected to engage, to a reasonable degree under the existing 
circumstances, in dealings for his own account when there exists, or it 
is reasonably anticipated that there will exist, a lack of price 
continuity, a temporary disparity between the supply of and demand for 
a particular option contract, or a temporary distortion of the price 
relationships between option contracts of the same class. Without 
limiting the foregoing, an LMM would be expected to perform certain 
additional activities in the course of maintaining a fair and orderly 
market pursuant to proposed Chapter VII, Section 14(b).\16\
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    \15\ See proposed BX Options Rules at Chapter VII, Section 
14(a).
    \16\ See proposed BX Options Rules at Chapter VII, Section 
14(b).
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    With respect to unusual conditions, if the interest of maintaining 
a fair and orderly market so requires, BX Regulation may declare that 
unusual market conditions exist in a particular issue and allow LMMs in 
that issue to make auction bids and offers with spread differentials of 
up to two times, or in exceptional circumstances, typically up to three 
times, the legal limits permitted under BX Options Rules. In making 
such determinations to allow wider markets, BX Regulation would 
consider certain enumerated factors.\17\ In the event that BX 
Regulation determines that unusual market conditions exist in any 
option, it would be the responsibility of BX Regulation to file a 
report with BX operations setting forth the relief granted for the 
unusual market conditions, the time and duration of such relief and the 
reasons therefor.\18\
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    \17\ See proposed BX Options Rules at Chapter VII, Section 
14(c).
    \18\ See proposed BX Options Rules at Chapter VII, Section 
14(c)(i).
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    In classes of options other than those to which the LMM is 
appointed, LMMs would not be permitted to engage in transactions for an 
account in which they have an interest that are disproportionate in 
relation to, or in derogation of, the performance of their obligations 
as specified in BX Options

[[Page 50973]]

Rules with respect to the classes in their appointment. Furthermore, 
LMMs would not be permitted to: (1) Individually or as a group, 
intentionally or unintentionally, dominate the market in option 
contracts of a particular class; and (2) effect purchases or sales on 
the Exchange except in a reasonable and orderly manner.\19\
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    \19\ See proposed BX Options Rules at Chapter VII, Section 
14(d).
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    LMMs would be prohibited from (1) any practice or procedure whereby 
LMMs trading any particular option issue determine by agreement the 
spreads or option prices at which they will trade that issue; and (2) 
any practice or procedure whereby LMMs trading any particular option 
issue determine by agreement the allocation of orders that may be 
executed in that issue.\20\
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    \20\ See proposed BX Options Rules at Chapter VII, Section 
14(e).
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    An LMM would be permitted to enter quotations only in the issues 
included in its appointment. An LMM would be required to provide 
continuous two-sided quotations throughout the trading day in its 
appointed issues for 90% of the time the Exchange is open for trading 
in each issue. Such quotations would be required to meet the legal 
quote width requirements of the BX Options Rules. These obligations 
would apply to all of the LMM's appointed issues collectively, rather 
than on an option-by-option basis. Compliance with this obligation 
would be determined on a monthly basis. BX Regulation may consider 
exceptions to the requirement to quote 90% (or higher) of the trading 
day based on demonstrated legal or regulatory requirements or other 
mitigating circumstances. However, determining compliance with the 
continuous quoting requirement on a monthly basis would not relieve an 
LMM of the obligation to provide continuous two-sided quotes on a daily 
basis, nor would it prohibit the Exchange from taking disciplinary 
action against an LMM for failing to meet the continuous quoting 
obligation each trading day.\21\
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    \21\ See proposed BX Options Rules at Chapter VII, Section 
14(f)(1).
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    If a technical failure or limitation of a system of the Exchange 
prevents an LMM from maintaining, or prevents an LMM from communicating 
to the Exchange, timely and accurate electronic quotes in an issue, the 
duration of such failure would not be considered in determining whether 
the LMM has satisfied the 90% quoting standard with respect to that 
option issue. The Exchange would be permitted to consider other 
exceptions to this continuous electronic quote obligation based on 
demonstrated legal or regulatory requirements or other mitigating 
circumstances.\22\ An LMM may be called upon by BX Regulation to submit 
a single quote or maintain continuous quotes in one or more series of 
an option issue within its appointment whenever, in the judgment of BX 
Regulation, it is necessary to do so in the interest of maintaining 
fair and orderly markets.\23\
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    \22\ See proposed BX Options Rules at Chapter VII, Section 
14(f)(1)(i).
    \23\ See proposed BX Options Rules at Chapter VII, Section 
14(f)(2).
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    An LMM would be compelled to buy/sell a specified quantity of 
option contracts at the disseminated bid/offer pursuant to his 
obligations with respect to firm quotes. All quotes and orders entered 
into the System by Options Participants are firm under BX Options Rules 
Chapter VII, Section 14(f) and Rule 602 of Regulation NMS under the 
Exchange Act (``SEC Rule 602'') for the number of contracts specified 
and according to the size requirements set forth under BX Options 
Rules. Market Maker bids and offers are not firm under BX Options Rules 
Chapter VII, Section 14(f) and SEC Rule 602: (1) For the period prior 
to the Opening Cross; or (2) if any of the circumstances provided in 
paragraphs (b)(3) or (c)(4) of SEC Rule 602 exist.\24\ The obligations 
of BX Options Rules Chapter VII, Section 14(f) would not apply to LMMs 
with respect to adjusted option series, quarterly options series, or 
any series with a time to expiration of nine months or greater. For 
purposes of BX Options Rules Chapter VII, Section 14(f), an adjusted 
option series would be an option series wherein, as a result of a 
corporate action by the issuer of the underlying security, one option 
contract in the series represents the delivery of other than 100 shares 
of underlying security.\25\
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    \24\ See proposed BX Options Rules at Chapter VII, Section 
14(f)(3).
    \25\ See proposed BX Options Rules at Chapter VII, Section 
14(f)(4).
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D. Lead Market Maker Priority

    The Exchange proposes to provide LMM participation entitlements in 
Chapter VI (Trading Systems) at Section 10. Specifically, with respect 
to Size Pro-Rata executions, the Exchange would afford an LMM a 
participation entitlement if the LMM's bid/offer is at the Exchange's 
disseminated price and all Public Customer \26\ orders have been fully 
executed.\27\ The LMM would not be entitled to receive a number of 
contracts that is greater than the displayed size associated with such 
LMM. LMM participation entitlements would be considered after the 
opening process. A BX Options LMM would receive the greater of: The 
LMM's Size Pro-Rata share; 50% of remaining interest if there is one or 
no other Market Maker at that price; 40% of remaining interest if there 
are two other Market Makers at that price; or 30% of remaining interest 
if there are more than two other Market Makers at that price; or if 
rounding would result in an allocation of less than one contract, a BX 
Options LMM would receive one contract. Rounding would be up or down to 
the nearest integer.
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    \26\ See Chapter I, Section 1(50). The term ``Public Customer'' 
means a person that is not a broker or dealer in securities.
    \27\ Price Improving Orders will retain price priority before an 
LMM participation entitlement is provided at the Exchange's 
disseminated price. See Chapter VI, Sections 1(a)(6) and 7(b)(3)(B).
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    Orders for 5 contracts or fewer would be allocated to the LMM. The 
Exchange would review this provision quarterly and would maintain the 
small order size at a level that would not allow orders of 5 contracts 
or fewer executed by the LMM to account for more than 40% of the volume 
executed on the Exchange. After all Public Customer orders have been 
fully executed and LMM participation entitlements applied, if 
applicable, BX Options Market Makers would have priority over all other 
Participant orders at the same price.\28\
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    \28\ See Notice, supra note 3 for examples illustrating the 
manner in which an LMM would be allocated contracts pursuant to the 
Size Pro-Rata model under the proposed rule change.
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    With respect to Price/Time executions, the Exchange proposes to 
provide that the highest bid and lowest offer would have priority 
except that Public Customer orders would have priority over non-Public 
Customer orders at the same price. Currently, Public Customer orders do 
not have priority over non-Public Customer orders at the same price. If 
there are two or more Public Customer orders for the same options 
series at the same price, priority would be afforded to such Public 
Customer orders in the sequence in which they are received by the 
System. For purposes of BX Options Rules Chapter VI, Section 
10(1)(C)(1)(a), a Public Customer order would not include a 
Professional Order. Public Customer Priority would always be in effect 
when the Price/Time execution algorithm is in effect.\29\ This would be 
a substantive change which would provide Public Customer orders with 
priority over non-Public Customer orders at the same price for 
executions under the Price/Time execution algorithm. Similar language 
would also

[[Page 50974]]

be added to BX Options Rules Chapter VI, Section 10(1)(C)(2)(i) to 
conform the Size Pro-Rata language for clarity. Public Customer 
priority has been in effect when the Size Pro-Rata execution algorithm 
has been in effect. This amendment to the Size Pro-Rata language would 
seek to clarify Public Customer priority with respect to that 
algorithm. The Public Customer priority overlay recognizes the unique 
status of customers in the marketplace and the role their orders play 
in price competition and adding depth to the marketplace.
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    \29\ See proposed Chapter VI, Section 10(1)(C)(1)(a).
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    The Exchange proposes that LMM participant entitlements may be in 
effect when the Public Customer Priority Overlay is also in effect. 
After all Public Customer orders have been fully executed, upon receipt 
of an order, provided the LMM's bid/offer is at the Exchange's 
disseminated price, the LMM would be afforded a participation 
entitlement.\30\ The LMM would not be entitled to receive a number of 
contracts that is greater than the displayed size associated with such 
LMM. A BX Options LMM would receive the greater of: (a) Contracts the 
LMM would receive if the allocation was based on time priority with 
Public Customer priority; (b) 50% of remaining interest if there is one 
or no other Market Maker at that price; (c) 40% of remaining interest 
if there are two other Market Makers at that price; or (d) 30% of 
remaining interest if there are more than two other Market Makers at 
that price or if rounding would result in an allocation of less than 
one contract, a BX Options LMM would receive one contract. Rounding 
would be up or down to the nearest integer.
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    \30\ Price Improving Orders will retain price priority before an 
LMM participation entitlement is provided at the Exchange's 
disseminated price. See Chapter VI, Sections 1(a)(6) and 7(b)(3)(B).
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    Orders for 5 contracts or fewer would be allocated to the LMM. The 
Exchange would review this provision quarterly and would maintain the 
small order size at a level that would not allow orders of 5 contracts 
or fewer executed by the LMM to account for more than 40% of the volume 
executed on the Exchange.\31\
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    \31\ See Notice, supra note 3 for examples illustrating the 
manner in which an LMM would be allocated contracts pursuant to the 
Price/Time model under the proposed rule change.
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    The Exchange proposes to implement this proposed rule change by 
rolling out the rule amendments on an option-by-option basis over a 
period of time. The Exchange would issue Options Trader Alerts in 
advance to inform market participants of the timing of implementation 
of this proposed rule change for various symbols.

III. Commission Findings

    After careful consideration, 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.\32\ The Commission believes that the proposal is consistent 
with Section 6(b)(5) \33\ in particular in that it 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 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.
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    \32\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \33\ 15 U.S.C. 78f(b)(5).
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A. BX Market Maker Quoting Obligations

    BX proposes to reduce the quoting requirement for BX Options Market 
Makers so a Market Maker must quote the options in which it is 
registered 60% of the trading day (as a percentage of the total number 
of minutes in such trading day) or such higher percentage as BX may 
announce in advance. In addition, this quoting obligation would apply 
to all of a Market Maker's registered options collectively on a daily 
basis. This quoting obligation would be reviewed on a monthly basis, 
and would allow the Exchange to review the Market Maker's daily 
compliance in the aggregate and determine the appropriate disciplinary 
action for single or multiple failures to comply with the continuous 
quoting requirement during the month period. The Commission notes that 
determining compliance with the continuous quoting requirement on a 
monthly basis would not relieve a Market Maker of the obligation to 
provide continuous two-sided quotes on a daily basis, nor would it 
prohibit the Exchange from taking disciplinary action against a Market 
Maker for failing to meet the continuous quoting obligation each 
trading day. The Commission believes that the proposed changes to the 
quoting obligations of Market Makers are consistent with the Act. The 
Commission notes that the proposed changes to the quoting obligations 
of Market Makers are consistent with market maker obligations in place 
on other markets.\34\
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    \34\ See NYSE Arca Rule 6.37B(c) and NYSE MKT Rule 925.1NY(c).
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B. Lead Market Makers

    The Exchange proposes to add a third type of Options Participant: 
An LMM. Each market maker who desires to be an LMM would be required to 
submit an application to the Exchange. In allocating an option series, 
the Exchange would consider a number of factors including but not 
limited to, the number and type of securities in which applicants are 
currently registered; the capital and other resources of the applicant; 
recent allocation decisions within the past eighteen months; the 
desirability of encouraging the entry of new LMMs into the Exchange's 
market; order flow commitments; any prior transfers of LMM privileges 
by the applicant and the reasons therefore; quality of markets data; 
and observance of ethical standards and administrative responsibilities 
and such policies as the Board instructs the Exchange to follow in 
allocating or reallocating securities.
    With respect to an LMM's obligations, the Exchange would require 
LMMs to be subject to heightened standards as compared to other market 
makers. An LMM would be required to provide continuous two-sided 
quotations throughout the trading day in its appointed issues for 90% 
of the time the Exchange is open for trading in each issue. Such 
quotations would be required to meet legal quote width requirements. 
These obligations would apply to all of the LMM's appointed issues 
collectively, rather than on an option-by-option basis. Compliance with 
this obligation would be determined on a monthly basis.\35\
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    \35\ The Commission notes that, as is the case with market 
makers, determining compliance with the continuous quoting 
requirement on a monthly basis would not relieve an LMM of the 
obligation to provide continuous two-sided quotes on a daily basis, 
nor would it prohibit the Exchange from taking disciplinary action 
against an LMM for failing to meet the continuous quoting obligation 
each trading day.
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    In addition, an LMM's transactions would be required to constitute 
a course of dealings reasonably calculated to contribute to the 
maintenance of a fair and orderly market. An LMM would be required to 
engage in dealings for his own account when there exists, or it is 
reasonably anticipated that there will exist, a lack of price 
continuity, a temporary disparity between the supply of and demand for 
a particular option contract, or a temporary distortion of the price 
relationships between option contracts of the same class. An LMM would 
be required to: (1) To compete

[[Page 50975]]

with other LMMs to improve the market in all series of options classes 
to which the LMM is appointed; (2) to make markets that will be honored 
for the number of contracts entered into the Trading System in all 
series of options classes within the LMM's appointment; (3) to update 
market quotations in response to changed market conditions in all 
series of options classes within the LMM's appointment; and (4) to 
quote with a difference not to exceed $5 (or such other quote width 
difference established by BX Regulation) between the bid and offer 
regardless of the price of the bid.
    Under the proposal, an LMM would be entitled to a participation 
guarantee, as described more fully in Section II.D above, if the LMM's 
bid/offer is at the Exchange's disseminated price and all Public 
Customer orders have been fully executed.
    The Commission believes that the proposed rules regarding LMMs are 
consistent with the Act and raise no novel issues. The Commission notes 
that the proposed rules regarding LMMs are substantially similar to the 
rules of other exchanges.\36\ The Commission also believes that the 
Exchange's proposed priority and allocation rules are consistent with 
the Act. The Commission has previously approved participation 
guarantees for LMMs, provided such LMM meets specified, higher quoting 
obligations.\37\ The Commission believes that these guarantees strike a 
reasonable balance between rewarding certain participants for making 
markets and providing other market participants an incentive to quote 
aggressively.
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    \36\ See e.g., NASDAQ OMX PHLX Rules 501, 505, 506 and 511 and 
NYSE Arca Rules 6.37A and 6.37B.
    \37\ See e.g., Rule 8.87 of the Chicago Board Options Exchange, 
Incorporated.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-BX-2014-035), is hereby approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20209 Filed 8-25-14; 8:45 am]
BILLING CODE 8011-01-P


