Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Implement a Quote Mitigation Plan, 68655-68657 [E6-19983]
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Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,4 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,5 in particular, in that the
proposed rule change is designed to
foster cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to 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.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments on the proposed
rule change were neither solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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:
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–BSE–2006–49 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–BSE–2006–49. This file number
should be included on the subject line
if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site at https://www.sec.gov/
rules/sro.shtml. Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–BSE–2006–49 and should be
submitted on or before December 18,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.6
Nancy M. Morris,
Secretary.
[FR Doc. E6–19979 Filed 11–24–06; 8:45 am]
BILLING CODE 8011–01–P
68655
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54779; File No. SR–BSE–
2006–48]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
of Proposed Rule Change To
Implement a Quote Mitigation Plan
November 17, 2006.
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
November 15, 2006, the Boston Stock
Exchange, Inc. (‘‘BSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been substantially prepared by the
BSE. The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Boston Options Exchange (‘‘BOX’’)
Rules to add a Quote Mitigation Plan.
The text of the proposed rule change is
available on the BSE’s Web site at
https://www.bostonstock.com, at the
BSE’s Office of the Secretary, 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
BSE 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
sroberts on PROD1PC70 with NOTICES
Electronic Comments
Background and Introduction
• Use the Commission’s Internet
comment form https://www.sec.gov/
rules/sro.shtml; or
The U.S. options industry has
witnessed an explosion in market
broadcast data traffic over the past six
4 15
5 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Aug<31>2005
16:58 Nov 24, 2006
1 15
6 17
Jkt 211001
PO 00000
CFR 200.30–3(a)(12).
Frm 00127
Fmt 4703
2 17
Sfmt 4703
U.S.C. 78s(b)(1).
CFR 240.19b–4.
E:\FR\FM\27NON1.SGM
27NON1
68656
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
years due to a number of factors,
including, but not limited to:
• Automation of the quote updating
mechanisms used by market makers and
specialists;
• Two additional, fully automated
exchanges;
• Opening of access to market making
status at several exchanges, resulting in
multiple ‘‘quote streamers’’ versus the
previous environment where essentially
only one market maker, the ‘‘specialist’’,
was able to electronically stream quote
updates into the exchange trading
systems; and
• Proliferation of additional options
instruments due to additional options
classes and narrower intervals between
strike prices (‘‘dollar pilot’’).
While the trends which have caused
the dramatic increase in options market
data traffic have been to the benefit of
the investor in terms of improved
market quality due to increased
competition on the liquidity provider
side of the market, they are not without
costs. Specifically, according to the
Exchange, the Order Flow Providers
(‘‘OFPs’’) and market data vendors find
it increasingly difficult to provide realtime and accurate market data to
investors without contemplating
significant increases in the costs to the
end users (either in the form of higher
rates in the case of the data vendors or
higher commissions in the case of the
OFPs). It is common belief that this
trend will be exacerbated by the
implementation of the ‘‘penny pilot
program’’ in January 2007.
Many observers feel that a point of
diminishing returns has been reached
where the marginal extra cost of yet
more traffic is not justified in terms of
improved market quality or information
to the investor. Allowing for different
levels of service whereby the end user
would pay for the level of market data
he wished to receive (e.g. a user wanting
real-time, across the board data would
pay more than a user who only required
market data refreshing at, say, halfsecond intervals) has been rejected by
the industry as presenting an ‘‘unlevel
playing field’’ which would ultimately
be to the detriment of the private
investor. Furthermore, there are ‘‘firm
quote obligations’’ that each exchange
must take into account in any strategy
it used to reduce traffic.
sroberts on PROD1PC70 with NOTICES
Quote Mitigation
The Exchange believes it is possible to
significantly reduce overall peak market
data traffic with a relatively small
impact on the quality of information
available to options market users, due to
the following:
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
• Diminishing Returns of Speed:
‘‘Timeliness’’ of quote updates does
indeed have a point of diminishing
returns and it is likely that, so long as
all options traders and investors are
receiving information at the same rate of
‘‘delay’’ from pure ‘‘real time’’, they are
willing to allow similar information to
be ‘‘bundled’’ and broadcast with a
reasonable delay. For example, a series
with ten market makers, all of whom are
at the same price on the bid and the
offer, and who, in response to
information on the underlying security’s
price, wish to update their markets to
the same new prices (an admittedly
simplistic assumption) can be managed
by simply bundling some of the updates
so long as the ‘‘slowest’’ message due to
this bundling is no higher than an
agreed upon lapse. Using this approach,
what would have been ten individual
updates may be reduced to one update,
a reduction of 90%.
• All Series Are Not of Equal Interest
to Investors: BOX presently lists slightly
fewer than 500 options classes
represented by 80–85,000 different
instruments. Market Makers have an
obligation to provide continuous two
way markets on virtually all of them,
representing a staggering amount of
update traffic if markets are turbulent.
However, not all of these instruments
are of ‘‘equal interest’’ to options
investors. Indeed trading volume tends
to concentrate on a relatively small
percentage of the overall universe of
instruments; arguably, investors and
traders are quite willing to tolerate
reasonable update delays in those
instruments deemed to be of lesser
interest. For example, over 25% of all
series cleared by the Options Clearing
Corporation (‘‘OCC’’) have open interest
below 100 contracts, a reasonable
indication that the updates concerning
over one-quarter of the marketplace are
of minimal interest.
• Certain Updates Are More
‘‘Interesting’’ Than Others: There are
three types of updates:
a. Those that represent a change in
price at the top of the book;
b. Those that represent an increase in
quantity at the same price at the top of
the book; and
c. Those that represent a decrease in
quantity at the same price at the top of
the book.
Investors are likely in many cases to
tolerate delays in (b) over delays in (c)
and consider short delays in (a) to be
most important of the three.
• Reducing Traffic ‘‘Peaks’’ Is More
Important Than Reducing Overall Quote
Update Traffic: The costs of Data
Vendors and Order Flow firms
providing market data services to their
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
customers are more sensitive to the
requirements of managing peak 3 traffic
than they are to processing ‘‘normal’’
traffic. This is true of most technology
services since systems generally must be
built to manage the ‘‘worst’’, though
they will be, by definition, significantly
underutilized over the trading day as a
result. In other words, the costs of
managing industry traffic will not be
significantly reduced if mitigation only
reduces overall traffic. Arguably, the
biggest ‘‘bang for the buck’’ is in
decreasing peak traffic levels. While the
bundling algorithm proposed by BOX is
likely to be more ‘‘efficient’’ (that is,
result in a proportionally greater
reduction of traffic) during busier
moments like peaks, BOX intends to
bundle some of its traffic all of the time,
since the open interest threshold will be
set no lower than 50 contracts and the
bundling lapse at no lower than 200
milliseconds.
BOX Proposal
BOX believes there are optimal
compromises and the accompanying
rule proposal for ‘‘quote mitigation’’
addresses this in the following manner:
• Rather than adopt an arbitrary
definition of which instruments are
considered to be ‘‘less interesting,’’ BOX
proposes to ‘‘let the market decide’’ by
basing this on the open interest in
contracts at the OCC for each
instrument. Clearly those series with
lower open interest are likely to be of
less interest to options traders and
investors. The precise threshold of open
interest which will determine whether
the broadcast of a series is subject to
mitigation or not will vary according to
the degree BOX is meeting its stated
goals of reducing overall traffic. It is
anticipated that this threshold could be
as high as 300 to 400 contracts, but that
it will be no lower than 50 contracts.
BOX does not propose to apply
mitigation to instruments which have
been listed for fewer than ten trading
sessions, regardless of the open interest.
• BOX will ‘‘bundle’’ at intervals of
up to 1,000 milliseconds (and no less
than 200 milliseconds) any changes to
its broadcast for those instruments
which have fallen below the threshold
in the previous point.
3 There are many definitions of ‘‘peaks’’; it is not
necessary to agree on a precise definition here in
order to understand the goals. A peak may be
defined as either the ‘‘N’’ busiest seconds over the
trading session of roughly 23,000 seconds (where
‘‘N’’ is likely equal to 100 or fewer or it may be
defined as ‘‘those seconds where traffic is ‘‘N’’
times greater than the average over the 23,000
seconds of the trading session and ‘‘N’’ is set to
perhaps 3. The point is that the peaks are the
exceptional levels that drive the scaling and,
therefore, the costs, of the data broadcast systems.
E:\FR\FM\27NON1.SGM
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Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
• BOX will use variable rates of
‘‘bundling’’ delays for the three different
types of broadcast updates: changes in
price, increases in quantity without a
change in price, and decreases in
quantity without a change in price.
Under this proposal, changes in prices
may be subject to less delay than
changes to quantity at same price. For
example, BOX may apply a ‘‘bundling
interval’’ of 400 milliseconds to updates
regarding a price change while using a
figure of 1,000 milliseconds for updates
concerning only a change in quantity at
the same price. The appropriate mix
will be determined by the relative
success BOX is meeting in its overall
goals of traffic reduction.
The Exchange does not propose to
apply the above-described bundling to
traffic relating to price improvement
auctions or NBBO exposure
mechanisms, nor to trade reporting
messages. Furthermore, no bundling of
quotes is proposed for inbound orders
and quotes which are sent to BOX by
users; messaging will only be bundled
for outbound updates.
The Exchange believes this proposal
is an optimal trade-off between costs
and benefits and that it is fully
compliant with its firm quote
obligations. The Exchange further
believes that the proposed rule is
designed to provide the Exchange with
a quote mitigation plan which will
significantly reduce overall peak market
data traffic with a relatively small
impact on the quality of information
available to options market users.
• BOX’s target reduction in outbound
peak traffic is 15% to 20% of what the
traffic would have been had no
mitigation been applied.
• Reduction in overall traffic, as
opposed to peaks, will be lower, but still
significant, with a target of 8% to 10%.
sroberts on PROD1PC70 with NOTICES
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,4 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,5 in particular, in that the
proposed rule change is designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts and practices, 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.
4 15
U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments on the proposed
rule change were neither solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(A) By order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 https://www.sec.gov/
rules/sro.shtml; or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–BSE–2006–48 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
No. SR–BSE–2006–48. This file number
should be included on the subject line
if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site at https://www.sec.gov/
rules/sro.shtml. Copies of the
submission, all subsequent
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
68657
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will
be available for inspection and copying
at the principal office of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–BSE–2006–48 and should be
submitted on or before December 18,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.6
Nancy M. Morris,
Secretary.
[FR Doc. E6–19983 Filed 11–24–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54771; File No. SR–CBOE–
2006–88]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change To Codify a
Fee Schedule for the Sale of Open and
Close Volume Data on CBOE Listed
Options by Market Data Express, LLC
November 16, 2006.
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 November
3, 2006, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the CBOE. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
6 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\27NON1.SGM
27NON1
]]>Agencies
[Federal Register Volume 71, Number 227 (Monday, November 27, 2006)]
[Notices]
[Pages 68655-68657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-19983]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54779; File No. SR-BSE-2006-48]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Implement a Quote
Mitigation Plan
November 17, 2006.
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 November 15, 2006, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the BSE.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Boston Options Exchange
(``BOX'') Rules to add a Quote Mitigation Plan. The text of the
proposed rule change is available on the BSE's Web site at https://
www.bostonstock.com, at the BSE's Office of the Secretary, 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 BSE 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
Background and Introduction
The U.S. options industry has witnessed an explosion in market
broadcast data traffic over the past six
[[Page 68656]]
years due to a number of factors, including, but not limited to:
Automation of the quote updating mechanisms used by market
makers and specialists;
Two additional, fully automated exchanges;
Opening of access to market making status at several
exchanges, resulting in multiple ``quote streamers'' versus the
previous environment where essentially only one market maker, the
``specialist'', was able to electronically stream quote updates into
the exchange trading systems; and
Proliferation of additional options instruments due to
additional options classes and narrower intervals between strike prices
(``dollar pilot'').
While the trends which have caused the dramatic increase in options
market data traffic have been to the benefit of the investor in terms
of improved market quality due to increased competition on the
liquidity provider side of the market, they are not without costs.
Specifically, according to the Exchange, the Order Flow Providers
(``OFPs'') and market data vendors find it increasingly difficult to
provide real-time and accurate market data to investors without
contemplating significant increases in the costs to the end users
(either in the form of higher rates in the case of the data vendors or
higher commissions in the case of the OFPs). It is common belief that
this trend will be exacerbated by the implementation of the ``penny
pilot program'' in January 2007.
Many observers feel that a point of diminishing returns has been
reached where the marginal extra cost of yet more traffic is not
justified in terms of improved market quality or information to the
investor. Allowing for different levels of service whereby the end user
would pay for the level of market data he wished to receive (e.g. a
user wanting real-time, across the board data would pay more than a
user who only required market data refreshing at, say, half-second
intervals) has been rejected by the industry as presenting an ``unlevel
playing field'' which would ultimately be to the detriment of the
private investor. Furthermore, there are ``firm quote obligations''
that each exchange must take into account in any strategy it used to
reduce traffic.
Quote Mitigation
The Exchange believes it is possible to significantly reduce
overall peak market data traffic with a relatively small impact on the
quality of information available to options market users, due to the
following:
Diminishing Returns of Speed: ``Timeliness'' of quote
updates does indeed have a point of diminishing returns and it is
likely that, so long as all options traders and investors are receiving
information at the same rate of ``delay'' from pure ``real time'', they
are willing to allow similar information to be ``bundled'' and
broadcast with a reasonable delay. For example, a series with ten
market makers, all of whom are at the same price on the bid and the
offer, and who, in response to information on the underlying security's
price, wish to update their markets to the same new prices (an
admittedly simplistic assumption) can be managed by simply bundling
some of the updates so long as the ``slowest'' message due to this
bundling is no higher than an agreed upon lapse. Using this approach,
what would have been ten individual updates may be reduced to one
update, a reduction of 90%.
All Series Are Not of Equal Interest to Investors: BOX
presently lists slightly fewer than 500 options classes represented by
80-85,000 different instruments. Market Makers have an obligation to
provide continuous two way markets on virtually all of them,
representing a staggering amount of update traffic if markets are
turbulent. However, not all of these instruments are of ``equal
interest'' to options investors. Indeed trading volume tends to
concentrate on a relatively small percentage of the overall universe of
instruments; arguably, investors and traders are quite willing to
tolerate reasonable update delays in those instruments deemed to be of
lesser interest. For example, over 25% of all series cleared by the
Options Clearing Corporation (``OCC'') have open interest below 100
contracts, a reasonable indication that the updates concerning over
one-quarter of the marketplace are of minimal interest.
Certain Updates Are More ``Interesting'' Than Others:
There are three types of updates:
a. Those that represent a change in price at the top of the book;
b. Those that represent an increase in quantity at the same price
at the top of the book; and
c. Those that represent a decrease in quantity at the same price at
the top of the book.
Investors are likely in many cases to tolerate delays in (b) over
delays in (c) and consider short delays in (a) to be most important of
the three.
Reducing Traffic ``Peaks'' Is More Important Than Reducing
Overall Quote Update Traffic: The costs of Data Vendors and Order Flow
firms providing market data services to their customers are more
sensitive to the requirements of managing peak \3\ traffic than they
are to processing ``normal'' traffic. This is true of most technology
services since systems generally must be built to manage the ``worst'',
though they will be, by definition, significantly underutilized over
the trading day as a result. In other words, the costs of managing
industry traffic will not be significantly reduced if mitigation only
reduces overall traffic. Arguably, the biggest ``bang for the buck'' is
in decreasing peak traffic levels. While the bundling algorithm
proposed by BOX is likely to be more ``efficient'' (that is, result in
a proportionally greater reduction of traffic) during busier moments
like peaks, BOX intends to bundle some of its traffic all of the time,
since the open interest threshold will be set no lower than 50
contracts and the bundling lapse at no lower than 200 milliseconds.
---------------------------------------------------------------------------
\3\ There are many definitions of ``peaks''; it is not necessary
to agree on a precise definition here in order to understand the
goals. A peak may be defined as either the ``N'' busiest seconds
over the trading session of roughly 23,000 seconds (where ``N'' is
likely equal to 100 or fewer or it may be defined as ``those seconds
where traffic is ``N'' times greater than the average over the
23,000 seconds of the trading session and ``N'' is set to perhaps 3.
The point is that the peaks are the exceptional levels that drive
the scaling and, therefore, the costs, of the data broadcast
systems.
---------------------------------------------------------------------------
BOX Proposal
BOX believes there are optimal compromises and the accompanying
rule proposal for ``quote mitigation'' addresses this in the following
manner:
Rather than adopt an arbitrary definition of which
instruments are considered to be ``less interesting,'' BOX proposes to
``let the market decide'' by basing this on the open interest in
contracts at the OCC for each instrument. Clearly those series with
lower open interest are likely to be of less interest to options
traders and investors. The precise threshold of open interest which
will determine whether the broadcast of a series is subject to
mitigation or not will vary according to the degree BOX is meeting its
stated goals of reducing overall traffic. It is anticipated that this
threshold could be as high as 300 to 400 contracts, but that it will be
no lower than 50 contracts. BOX does not propose to apply mitigation to
instruments which have been listed for fewer than ten trading sessions,
regardless of the open interest.
BOX will ``bundle'' at intervals of up to 1,000
milliseconds (and no less than 200 milliseconds) any changes to its
broadcast for those instruments which have fallen below the threshold
in the previous point.
[[Page 68657]]
BOX will use variable rates of ``bundling'' delays for the
three different types of broadcast updates: changes in price, increases
in quantity without a change in price, and decreases in quantity
without a change in price. Under this proposal, changes in prices may
be subject to less delay than changes to quantity at same price. For
example, BOX may apply a ``bundling interval'' of 400 milliseconds to
updates regarding a price change while using a figure of 1,000
milliseconds for updates concerning only a change in quantity at the
same price. The appropriate mix will be determined by the relative
success BOX is meeting in its overall goals of traffic reduction.
The Exchange does not propose to apply the above-described bundling
to traffic relating to price improvement auctions or NBBO exposure
mechanisms, nor to trade reporting messages. Furthermore, no bundling
of quotes is proposed for inbound orders and quotes which are sent to
BOX by users; messaging will only be bundled for outbound updates.
The Exchange believes this proposal is an optimal trade-off between
costs and benefits and that it is fully compliant with its firm quote
obligations. The Exchange further believes that the proposed rule is
designed to provide the Exchange with a quote mitigation plan which
will significantly reduce overall peak market data traffic with a
relatively small impact on the quality of information available to
options market users.
BOX's target reduction in outbound peak traffic is 15% to
20% of what the traffic would have been had no mitigation been applied.
Reduction in overall traffic, as opposed to peaks, will be
lower, but still significant, with a target of 8% to 10%.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\4\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\5\ in particular, in that the
proposed rule change is designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts and
practices, 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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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 https://
www.sec.gov/rules/sro.shtml; or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-BSE-2006-48 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-BSE-2006-48. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site at https://www.sec.gov/rules/
sro.shtml. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-BSE-2006-48 and should be
submitted on or before December 18, 2006.
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\6\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
Nancy M. Morris,
Secretary.
[FR Doc. E6-19983 Filed 11-24-06; 8:45 am]
BILLING CODE 8011-01-P
