Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Amendment No. 2 to the Proposed Rule Change and Order Granting Accelerated Approval of Proposed Rule Change as Modified by Amendments No. 1 and 2 Thereto To Add to the Boston Options Exchange a New Functionality Called an Auto Auction Order, 44593-44596 [E7-15431]
Download as PDF
Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
SUMMARY: The Nuclear Regulatory
Commission (NRC) is announcing the
availability of draft NUREG–1614,
Volume 4. ‘‘U.S. Nuclear Regulatory
Commission, FY 2007–FY 2012
Strategic Plan,’’ dated July 2007. The
comment period on the draft strategic
plan ends September 7, 2007.
Comments on the draft plan are to be
submitted in electronic format
(Microsoft Word) using e-mail to:
StratPlan@nrc.gov or mail to Chief,
Rules and Directives Branch, mail Stop
T6–D59, Office of Administration, U.S.
Nuclear Regulatory Commission,
Washington, DC 20555–0001; or faxed
to: Chief, Rules and Directives Branch at
(301) 415–5144.
ADDRESSES: Draft NUREG–1614, Volume
4, is available for inspection and
copying for a fee at the NRC Public
Document Room, 11555 Rockville Pike,
Rockville, Maryland. You may also
electronically access NUREG-series
publications and other NRC records at
NRC’s Public Electronic Reading Room
at https://www.nrc.gov/reading-rm/doccollections.
A free single copy of Draft NUREG–
1614, Volume 4, to the extent of
availability, may be requested by
writing to the Office of the Chief
Information Officer, Reproduction and
Distribution Services Section, U.S.
Nuclear Regulatory Commission,
Printing and Graphics Branch,
Washington, DC 20555–0001; facsimile:
301–415–2289; e-mail:
DISTRIBUTION@nrc.gov.
Some publications in the NUREG
series that are posted at NRC’s Web site
address https://www.nrc.gov/reading-rm/
doc-collections are updated regularly
and may differ from the last printed
version.
sroberts on PROD1PC70 with NOTICES
FOR FURTHER INFORMATION CONTACT:
George S. Smolik, Planning Team Chief,
Division of Planning, Budget, and
Analysis, Office of the Chief Financial
Officer, U.S. Nuclear Regulatory
Commission, Washington, DC 20555–
0001; telephone: 301–415–7339.
SUPPLEMENTARY INFORMATION: The
Government Performance and Results
Act (GRPA) requires that an agency’s
strategic plan be updated for submission
to the Congress and the President every
three years. The NRC is developing a
new strategic plan for FY 2007–FY 2012
to replace the agency’s existing strategic
plan.
The NRC is seeking comments on its
draft FY 2007–FY 2012 Strategic Plan
(ADAMS Accession No. ML072080203).
The draft Strategic Plan establishes the
agency’s long-term strategic direction
and outcomes. It provides a foundation
VerDate Aug<31>2005
19:14 Aug 07, 2007
Jkt 211001
to guide NRC’s work and to allocate
NRC’s resources.
The NRC’s draft FY 2007–FY 2012
Strategic Plan describes the agency’s
mission, vision, and strategic objective,
which remain unchanged. The NRC’s
priority continues to be, as always, to
ensure the adequate protection of public
health, safety, and the environment, and
promoting common defense and
security.
The NRC’s draft Strategic Plan also
reflects the changes taking place in the
regulatory environment associated with
the use of radioactive materials, such as
the expected receipt of applications to
construct and operate new nuclear
power plants, and the disposal of highlevel radioactive waste. Further, the
draft Strategic Plan addresses how the
NRC will address these challenges, such
as communications, human capital, and
regulatory and organizational
infrastructure.
The draft Strategic Plan identifies our
two strategic goals, which focus on
safety and security. The agency’s Safety
and Security goals, as well as their
associated strategic outcomes, continue
to accurately describe the agency’s core
functions, and therefore remain
essentially unchanged. This focus on
safety and security ensures that the NRC
remains a strong independent, stable,
and predictable regulator. The draft
Strategic Plan also describes the
agency’s Organizational Excellence
Objectives of Openness, Effectiveness,
Timeliness, and Management, which
characterize the manner in which the
agency intends to support achieving the
Safety and Security goals.
The NRC encourages all interested
parties to comment on the draft
Strategic Plan. The comment period
ends September 7, 2007. Comments on
the draft plan are to be submitted in
electronic format (Microsoft Word)
using e-mail to: StratPlan@nrc.gov or
mailed to Chief, Rules and Directives
Branch, mail Stop T6–D59, Office of
Administration, U.S. Nuclear Regulatory
Commission, Washington, DC 20555–
0001; or faxed to: Chief, Rules and
Directives Branch at (301) 415–5144.
Stakeholder feedback will be valuable in
helping the Commission develop a final
plan that has the benefit of the many
views in the regulated civilian nuclear
industry.
The final version of NUREG–1614,
Volume 4, is expected to be released on
or about December 31, 2007.
Dated at Rockville, Maryland, this 2nd day
of August 2007.
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
44593
For the Nuclear Regulatory Commission.
Leslie W. Barnett,
Director, Division of Planning, Budget, and
Analysis, Office of the Chief Financial Officer.
[FR Doc. E7–15479 Filed 8–7–07; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56186; File No. SR–BSE–
2006–56]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
of Amendment No. 2 to the Proposed
Rule Change and Order Granting
Accelerated Approval of Proposed
Rule Change as Modified by
Amendments No. 1 and 2 Thereto To
Add to the Boston Options Exchange
a New Functionality Called an Auto
Auction Order
August 2, 2007.
I. Introduction
On December 15, 2006, the Boston
Stock Exchange, Inc. (‘‘BSE’’ or
‘‘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 proposal to amend the
Boston Options Exchange (‘‘BOX’’)
Rules to add a new functionality
referred to as an Auto Auction Order
(‘‘AAO’’) to make it easier for customers
to participate in a price improvement
auction (‘‘Improvement Auction’’). On
February 1, 2007, BSE filed Amendment
No. 1 to the proposed rule change. The
proposed rule change was published for
comment in the Federal Register on
February 12, 2007.3 The Commission
received one comment letter regarding
the proposal.4 BSE filed a response to
the comment letter on June 8, 2007.5 On
June 8, 2007, BSE filed Amendment No.
2 to the proposed rule change.6 This
order approves the proposed rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 55233
(February 2, 2007), 72 FR 6626 (‘‘Notice’’).
4 See letter to Nancy M. Morris, Secretary,
Commission, from Michael J. Simon, Secretary,
International Securities Exchange, LLC (‘‘ISE’’),
dated March 5, 2007 (‘‘ISE Letter’’).
5 See letter to Nancy M. Morris, Secretary,
Commission, from William Meehan, General
Counsel, BSE, dated June 8, 2007 (‘‘BSE Letter’’).
6 In Amendment No. 2, BSE amended the
proposal to reflect that AAOs may be entered only
for Public Customer accounts and only in a series
for which the standard trading increment is greater
than one cent. BSE also made corresponding
technical changes to the rule text.
2 17
E:\FR\FM\08AUN1.SGM
08AUN1
44594
Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
change, as modified by Amendments
No. 1 and 2, on an accelerated basis.
II. Description of the Proposal
BSE proposes to amend the BOX
Rules to add a new order functionality
called an AAO that would automatically
participate in any Improvement Auction
(e.g., Price Improvement Period (‘‘PIP’’)
auction) 7 if it meets certain criteria. An
AAO is a Limit Order that is submitted
by an Order Flow Provider (‘‘OFP’’) 8 on
behalf of a Public Customer 9 to the BOX
Trading Host in one-cent increments in
a series whose minimum trading
increment is greater than one cent. The
penny incremented limit price that is
entered by the Public Customer is
referred to as the ‘‘AAO Maximum
Improvement Price.’’ The AAO
Maximum Improvement Price is the
maximum (if the order is to buy) or
minimum (if the order is to sell) price
at which the Public Customer is willing
to trade in any Improvement Auction.
The BOX Trading Host will round
AAOs to the nearest minimum trading
increment (up if the order is to sell and
down if the order is to buy) and place
it on the BOX Book (‘‘AAO Limit
Order’’). The AAO Limit Order will be
processed as a standard Limit Order as
described in Chapter 5, Section 14(c)(i)
of the BOX Rules and will be traded in
accordance with Chapter 5, Section 16
of the BOX Rules.
A. Eligibility
An AAO will be eligible to participate
in any Improvement Auction that may
occur when the AAO is on the opposite
side of the market from the order
seeking improvement and the AAO
Limit Price is equal to the National Best
Bid or Offer (‘‘NBBO’’). If the AAO is
eligible, the BOX trading engine will
automatically create a new order (the
‘‘AAO Improvement Order’’) at the end
of the auction phase, but prior to any
trade allocations, with the following
terms:
(1) The quantity of the AAO
Improvement Order will be the lesser of
the remaining quantity on the BOX
Book at the AAO Limit Price or the
quantity of the order seeking
improvement in the auction; and
(2) the price of the AAO Improvement
Order will be equal to the price of the
best Improvement Order, Primary
7 See
Chapter V, Section 18 of the BOX Rules.
Flow Provider’’ is defined as an Options
Participant representing as agent Customer Orders
on BOX and those non-Market Maker Participants
conducting proprietary trading. See Chapter I,
Section 1(a)(46) of the BOX Rules.
9 ‘‘Public Customer’’ is defined a person that is
not a broker or dealer in securities. See Chapter I,
Section 1(a)(50) of the BOX Rules.
sroberts on PROD1PC70 with NOTICES
8 ‘‘Order
VerDate Aug<31>2005
19:14 Aug 07, 2007
Jkt 211001
Improvement Order, or unrelated order
(on the same side of the market as the
AAO) submitted to the Improvement
Auction.
trade will be for the lesser quantity of
the two AAOs.
B. Trade Processing of AAO
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:
During an Improvement Auction, if
the number of contracts executed in the
Improvement Auction against the AAO
Improvement Order is less than the
quantity of the AAO Limit Order, then,
prior to the processing of any other
orders in the same series on the
opposite side of the market as the AAO
Limit Order, the quantity of the AAO
Limit Order will be decremented on the
BOX Book by the size of the executed
quantity of the AAO Improvement
Order. Any residual quantity that
remains after part of an AAO has traded
(either on the BOX Book or in the
Improvement Auction) will continue to
be eligible to trade in any subsequent
Improvement Auctions. In addition, the
residual quantity will maintain its
priority on the BOX Book in accordance
with Chapter V, Section 16 of the BOX
Rules.
Any AAO Improvement Order created
by the BOX Trading Host will be
assigned the time priority of the related
AAO Limit Order. As such, the AAO
Improvement Order is granted time
priority at its relevant price level in an
Improvement Auction. Any
modification to the AAO Maximum
Improvement Price that causes the
rounded AAO Limit Price to change or
any increase in the quantity of the AAO
will cause a new time priority to be
assigned to the AAO Limit Order on the
BOX Book. Any changes to the AAO
Maximum Improvement Price that do
not effect the AAO Limit Price will not
cause a change to the time priority of
the original order.
Additionally, a new AAO received in
a particular series that is on the opposite
side of the market from another AAO,
which is already on the BOX Book, and
is marketable at the AAO Maximum
Improvement Price of the other booked
AAO (e.g., a buy AAO is on the BOX
Book with a Limit Price bid of $2.00
with an AAO Maximum Improvement
Price of $2.03 and a new sell AAO is
received by the BOX Trading Host with
an AAO Maximum Improvement Price
of $2.02), will be matched at the midpoint of the two AAO Maximum
Improvement Prices, rounded to the
nearest penny increment in the favor of
the AAO that is already on the BOX
Book.10 The quantity of the resulting
10 The Commission notes that a non-AAO
incoming order that is marketable at the AAO Limit
Price will execute against the AAO at the displayed
Limit Price.
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
III. Solicitation of Comments
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
Number SR–BSE–2006–56 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
Number SR–BSE–2006–56. 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 (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, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of BSE. 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–BSE–2006–56 and should
be submitted on or before August 29,
2007.
E:\FR\FM\08AUN1.SGM
08AUN1
Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
IV. Discussion
After careful review of the amended
proposal, the ISE Letter, and the BSE
Letter, 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
exchange11 and, in particular, the
requirements of section 6 of the Act.12
Specifically, the Commission finds that
the proposed rule change is consistent
with section 6(b)(5) of the Act,13 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.
Significant aspects of the proposal are
discussed below.
A. Order Exposure
The proposal provides that the
undisplayed penny price of an AAO
resting on the BOX Book can execute
against the undisplayed penny price of
another AAO.14 The commenter notes
that other orders in the BOX
marketplace, such as market orders and
limit orders that are marketable against
the displayed price of an AAO, would
not receive the benefit of the hidden
penny price. The commenter believes
that the proposal thus provides a
mechanism by which participants can
cross orders on BOX with no exposure
to the marketplace.15 In response, BSE
has amended its proposal to limit the
use of the AAO to only Public
Customers.16 The Commission believes
that the amended proposal is consistent
with Section 6(b)(5) of the Act.17
sroberts on PROD1PC70 with NOTICES
B. Priority and Price Competition
The commenter also argues that the
AAO would not provide for additional
price improvement opportunities,
would discourage aggressive
competition in the PIP, and would
unfairly advantage the AAO in the PIP
auction. First, the commenter contends
that the AAO would not provide for any
increased opportunities for price
11 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
12 15 U.S.C. 78f.
13 15 U.S.C. 78f(b)(5).
14 See proposed Chapter V, Section 14(c)(v)(F) of
the BOX Rules.
15 See ISE Letter, supra note 4, at 1–2.
16 See Amendment No. 2, supra note 6.
17 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
19:14 Aug 07, 2007
Jkt 211001
improvement in the PIP because the
AAO Improvement Order would be
generated at the conclusion of the three
second exposure period (and thus not be
broadcast to other BOX Participants)
and would only match the best price
provided by other BOX participants,
even if the AAO contained an AAO
Maximum Improvement Price that
would provide additional price
improvement to the PIP order.18
Second, the commenter believes that the
proposal will discourage other BOX
Participants from competing
aggressively for PIP orders because it
provides time priority for the AAO
Improvement Order in the PIP based
upon the entry time of the original
AAO. Third, the commenter argues that
the AAO is unfairly advantaged in the
PIP auction because only through use of
an AAO can a participant adjust the
price at which they are willing to
participate in the PIP auction without
other participants knowing about its
interest and still maintain its initial time
priority.19
In response, BSE argues that the AAO
will provide increased price
improvement opportunities because it
would increase the size available at the
best Improvement Order price.20
Further, BSE argues that the AAO will
encourage aggressive quoting in the PIP
by incenting competitors to put forth
their best price to potentially better the
AAO Maximum Improvement Price and
thus increase their likelihood of
allocation. In addition, BSE analogizes
the AAO to BOX’s Customer PIP
Order,21 which also is displayed on the
BOX Book at a standard increment but
contains a penny price that is not
broadcast to PIP participants.22 BSE
represents that the AAO functionality is
being proposed to make it easier for
customers to participate in an
Improvement Auction, especially nonprofessional customers who lack the
ability to monitor and adjust prices fast
enough to be competitive, and who may
not have access to a broker that utilizes
the CPO function. BSE therefore
believes that the AAO functionality will
increase competition in the PIP because
it will allow more new entrants.
Additionally, BSE notes that since
Public Customer orders already have
18 See
ISE Letter, supra note 4, at 2.
ISE Letter, supra note 4, at 3. As noted
above, an AAO would not lose its initial time
priority if there are changes to the initial penny
order price, so long as the change does not affect
the displayed limit order price. See proposed
Chapter V, Section 14(c)(v)(E) of the BOX Rules.
20 See BSE Letter, supra note 5, at 2.
21 See Securities Exchange Release No. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004).
22 See BSE Letter, supra note 5, at 2.
19 See
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
44595
priority status in Improvement Auctions
pursuant to customer priority rules, the
AAO will only incrementally increase
the priority available to them.23
The Commission agrees that the
availability of the AAO should increase
the ability of Public Customers to
participate in Improvement Auctions.24
The Commission also does not believe
that the possibility of undisclosed AAO
penny interest will give Improvement
Auction participants a disincentive to
enter their best prices and may provide
a further incentive to enter their best
prices to increase the likelihood of
participating in the execution of the
order. Further, the AAO functionality
provides the potential for increased size
available at the best Improvement Price.
The Commission therefore believes that
the AAO functionality is consistent with
the Act.
The Commission further notes that an
AAO Limit Order would only be eligible
to participate in an Improvement
Auction, and thus receive time priority,
when the AAO Limit Order equals the
NBBO on the opposite side of the
Improvement Auction order at the start
of the auction. The AAO is similar to
the Market Maker Prime (‘‘MMP’’)
designation in the PIP, in which a
market maker that has a quote at the
moment the PIP commences that is
equal to the NBBO on the same side as
the PIP Primary Improvement Order is
eligible to be designated MMP for that
particular PIP auction and receive
priority over other Improvement Orders
in the auction.25 The Commission
believes that the proposal to give time
priority to an AAO that quotes
aggressively before an Improvement
Order is initiated is consistent with the
Act and may provide a further incentive
for Public Customers to publicly display
their best prices, which would benefit
all options market participants.
C. Penny Pilot
The commenter argues that the Penny
Pilot Program 26 is the appropriate
23 See
BSE Letter, supra note 5, at 3.
represents that only a few OFPs have made
CPOs available to non-professional customers due,
in large part, to the constraints that are generally
associated with the software development an OFP
is required to undertake to handle the processing
of the CPO. See Notice, supra note 3.
25 The MMP who participates in a PIP will have
partial priority over all other competing orders,
including the AAO, entered into the PIP at the same
limit price. See Chapter V, Section 19(b) of the BOX
Rules.
26 The Penny Pilot was approved by the
Commission to allow BOX to permit certain option
classes to be quoted in pennies on a pilot basis. See
Securities Exchange Act Release No. 55155 (January
23, 2007), 72 FR 4741 (February 1, 2007) (SR–BSE–
2006–49).
24 BSE
E:\FR\FM\08AUN1.SGM
08AUN1
44596
Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
method to approach penny pricing in
the options markets, rather than a
mechanism that bypasses auction
market principles.27 As discussed
above, with respect to the commenter’s
substantive arguments, the Commission
believes the AAO functionality is
consistent with the Act. Further, the
Commission notes that the proposal, as
amended, is intended to make it easier
for Public Customers to participate in
the PIP (or other future Improvement
Auctions), which already allows trading
in penny increments. In addition,
pursuant to the amended proposal,
AAOs may only be entered in series that
are limited to quoting in standard
increments greater than one cent. The
Commission believes it is consistent
with the Act to allow BSE to implement
another initiative designed to allow
limited trading in penny increments at
the same time it participates in the
Penny Pilot Program.
D. Accelerated Approval
The Commission finds good cause to
approve the proposal prior to the
thirtieth day after the proposal was
published for comment in the Federal
Register. The proposed rule change, as
modified by Amendment No. 1, was
published for full notice and
comment.28 Amendment No. 2, which
limits the AAO functionality to Public
Customer accounts, and in a series for
which the standard trading increment is
greater than one cent, modifies the
proposal in response to issues raised by
a commenter. For these reasons, the
Commission finds good cause,
consistent with section 19(b)(2) of the
Act, to grant accelerated approval to the
proposed rule change.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,29 that the
proposed rule change (SR–BSE–2006–
56), as modified by Amendments No. 1
and 2, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.30
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15431 Filed 8–7–07; 8:45 am]
sroberts on PROD1PC70 with NOTICES
BILLING CODE 8010–01–P
ISE Letter, supra note 4, at 3.
Notice, supra note 3.
29 15 U.S.C. 78s(b)(2).
30 17 CFR 200.30–3(a)(12).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56185; File No. SR–BSE–
2007–39]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Clarify How
the BOX Trading Host Systematically
Filters All Orders Against the National
Best Bid and Offer
August 2, 2007.
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 July 30,
2007, the Boston Stock Exchange, Inc.
(‘‘Exchange’’ or ‘‘BSE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by the Exchange.
The Exchange has designated the
proposed rule change as a noncontroversial rule change pursuant to
section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder,4 which
renders the proposed rule change
effective upon filing with the
Commission. 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
rules of the Boston Options Exchange
(‘‘BOX’’) to clarify how the BOX Trading
Host systematically filters all orders
against the National Best Bid and Offer
(‘‘NBBO’’) to ensure that a trade-through
to the detriment of the inbound order
does not occur, and that the customer’s
interests are protected by making sure
that any execution of its order on BOX
is at a price at least as good as the best
price available on any of the other
options exchanges. The proposed rule
filing also seeks to clarify how BOX
currently processes such orders when
the NBBO is either locked or crossed.
The text of the proposed rule change is
set forth below; new text is in italics and
deleted text is in brackets.
27 See
30 17
28 See
1 15
VerDate Aug<31>2005
19:14 Aug 07, 2007
Jkt 211001
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
RULES OF THE BOSTON OPTIONS
EXCHANGE FACILITY
Chapter V
Sec. 16 Execution and Price/Time
Priority
(a)—No change.
(b) Filtering of BOX In-Bound Orders
[to Prevent Trade-Throughs].
i. With the exception of Improvement
Orders and Primary Improvement
Orders submitted during a PIP (which
are processed in accordance with
section 18 of this Chapter V) and
Directed Orders (which are processed in
accordance with section 5, subsections
b and c, of Chapter VI) [A]all inbound
orders to BOX (whether on behalf of
Customers, non-BOX Participant brokerdealer proprietary accounts or market
makers at other exchanges) as well as
inbound Principal (‘‘P’’) and Principal
as Agent (‘‘P/A’’) (see Chapter XII,
‘‘Intermarket Linkage Rules’’, herein)
orders received via InterMarket Linkage
will be filtered by the Trading Host
prior to entry on the BOX Book to
ensure that these orders will not
[execute at price outside the current
NBBO (‘‘trade-throughs’’).]:
1) in the case of a sell order, execute
at a price below the NBBO bid price
-or2) in the case of a buy order, execute
at a price above the NBBO offer price.
All of the filtering rules described in
this section are independent of whether
the NBBO is locked or crossed or not,
except where the BOX best price on the
same side of the market as the inbound
order has crossed, or is crossed by, the
opposite side NBBO, the order will be
routed, if eligible, or rejected
immediately.
ii.–iv.—No change.
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.
E:\FR\FM\08AUN1.SGM
08AUN1
Agencies
[Federal Register Volume 72, Number 152 (Wednesday, August 8, 2007)]
[Notices]
[Pages 44593-44596]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15431]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56186; File No. SR-BSE-2006-56]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing of Amendment No. 2 to the Proposed Rule Change and
Order Granting Accelerated Approval of Proposed Rule Change as Modified
by Amendments No. 1 and 2 Thereto To Add to the Boston Options Exchange
a New Functionality Called an Auto Auction Order
August 2, 2007.
I. Introduction
On December 15, 2006, the Boston Stock Exchange, Inc. (``BSE'' or
``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
proposal to amend the Boston Options Exchange (``BOX'') Rules to add a
new functionality referred to as an Auto Auction Order (``AAO'') to
make it easier for customers to participate in a price improvement
auction (``Improvement Auction''). On February 1, 2007, BSE filed
Amendment No. 1 to the proposed rule change. The proposed rule change
was published for comment in the Federal Register on February 12,
2007.\3\ The Commission received one comment letter regarding the
proposal.\4\ BSE filed a response to the comment letter on June 8,
2007.\5\ On June 8, 2007, BSE filed Amendment No. 2 to the proposed
rule change.\6\ This order approves the proposed rule
[[Page 44594]]
change, as modified by Amendments No. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 55233 (February 2,
2007), 72 FR 6626 (``Notice'').
\4\ See letter to Nancy M. Morris, Secretary, Commission, from
Michael J. Simon, Secretary, International Securities Exchange, LLC
(``ISE''), dated March 5, 2007 (``ISE Letter'').
\5\ See letter to Nancy M. Morris, Secretary, Commission, from
William Meehan, General Counsel, BSE, dated June 8, 2007 (``BSE
Letter'').
\6\ In Amendment No. 2, BSE amended the proposal to reflect that
AAOs may be entered only for Public Customer accounts and only in a
series for which the standard trading increment is greater than one
cent. BSE also made corresponding technical changes to the rule
text.
---------------------------------------------------------------------------
II. Description of the Proposal
BSE proposes to amend the BOX Rules to add a new order
functionality called an AAO that would automatically participate in any
Improvement Auction (e.g., Price Improvement Period (``PIP'') auction)
\7\ if it meets certain criteria. An AAO is a Limit Order that is
submitted by an Order Flow Provider (``OFP'') \8\ on behalf of a Public
Customer \9\ to the BOX Trading Host in one-cent increments in a series
whose minimum trading increment is greater than one cent. The penny
incremented limit price that is entered by the Public Customer is
referred to as the ``AAO Maximum Improvement Price.'' The AAO Maximum
Improvement Price is the maximum (if the order is to buy) or minimum
(if the order is to sell) price at which the Public Customer is willing
to trade in any Improvement Auction.
---------------------------------------------------------------------------
\7\ See Chapter V, Section 18 of the BOX Rules.
\8\ ``Order Flow Provider'' is defined as an Options Participant
representing as agent Customer Orders on BOX and those non-Market
Maker Participants conducting proprietary trading. See Chapter I,
Section 1(a)(46) of the BOX Rules.
\9\ ``Public Customer'' is defined a person that is not a broker
or dealer in securities. See Chapter I, Section 1(a)(50) of the BOX
Rules.
---------------------------------------------------------------------------
The BOX Trading Host will round AAOs to the nearest minimum trading
increment (up if the order is to sell and down if the order is to buy)
and place it on the BOX Book (``AAO Limit Order''). The AAO Limit Order
will be processed as a standard Limit Order as described in Chapter 5,
Section 14(c)(i) of the BOX Rules and will be traded in accordance with
Chapter 5, Section 16 of the BOX Rules.
A. Eligibility
An AAO will be eligible to participate in any Improvement Auction
that may occur when the AAO is on the opposite side of the market from
the order seeking improvement and the AAO Limit Price is equal to the
National Best Bid or Offer (``NBBO''). If the AAO is eligible, the BOX
trading engine will automatically create a new order (the ``AAO
Improvement Order'') at the end of the auction phase, but prior to any
trade allocations, with the following terms:
(1) The quantity of the AAO Improvement Order will be the lesser of
the remaining quantity on the BOX Book at the AAO Limit Price or the
quantity of the order seeking improvement in the auction; and
(2) the price of the AAO Improvement Order will be equal to the
price of the best Improvement Order, Primary Improvement Order, or
unrelated order (on the same side of the market as the AAO) submitted
to the Improvement Auction.
B. Trade Processing of AAO
During an Improvement Auction, if the number of contracts executed
in the Improvement Auction against the AAO Improvement Order is less
than the quantity of the AAO Limit Order, then, prior to the processing
of any other orders in the same series on the opposite side of the
market as the AAO Limit Order, the quantity of the AAO Limit Order will
be decremented on the BOX Book by the size of the executed quantity of
the AAO Improvement Order. Any residual quantity that remains after
part of an AAO has traded (either on the BOX Book or in the Improvement
Auction) will continue to be eligible to trade in any subsequent
Improvement Auctions. In addition, the residual quantity will maintain
its priority on the BOX Book in accordance with Chapter V, Section 16
of the BOX Rules.
Any AAO Improvement Order created by the BOX Trading Host will be
assigned the time priority of the related AAO Limit Order. As such, the
AAO Improvement Order is granted time priority at its relevant price
level in an Improvement Auction. Any modification to the AAO Maximum
Improvement Price that causes the rounded AAO Limit Price to change or
any increase in the quantity of the AAO will cause a new time priority
to be assigned to the AAO Limit Order on the BOX Book. Any changes to
the AAO Maximum Improvement Price that do not effect the AAO Limit
Price will not cause a change to the time priority of the original
order.
Additionally, a new AAO received in a particular series that is on
the opposite side of the market from another AAO, which is already on
the BOX Book, and is marketable at the AAO Maximum Improvement Price of
the other booked AAO (e.g., a buy AAO is on the BOX Book with a Limit
Price bid of $2.00 with an AAO Maximum Improvement Price of $2.03 and a
new sell AAO is received by the BOX Trading Host with an AAO Maximum
Improvement Price of $2.02), will be matched at the mid-point of the
two AAO Maximum Improvement Prices, rounded to the nearest penny
increment in the favor of the AAO that is already on the BOX Book.\10\
The quantity of the resulting trade will be for the lesser quantity of
the two AAOs.
---------------------------------------------------------------------------
\10\ The Commission notes that a non-AAO incoming order that is
marketable at the AAO Limit Price will execute against the AAO at
the displayed Limit Price.
---------------------------------------------------------------------------
III. 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 Number SR-BSE-2006-56 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 Number SR-BSE-2006-56. 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 (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, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of BSE. 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-BSE-2006-56 and should be
submitted on or before August 29, 2007.
[[Page 44595]]
IV. Discussion
After careful review of the amended proposal, the ISE Letter, and
the BSE Letter, 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\11\
and, in particular, the requirements of section 6 of the Act.\12\
Specifically, the Commission finds that the proposed rule change is
consistent with section 6(b)(5) of the Act,\13\ 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. Significant aspects of the proposal are discussed below.
---------------------------------------------------------------------------
\11\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
A. Order Exposure
The proposal provides that the undisplayed penny price of an AAO
resting on the BOX Book can execute against the undisplayed penny price
of another AAO.\14\ The commenter notes that other orders in the BOX
marketplace, such as market orders and limit orders that are marketable
against the displayed price of an AAO, would not receive the benefit of
the hidden penny price. The commenter believes that the proposal thus
provides a mechanism by which participants can cross orders on BOX with
no exposure to the marketplace.\15\ In response, BSE has amended its
proposal to limit the use of the AAO to only Public Customers.\16\ The
Commission believes that the amended proposal is consistent with
Section 6(b)(5) of the Act.\17\
---------------------------------------------------------------------------
\14\ See proposed Chapter V, Section 14(c)(v)(F) of the BOX
Rules.
\15\ See ISE Letter, supra note 4, at 1-2.
\16\ See Amendment No. 2, supra note 6.
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Priority and Price Competition
The commenter also argues that the AAO would not provide for
additional price improvement opportunities, would discourage aggressive
competition in the PIP, and would unfairly advantage the AAO in the PIP
auction. First, the commenter contends that the AAO would not provide
for any increased opportunities for price improvement in the PIP
because the AAO Improvement Order would be generated at the conclusion
of the three second exposure period (and thus not be broadcast to other
BOX Participants) and would only match the best price provided by other
BOX participants, even if the AAO contained an AAO Maximum Improvement
Price that would provide additional price improvement to the PIP
order.\18\ Second, the commenter believes that the proposal will
discourage other BOX Participants from competing aggressively for PIP
orders because it provides time priority for the AAO Improvement Order
in the PIP based upon the entry time of the original AAO. Third, the
commenter argues that the AAO is unfairly advantaged in the PIP auction
because only through use of an AAO can a participant adjust the price
at which they are willing to participate in the PIP auction without
other participants knowing about its interest and still maintain its
initial time priority.\19\
---------------------------------------------------------------------------
\18\ See ISE Letter, supra note 4, at 2.
\19\ See ISE Letter, supra note 4, at 3. As noted above, an AAO
would not lose its initial time priority if there are changes to the
initial penny order price, so long as the change does not affect the
displayed limit order price. See proposed Chapter V, Section
14(c)(v)(E) of the BOX Rules.
---------------------------------------------------------------------------
In response, BSE argues that the AAO will provide increased price
improvement opportunities because it would increase the size available
at the best Improvement Order price.\20\ Further, BSE argues that the
AAO will encourage aggressive quoting in the PIP by incenting
competitors to put forth their best price to potentially better the AAO
Maximum Improvement Price and thus increase their likelihood of
allocation. In addition, BSE analogizes the AAO to BOX's Customer PIP
Order,\21\ which also is displayed on the BOX Book at a standard
increment but contains a penny price that is not broadcast to PIP
participants.\22\ BSE represents that the AAO functionality is being
proposed to make it easier for customers to participate in an
Improvement Auction, especially non-professional customers who lack the
ability to monitor and adjust prices fast enough to be competitive, and
who may not have access to a broker that utilizes the CPO function. BSE
therefore believes that the AAO functionality will increase competition
in the PIP because it will allow more new entrants. Additionally, BSE
notes that since Public Customer orders already have priority status in
Improvement Auctions pursuant to customer priority rules, the AAO will
only incrementally increase the priority available to them.\23\
---------------------------------------------------------------------------
\20\ See BSE Letter, supra note 5, at 2.
\21\ See Securities Exchange Release No. 49068 (January 13,
2004), 69 FR 2775 (January 20, 2004).
\22\ See BSE Letter, supra note 5, at 2.
\23\ See BSE Letter, supra note 5, at 3.
---------------------------------------------------------------------------
The Commission agrees that the availability of the AAO should
increase the ability of Public Customers to participate in Improvement
Auctions.\24\ The Commission also does not believe that the possibility
of undisclosed AAO penny interest will give Improvement Auction
participants a disincentive to enter their best prices and may provide
a further incentive to enter their best prices to increase the
likelihood of participating in the execution of the order. Further, the
AAO functionality provides the potential for increased size available
at the best Improvement Price. The Commission therefore believes that
the AAO functionality is consistent with the Act.
---------------------------------------------------------------------------
\24\ BSE represents that only a few OFPs have made CPOs
available to non-professional customers due, in large part, to the
constraints that are generally associated with the software
development an OFP is required to undertake to handle the processing
of the CPO. See Notice, supra note 3.
---------------------------------------------------------------------------
The Commission further notes that an AAO Limit Order would only be
eligible to participate in an Improvement Auction, and thus receive
time priority, when the AAO Limit Order equals the NBBO on the opposite
side of the Improvement Auction order at the start of the auction. The
AAO is similar to the Market Maker Prime (``MMP'') designation in the
PIP, in which a market maker that has a quote at the moment the PIP
commences that is equal to the NBBO on the same side as the PIP Primary
Improvement Order is eligible to be designated MMP for that particular
PIP auction and receive priority over other Improvement Orders in the
auction.\25\ The Commission believes that the proposal to give time
priority to an AAO that quotes aggressively before an Improvement Order
is initiated is consistent with the Act and may provide a further
incentive for Public Customers to publicly display their best prices,
which would benefit all options market participants.
---------------------------------------------------------------------------
\25\ The MMP who participates in a PIP will have partial
priority over all other competing orders, including the AAO, entered
into the PIP at the same limit price. See Chapter V, Section 19(b)
of the BOX Rules.
---------------------------------------------------------------------------
C. Penny Pilot
The commenter argues that the Penny Pilot Program \26\ is the
appropriate
[[Page 44596]]
method to approach penny pricing in the options markets, rather than a
mechanism that bypasses auction market principles.\27\ As discussed
above, with respect to the commenter's substantive arguments, the
Commission believes the AAO functionality is consistent with the Act.
Further, the Commission notes that the proposal, as amended, is
intended to make it easier for Public Customers to participate in the
PIP (or other future Improvement Auctions), which already allows
trading in penny increments. In addition, pursuant to the amended
proposal, AAOs may only be entered in series that are limited to
quoting in standard increments greater than one cent. The Commission
believes it is consistent with the Act to allow BSE to implement
another initiative designed to allow limited trading in penny
increments at the same time it participates in the Penny Pilot Program.
---------------------------------------------------------------------------
\26\ The Penny Pilot was approved by the Commission to allow BOX
to permit certain option classes to be quoted in pennies on a pilot
basis. See Securities Exchange Act Release No. 55155 (January 23,
2007), 72 FR 4741 (February 1, 2007) (SR-BSE-2006-49).
\27\ See ISE Letter, supra note 4, at 3.
---------------------------------------------------------------------------
D. Accelerated Approval
The Commission finds good cause to approve the proposal prior to
the thirtieth day after the proposal was published for comment in the
Federal Register. The proposed rule change, as modified by Amendment
No. 1, was published for full notice and comment.\28\ Amendment No. 2,
which limits the AAO functionality to Public Customer accounts, and in
a series for which the standard trading increment is greater than one
cent, modifies the proposal in response to issues raised by a
commenter. For these reasons, the Commission finds good cause,
consistent with section 19(b)(2) of the Act, to grant accelerated
approval to the proposed rule change.
---------------------------------------------------------------------------
\28\ See Notice, supra note 3.
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-BSE-2006-56), as modified by
Amendments No. 1 and 2, be, and it hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\30\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15431 Filed 8-7-07; 8:45 am]
BILLING CODE 8010-01-P