Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change Relating to Amending the BOX Trading Rules To Establish Facilitation and Solicitation Auction Mechanisms, 38226-38231 [2011-16293]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38226-38231]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64734; File No. SR-BX-2011-034]


 Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change Relating to Amending the BOX Trading 
Rules To Establish Facilitation and Solicitation Auction Mechanisms

 June 23, 2011.
    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 June 17, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with the 
Securities and Exchange Commission

[[Page 38227]]

(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter V, (Doing Business on BOX), 
Section 31 (Block Trading) of the Rules of the Boston Options Exchange 
Group, LLC (``BOX'') to establish Facilitation and Solicitation auction 
mechanisms. The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room and also on the Exchange's Internet Web site at https://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 self-regulatory organization 
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 self-regulatory organization 
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
    Currently, BOX offers only one execution mechanism for the 
execution of two-sided crossing transactions--the Price Improvement 
Period auction.\3\ Competitor options exchanges offer multiple 
mechanisms to execute two-sided orders, including facilitation and 
solicitation mechanisms for large block orders.\4\ To remain 
competitive with other options exchanges for block-size facilitation 
and solicitation transactions, BOX has developed additional auction 
mechanisms. This rule change proposes implementation on BOX of a 
Facilitation Auction mechanism and a Solicitation Auction mechanism.
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    \3\ Capitalized terms not otherwise defined herein shall have 
the meanings prescribed within the BOX Rules.
    \4\ See, e.g., International Securities Exchange Rule 716 and 
Chicago Board Options Exchange Rule 6.74B.
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Facilitation Auction
    The Facilitation Auction will allow Order Flow Providers (``OFPs'') 
to enter crossing transactions where the OFP represents a block-size 
order as agent (``Agency Order'') and (1) Is trading against the Agency 
Order as principal (i.e., facilitating the Agency Order) and/or (2) has 
solicited an order to take the opposite side of the Agency Order. Thus, 
the Facilitation Auction will allow block-size order executions against 
facilitated or solicited orders, or against a combination of 
facilitated and solicited orders. This auction will give OFPs the added 
flexibility to execute a transaction where the OFP facilitates only a 
portion of the order opposite its Agency Order, and has solicited 
interest from other parties for the remaining size of the order 
opposite its Agency Order. The Facilitation Auction will be limited to 
orders of fifty (50) contracts or more.
    OFPs must be willing to execute the entire size of Agency Orders 
entered into the Facilitation Auction through the submission of a 
contra ``Facilitation Order.'' Upon the entry of an Agency Order and 
Facilitation Order into the Facilitation Auction, a broadcast message 
will be sent to Options Participants, giving them one second to enter 
responses with the prices and sizes at which they would be willing to 
participate in the facilitation opposite the Agency Order 
(``Responses''). Responses may be priced at the price of the Agency 
Order or at a better price and must not exceed the size of the Agency 
Order to be facilitated. At the end of the one second period for the 
entry of Responses, the Facilitation Order will be automatically 
executed with the Agency Order.
    Unless there is sufficient size to execute the entire Agency Order 
at a better price, Public Customer bids (offers) and Public Customer 
Responses on BOX at the time the Agency Order is executed that are 
priced higher (lower) than the facilitation price will be executed at 
the facilitation price. Non-Public Customer and Market Maker bids 
(offers) and Non-Public Customer and Market Maker Responses on BOX at 
the time the Agency Order is executed that are priced higher (lower) 
than the facilitation price will be executed against the Agency Order 
at their stated price, providing the Agency Order execution at a better 
price for the number of contracts associated with such higher bids 
(lower offers) and Responses.
    The facilitating OFP will execute at least forty percent (40%) of 
the original size of the Facilitation Order, but only after better-
priced bids (offers) and Responses on BOX, as well as Public Customer 
bids (offers) and Responses at the facilitation price, are executed in 
full. After the facilitating OFP has executed his forty percent (40%), 
Non-Public Customer and Market Maker bids (offers) and Responses on BOX 
at the facilitation price will participate in the execution of the 
Agency Order based upon price and time priority.
    The following example illustrates the execution priority within the 
Facilitation Auction. An OFP submits a Facilitation Order to buy and 
Agency Order to sell 100 contracts at a proposed execution price of 
$2.00. At the end of the auction, the NBBO is bid $2.00--offer $2.10. 
During the one second auction, BOX receives the following bids (offers) 
in time priority:
    (1) Market Maker offer on the Book to buy 100 contracts at $2.00.
    (2) Public Customer Response to buy 50 contracts at $2.00.
    Since there are no bids (offers) or Responses at an improved price, 
the Public Customer would execute 50 contracts against the Agency 
Order; the Facilitation Order will execute 40 contracts (40% of 100) 
against the Agency Order; and the Market Maker on the Book would 
execute the remaining 10 contracts against the Agency Order; all at 
$2.00.
Solicitation Auction
    To better compete for block-size solicited transactions, BOX has 
developed a Solicitation Auction. The Solicitation Auction is a process 
by which an OFP can attempt to execute orders of 500 or more contracts 
it represents as agent (the ``Agency Order'') against contra orders 
that the OFP has solicited (``Solicited Order'').\5\ The proposed rule 
change will allow OFPs to enter both sides of a proposed solicited 
cross (the Agency and Solicited Orders). These solicitation 
transactions will be required to be for at least 500 contracts and will 
be executed only if the price is at or between the national best bid or 
offer (``NBBO''). Each Agency Order entered into the Solicitation 
Auction shall be all-or-none.
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    \5\ Although orders solicited from Public Customers are not 
subject to the exposure requirement of Supplementary Material .02 to 
Section 17 of Chapter V of the BOX Rules, they would be permitted to 
be entered into the Solicitation Auction should OFPs choose this 
alternative.
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    When a proposed solicited cross is entered into the Solicitation 
Auction, BOX will broadcast a message to Options Participants and they 
will have

[[Page 38228]]

one second to respond with the prices and sizes at which they would be 
willing to participate in the execution of the Agency Order 
(``Responses''). At the end of the period for Responses, the Agency 
Order will be automatically executed in full or cancelled. The Agency 
Order will be executed against the Solicited Order at the proposed 
execution price unless there is sufficient size to execute the entire 
Agency Order at a better price or prices, or there is a Public Customer 
Order (A) at a price equal to or better than the proposed execution 
price; and (B) on the BOX Book within a depth of the BOX Book so that 
it would otherwise trade with the Agency Order if the Agency Order had 
been submitted to the BOX Book, (a ``Book Priority Public Customer 
Order'').\6\
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    \6\ In contrast to the Facilitation Mechanism, only Public 
Customer Orders that are within a depth of the BOX Book so that they 
would otherwise trade with the Agency Order if it were submitted to 
the BOX Book are eligible to trade with the Agency Order in the 
Solicitation Mechanism. Options Participants' orders submitted to 
BOX are ranked and maintained in the BOX Book according to price/
time priority, such that within each price level, all orders are 
organized by time of order entry. No distinction is made to this 
priority with regard to account designation (Public Customer, 
Broker/Dealer, or Market Maker). BOX believes that price/time 
priority provides an incentive for all market participants to post 
their best prices quickly. As such, BOX will consider only these 
Priority Public Customer Orders based on price/time priority. Stated 
otherwise, if an Agency Order of the same block size was executed on 
the BOX Book rather than through the Solicitation Auction, only 
those orders with price/time priority would execute against the 
Agency Order. Those Public Customer Orders on the BOX Book beyond 
the depth equal to the Agency Order size would not be executed 
against the Agency Order.
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    If at the time of execution there is sufficient size to execute the 
entire Agency Order at an improved price (or prices), the Agency Order 
will be executed at the improved price(s) and the Solicited Order will 
be cancelled.\7\ For example, an OFP starts a Solicitation Auction by 
submitting to BOX an Agency Order to buy and a Solicited Order to sell 
1,000 contracts with a proposed execution price of $2.10. At the end of 
the one second auction, the NBBO is bid $2.00--offer $2.10. During the 
auction, BOX received the following bids (offers) in time priority:
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    \7\ The aggregate size of all bids (offers) and Responses at 
each price will be used to determine whether the entire Agency Order 
can be executed at an improved price (or prices).
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    (1) Market Maker Response to sell 400 contracts at $2.08;
    (2) Market Maker offer on the Book to sell 300 contracts at $2.08;
    (3) Public Customer Response to sell 200 contracts at $2.08;
    (4) Public Customer Order on the Book to sell 300 contracts at 
$2.08.
    Since there is sufficient size to execute the entire Agency Order 
at an improved price, the Agency Order will execute in time priority 
against each of the bids (offers) and Responses at $2.08, and the 
Solicited Order would be cancelled. The Agency Order would execute 400 
contracts against the Market Maker Response; 300 contracts against the 
Market Maker offer on the Book; 200 contracts against the Public 
Customer Response; and 100 contracts against the Public Customer Order 
on the Book. The remaining 200 contracts of the Public Customer Order 
on the Book would remain unexecuted.
    If at the time of execution, there are one or more Book Priority 
Public Customer Orders on the BOX Book, the Agency Order will be 
executed against the BOX Book if there is sufficient size available to 
execute the entire Agency Order, and the Solicited Order will be 
cancelled. In this instance, the aggregate size of all bids (offers) on 
the BOX Book at or better than the proposed execution price will be 
used to determine whether there is sufficient size available to execute 
the entire Agency Order. Responses are excluded when determining 
whether sufficient size exists to execute the Agency Order at its 
proposed price.\8\ For example, an OFP starts a Solicitation Auction by 
submitting to BOX an Agency Order to buy and a Solicited Order to sell 
1,000 contracts with a proposed execution price of $2.10. At the end of 
the one second auction, the NBBO is bid $2.00--offer $2.10. During the 
auction, BOX received the following bids (offers) in time priority:
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    \8\ As set forth in proposed Supplementary Material .03 to 
Chapter V, Section 31, Responses are sent by Options Participants in 
response to a Facilitation or Solicitation Auction broadcast 
message. Responses represent non-firm interest that can be canceled 
or decremented as to price or size at any time prior to execution 
and are not displayed to any market participants.
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    (1) Market Maker offer on the Book to sell 700 contracts at $2.09;
    (2) Public Customer Order on the Book to sell 400 contracts at 
$2.10.
    There is a Book Priority Public Customer Order on the Book and 
there is sufficient size on the Book to execute the entire Agency 
Order. As such, the Agency Order will be executed against the orders on 
the BOX Book based upon price/time priority, and the Solicited Order 
will be cancelled. In this example, the Agency Order will execute 700 
contracts against the Market Maker on the Book at $2.09, and 300 
contracts against the Book Priority Public Customer Order. The 
remaining 100 contracts of the Public Customer Order on the Book would 
remain unexecuted.
    Similar to the example above, assume during the auction BOX 
received the following bids (offers) in time priority:
    (1) Public Customer Order on the Book to sell 400 contracts at 
$2.09;
    (2) Market Maker offer on the Book to sell 600 contracts at $2.10.
    Then, the Agency Order will also be executed against the orders on 
the Book based upon price/time priority and the Solicited Order will be 
cancelled. In this example, the Agency Order will execute 400 contracts 
against the Public Customer Order at $2.09, and 600 contracts against 
the Market Maker at $2.10.
    BOX determines whether sufficient size exists on the BOX Book to 
execute the Agency Order so as to prevent (i) Any trade-through of the 
BOX Book and (ii) any Book Priority Public Customer Order from being 
bypassed by a Solicitation Auction execution. If the Agency Orders in 
these two examples above had been sent directly to the BOX Book rather 
than the Solicitation Auction, the resulting execution against the 
Agency Order would have been the same.
    If there is a Book Priority Public Customer Order on the BOX Book, 
but there is insufficient size to execute the entire Agency Order at 
the proposed execution price, however; both the Agency and Solicited 
Orders will be cancelled. For example, an OFP starts a Solicitation 
Auction by submitting to BOX an Agency Order to buy and a Solicited 
Order to sell 1,000 contracts with a proposed execution price of $2.10. 
At the end of the one second auction, the NBBO is bid $2.00--offer 
$2.10. During the auction, BOX received the following bids (offers) in 
time priority:
    (1) Public Customer Order on the Book to sell 400 contracts at 
$2.10;
    (2) Market Maker offer on the Book to sell 300 contracts at $2.10.
    In this example, there is a Book Priority Public Customer Order on 
the BOX Book, but there is insufficient size on the Book to execute the 
entire Agency Order at the proposed execution price. As such, both the 
Solicited Order and Agency Order will be cancelled, except under the 
Surrender Quantity conditions described below.
Surrender Quantity
    To increase the successful execution of block Solicitation Auction 
trades and Public Customer Orders on BOX while protecting the BOX Book, 
BOX has developed the ``Surrender Quantity'' function for Solicitation 
Auctions. When starting a Solicitation Auction, the OFP may designate, 
for the Solicited Order, the quantity of contracts of the

[[Page 38229]]

Agency Order for which the OFP is willing to `surrender' interest to 
the BOX Book (``Surrender Quantity''). The Surrender Quantity will 
apply at the time of execution only if there are (1) Book Priority 
Public Customer Orders on the BOX Book, or (2) any bids (offers) on the 
BOX Book at any price better than the proposed execution price. Only 
these orders on the BOX Book will be eligible for execution utilizing 
the Surrender Quantity.
    With the Surrender Quantity function, BOX seeks to protect Public 
Customer Orders that would have traded with the Agency Order if the 
Agency Order had been submitted to the BOX Book. When the aggregate 
size of (1) Book Priority Public Customer Orders and (2) all bids 
(offers) on the BOX Book at prices better than the proposed execution 
price, is equal to or less than the Surrender Quantity, the Agency 
Order will first execute against all such Book Priority Public Customer 
Orders and all such bids (offers), and then against the Solicited 
Order. If the aggregate size of all such Book Priority Public Customer 
Orders and all such bids (offers) exceeds the Surrender Quantity, but 
there is insufficient size to execute the entire Agency Order, then 
both the Solicited Order and the Agency Order will be cancelled.

    Example: The OFP starts a Solicitation Auction by submitting to 
BOX an Agency Order to buy and a Solicited Order to sell 1,000 
contracts with a proposed execution price of $2.10. The OFP also 
designates 200 contracts as the Surrender Quantity. At the end of 
the one second auction the NBBO is bid $2.00--offer $2.10. During 
the auction, BOX received the following bids (offers) in time 
priority:
    (1) Public Customer Order on the Book to sell 200 contracts at 
$2.10;
    (2) Market Maker offer on the Book to sell 800 contracts at 
$2.10.

    Without the Surrender Quantity, the Agency Order would execute 
against the Public Customer Order on the Book for 200 contracts at 
$2.10 and against the Market Maker on the Book for 800 contracts at 
$2.10. Using the Surrender Quantity, however, the Agency Order would 
still execute against the Public Customer Order on the Book, but would 
then execute against the Solicited Order for 800 contracts at $2.10.
    Additionally, use of the Surrender Quantity function will allow 
block-size Solicitation Auction trades in certain instances in which 
there would otherwise be no execution. In these instances, use of the 
Surrender Quantity will also prevent (i) a trade-through of the BOX 
Book and any Book Priority Public Customer Order from being bypassed 
upon a Solicitation Auction execution. Under the proposed rule change 
there are other situations when, absent use of the Surrender Quantity, 
the Solicitation Auction would result in no trade. The first is when a 
Book Priority Public Customer Order is on the BOX Book and there is 
insufficient quantity on BOX, other than the Solicited Order, to 
execute the entire Agency Order. Without the Surrender Quantity 
function, both the Solicited Order and Agency Order would be cancelled 
and the Public Customer Order would remain unexecuted, keeping the 
Public Customer Order on the Book from being bypassed upon a 
Solicitation Auction execution. The second instance is when the 
proposed execution price is inferior to the best bid or offer on BOX 
(meaning there is a better priced bid (offer) on BOX) or inferior to 
the NBBO. Again, without the Surrender Quantity function, no execution 
would occur, keeping the better priced bids (offers) on the BOX Book 
from being bypassed upon a Solicitation Auction execution. In both 
instances, Public Customer Orders, the better priced bids (offers), the 
Solicited Order and the Agency Order remain unexecuted. Under this 
proposed rule change, however, if the Surrender Quantity is utilized 
and is of sufficient size, then the orders are executed against the 
Agency Order as follows: Public Customer Orders, better priced bids 
(offers), and the Solicited Order. If the Surrender Quantity is of 
insufficient size, then no execution occurs and again any trade-through 
of the BOX Book or execution ahead of a Book Priority Public Customer 
Order is prevented. The Surrender Quantity provides the potential for 
various market participants to benefit from the execution they desire. 
The following examples illustrate the proposed Surrender Quantity 
concept:

    Example: The OFP starts a Solicitation Auction by submitting to 
BOX an Agency Order to buy and a Solicited Order to sell 1,000 
contracts with a proposed execution price of $2.10. The OFP also 
designates 200 contracts as the Surrender Quantity. At the end of 
the one second auction the NBBO is bid $2.00--offer $2.10. During 
the auction, BOX received the following bids (offers) in time 
priority:
    (1) Response of 150 contracts to sell at $2.08;
    (2) Market Maker offer on the Book of 200 contracts at $2.10;
    (3) Response of 100 contracts to sell at $2.10;
    (4) Public Customer Order offer on the Book of 100 contracts at 
$2.10;
    (5) Response of 50 contracts to sell at $2.10.

    Since there is insufficient size to execute the entire Agency Order 
and the Surrender Quantity of 200 is greater than the total size of 
Book Priority Public Customer Orders (100), the Agency Order will 
execute 100 contracts against the Book Priority Public Customer Order 
at $2.10 and the remaining 900 contracts against the Solicited Order at 
$2.10.\9\ In this example, without the use of the Surrender Quantity, 
the Priority Public Customer Order would force the Agency Order and 
Solicited Order to be cancelled while the Public Customer Order 
remained unexecuted.
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    \9\ As noted at the beginning of this section regarding 
Surrender Quantity, the only orders eligible for execution utilizing 
the Surrender Quantity are (1) Book Priority Public Customer Orders 
and (2) any bids (offers) on the BOX Book at any price better than 
the proposed execution price. Responses are not eligible for 
execution utilizing the Surrender Quantity.

    Example: The OFP starts a Solicitation Auction by submitting to 
BOX an Agency Order to buy and a Solicited Order to sell 1,000 
contracts with a proposed execution price of $2.10. The OFP also 
designates 200 contracts as the Surrender Quantity. At the end of 
the one second auction the NBBO is bid $2.00--offer $2.10. During 
the auction, BOX received the following bids (offers) in time 
priority:
    (1) Response of 150 contracts to sell at $2.08;
    (2) Market Maker offer on the Book of 100 contracts at $2.08;
    (3) Response of 100 contracts to sell at $2.10;
    (4) Public Customer Order on the Book of 50 contracts to sell at 
$2.08;
    (5) Public Customer Order on the Book of 50 contracts to sell at 
$2.10
    (6) Response of 50 contracts to sell at $2.10.

    Since there is insufficient size to execute the entire Agency 
Order, and the Surrender Quantity of 200 is equal to the total size of 
Public Customer Orders (100) and the better priced offers (Market Maker 
offer of 100 at $2.08), the Agency Order will execute 100 contracts at 
$2.10 against the Public Customer Orders, 100 contracts against the 
Market Maker offer at $2.08, and the remaining 800 contracts against 
the Solicited Order at $2.10. The Public Customer Order of 50 contracts 
to sell at $2.08 executes at the proposed solicitation execution price 
of $2.10. The Agency Order executes at $2.08 for the 100 contracts 
against the Market Maker offer. Without the Surrender Quantity 
function, the Book Priority Public Customer Order and the market maker 
offer on BOX at a better price would result in the Agency Order and 
Solicited Order being cancelled while the Public Customer Orders 
remained unexecuted.
    Public Customer bids (offers) on the BOX Book at the time of an 
execution that includes a Surrender Quantity, and

[[Page 38230]]

that are priced higher (lower) than the proposed Solicitation Auction 
execution price, will be executed against the Agency Order at the 
proposed execution price. BOX believes this will provide Public 
Customers the benefit of a better price for the number of contracts 
associated with such higher bids (lower offers). Non-Public Customer 
and Market Maker bids (offers) on the BOX Book at the time of a 
Surrender Quantity execution that are priced higher (lower) than the 
proposed execution price will be executed at their stated price. BOX 
believes this will provide the Agency Order a better execution price 
for those contracts.
    Additionally, the proposed rule change would require OFPs to 
deliver to customers a written notification describing the terms and 
conditions of the Solicitation Auction prior to executing Agency Orders 
using the Solicitation Auction. Such written notification would be 
required to be in a form approved by the Exchange.
Supplementary Material to Section 31
    Further, the proposed rule change specifies in Supplementary 
Material to Chapter V, Section 31 that it will be a violation of an 
Options Participant's duty of best execution to its customer if it were 
to cancel a Facilitation Order to avoid execution of the order at a 
better price. The availability of the Facilitation Auction does not 
alter an Options Participant's best execution duty to obtain the best 
price for its customer. Accordingly, while Facilitation Orders may be 
canceled during the time period given for the entry of Responses, if an 
Options Participant were to cancel a Facilitation Order when there was 
a better price available on BOX and subsequently re-enter the 
Facilitation Order at the same facilitation price after the better 
price was no longer available without attempting to obtain that better 
price for its customer, there would be a presumption that the Options 
Participant did so to avoid execution of its customer order in whole or 
in part by other brokers at the better price.
    In addition, Options Participants will be prohibited from using the 
Solicitation Auction to circumvent Section 17 of Chapter V which limits 
principal transactions. Prohibited actions may include, but be not 
limited to, Options Participants entering Solicitation Orders that are 
solicited from (1) Affiliated broker-dealers, or (2) broker-dealers 
with which the Options Participant has an arrangement that allows the 
Options Participant to realize similar economic benefits from the 
solicited transaction as it would achieve by executing the customer 
order in whole or in part as principal. Moreover, any Solicited Orders 
entered by Options Participants to trade against Agency Orders may not 
be for the account of a BOX market maker that is assigned to the 
options class.
    Additionally, the proposed rule change would allow Orders and 
Responses to be entered into the BOX Facilitation and Solicitation 
Auctions and receive executions at penny increments. Any BOX OFP may 
enter Orders into the Facilitation and Solicitation Auctions, and any 
BOX Participant may enter a Response within the proposed auction 
mechanisms. BOX believes that auction competition and executions at 
penny increments will provide greater flexibility in pricing for block-
size orders and provide enhanced opportunities for block-size orders to 
benefit from price improvement.
    Finally, the proposed rule change also adds references to the 
Facilitation and Solicitation Auction mechanisms to Chapter V, Section 
17 (Customer Orders and Order Flow Providers), and to Chapter III, 
Section 4(f) (Prevention of the Misuse of Material Nonpublic 
Information).
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\10\ in general, and Section 
6(b)(5) of the Act,\11\ in particular, in that it is 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. 
In particular, the Exchange believes that the proposed rule change to 
implement a Facilitation Auction and Solicitation Auction on BOX is 
designed to help BOX remain competitive among options exchanges and 
provide market participants additional opportunities to execute block-
size crossing transactions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    BOX believes the proposed rule change is consistent with the Act 
because executions based upon price/time priority provide an incentive 
for all market participants to post their best prices quickly to the 
market. BOX does not believe that customers' electronic orders must be 
accorded priority over market makers who are not acting as agent with 
respect to those customers. These market makers are not required to 
yield priority to Public Customer Orders if the market maker has time 
priority at a particular price level. In this way, BOX places all of 
its market participants on the same footing, with no participant 
enjoying any special or unique control over the timing of execution or 
order handling advantages. All orders are processed for execution by an 
electronic computer system--the BOX Trading Host. Specifically, orders 
sent to BOX are transmitted directly from remote electronic terminals 
to the trading system. Once an order is submitted to BOX, the order is 
executed against another order based on the established matching 
algorithm. The execution does not depend on the Options Participant but 
rather upon what other orders are entered into BOX at or around the 
same time as the subject order, what orders are on the BOX Book, and 
where the order is ranked based on the price/time priority ranking 
algorithm. Accordingly, Options Participants do not control or 
influence the result or timing of orders submitted to BOX. The 
Commission has repeatedly found this price/time priority model 
consistent with the Act \12\ regarding exchanges' electronic trading 
mechanisms. The proposed Solicitation Auction mechanism will not 
execute any order ahead of any Public Customer order on BOX where that 
customer order would have otherwise traded with the Agency Order 
(``Book Priority Public Customer Order''). As such, BOX believes the 
principles of price/time priority for matching orders within its 
proposed Solicitation Auction are consistent with the Act.
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    \12\ See Securities Exchange Act Release Nos. 49068 (January 13, 
2004), 69 FR 2775 (January 20, 2004) (SR-BSE-2002-15) (Order 
Approving BOX Facility); 61419 (January 26, 2010), 75 FR 5157 
(February 1, 2010) (SR-BATS-2009-031) (Order Approving BATS Options 
Rules); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-
NASDAQ-2007-004) (Order Approving NASDAQ Options Market).
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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 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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal

[[Page 38231]]

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 or disapprove 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 Number SR-BX-2011-034 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2011-034. 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of BX. 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 publicly available. All 
submissions should refer to File Number SR-BX-2011-034 and should be 
submitted on or before July 20, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16293 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P