Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating To Amend the Definition of Theoretical Price, 5289-5290 [2012-2337]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 22 (Thursday, February 2, 2012)]
[Notices]
[Pages 5289-5290]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66245; File No. SR-BX-2012-006]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating To 
Amend the Definition of Theoretical Price

January 26, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 20, 2012, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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, Section 20 (Obvious and 
Catastrophic Errors) of the Rules of the Boston Options Exchange Group, 
LLC (``BOX'') to amend the definition of theoretical price. 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
    The Exchange is proposing a change to Chapter V, Section 20 
(Obvious and Catastrophic Errors). An obvious error occurs when the 
execution price of a transaction is above or below the Theoretical 
Price for the series by a specified amount. The Exchange recently 
submitted an immediately effective rule change to amend the definition 
of Theoretical Price.\5\ Under the recently effective rule, the 
``Theoretical Price'' of an option series is defined, if the series is 
traded on at least one other options exchange, as the mid-point of the 
National Best Bid or Offer (``NBBO''), just prior to the trade in 
question. If there are no quotes for comparison, the Theoretical Price 
is determined by the Market Regulation Center (``MRC'').\6\
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    \5\ See Securities Exchange Act Release No. 66093 (January 4, 
2012), 77 FR 1543 (January 10, 2012) (SR-BX-2011-086) Notice of 
Filing and Immediate Effectiveness of a Proposal To Amend the 
Definition of Theoretical Price (``BX-2011-086'').
    \6\ MRC is defined in the BOX Rules to mean the Exchange's 
facilities for surveilling and regulating the conduct of business 
for options on BOX. MRC personnel are employees of BOXR and are not 
affiliated with BOX Options Participants.
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    The rule change proposed in BX-2011-086 was immediately effective 
upon filing, but not operative for 30 days. As such, it is not yet 
operative. The goal of the rule change in BX-2011-086 was to improve 
the BOX process for addressing potentially erroneous trades to the 
benefit of all BOX market participants. While proposing the rule 
change, BOX discussed BX-2011-086 with several BOX Options 
Participants, and has continued these discussions following the 
effective date of the proposal. Based on these discussions with its 
Participants, BOX, after considering the potential impact of the change 
on BOX market participants and the liquidity on BOX, believes there is 
sufficient reason to reverse the rule change proposed in BX-2011-086. 
In addition, BOX will continue analyzing potential refinements to the 
BOX process for addressing potentially erroneous trades.
    As such, the Exchange is proposing to amend the definition of 
Theoretical Price so that when the series is traded on at least one 
other options exchange, the Theoretical Price will be the ``National 
Best Bid with respect to an erroneous sell transaction, and National 
Best Offer with respect to an erroneous buy transaction, just prior to 
the trade in question.'' Alternatively, if there are no quotes for 
comparison, the Theoretical Price will continue to be determined by the 
MRC. This proposed rule change would reverse the effective rule change 
identified in note 1 [sic] and amend this provision of the BOX Rules so 
that the Theoretical Price continues to be the National Best Bid or 
Offer.
2. Statutory Basis
    This proposed rule change is designed to provide the personnel of 
the MRC (i.e., BOXR) with a clearly defined measure of the price on 
which to base a determination as to whether or not a particular 
transaction was the result of an obvious error and continue utilizing 
the rule that BOX has had in place prior to the operative date of BX-
2011-086. The Exchange believes the proposed rule change is consistent 
with the Securities Exchange Act of 1934 (the ``Act'') and the rules 
and regulations thereunder and, in particular, the requirements of 
Section 6(b) of the Act.\7\
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    \7\ 15 U.S.C. 78f(b).
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    Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirements that the rules of 
an exchange be

[[Page 5290]]

designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and 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, by maintaining the obvious 
error process in existence on BOX.
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    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that using the NBBO as the Theoretical Price 
will maintain an objective approach in determining obvious errors that 
is consistent with other options exchanges. The Exchange believes that 
continuing to use an objective standard when making adjustment 
decisions would benefit investors and market participants that are 
members of multiple exchanges participating in a national market 
system. The Exchange, after considering the potential impact of the 
rule change proposed in BX-2011-086 on BOX market participants and the 
liquidity on BOX, believes continuing to use its current process for 
evaluating potentially erroneous trades is appropriate for BOX. As 
such, the Exchange believes that its process for rendering and 
reviewing trade adjustment determinations is consistent with the Act, 
and with the maintenance of a fair and orderly market and the 
protection of 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 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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under 19b-4(f)(6) normally does not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \11\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay and make the proposed rule 
change effective and operative upon filing.
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    \11\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because such waiver would allow the Exchange to immediately revert back 
to the definition of ``Theoretical Price'' that was in place prior to 
the recent proposed rule change, BX-2011-086,\12\ before the changes in 
such rule filing become operative. As such, waiver of the operative 
delay will ensure that the definition of ``Theoretical Price'' remains 
consistent, thereby maintaining operational continuity of the rule on 
the BOX market. For these reasons, the Commission designates the 
proposed rule change as operative immediately upon filing with the 
Commission.\13\
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    \12\ See supra note 5 and accompanying text.
    \13\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2012-006 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2012-006. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-BX-2012-006 and 
should be submitted on or before February 23, 2012.

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2337 Filed 2-1-12; 8:45 am]
BILLING CODE 8011-01-P