Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving, on an Accelerated Basis, Proposed Rule Change To Adopt Chapter V, Section 3(d)(iii) Regarding Quoting Obligations, 21653-21655 [2013-08478]

Download as PDF Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices to all Members on an equal basis the reduced fee is reasonably related to the value to the Exchange’s market quality associated with higher levels of market activity, such as higher levels of liquidity provision and introduction of higher volumes of orders into the price and volume discovery process. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Because the market for order execution is extremely competitive, Members may choose to preference other market centers ahead of the Exchange if they believe that they can receive better fees or rebates elsewhere. Further, because certain of the proposed changes are intended to provide incentives to Members that will result in increased activity on the Exchange, such changes are necessarily competitive. The Exchange also believes that its pricing for displayed orders is appropriately ` competitive vis-a-vis the Exchange’s competitors. Further, the Exchange believes that continuing to incentivize the entry of aggressively priced, displayed liquidity fosters intra-market competition to the benefit of all market participants that enter orders to the Exchange. However, the Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. The Exchange does not believe that any of the changes represent a significant departure from previous pricing offered by the Exchange or pricing offered by the Exchange’s competitors. TKELLEY on DSK3SPTVN1PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and paragraph (f) of Rule 19b–4 thereunder.10 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 9 15 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f). 10 17 VerDate Mar<15>2010 17:37 Apr 10, 2013 Jkt 229001 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 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BYX–2013–012 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–BYX–2013–012. 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–BYX– 2013–012 and should be submitted on or before May 2, 2013. Frm 00064 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–08465 Filed 4–10–13; 8:45 am] 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: PO 00000 21653 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69334; File No. SR–BX– 2013–022] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving, on an Accelerated Basis, Proposed Rule Change To Adopt Chapter V, Section 3(d)(iii) Regarding Quoting Obligations April 5, 2013. I. Introduction On March 5, 2013, NASDAQ OMX BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’),2 and Rule 19b–4 thereunder,3 a proposed rule change to adopt Chapter V, Section 3(d)(iii) regarding quoting obligations. The proposed rule change was published for comment in the Federal Register on March 14, 2013.4 The Commission received no comment letters on the proposal. This order approves the proposed rule change on an accelerated basis. II. Background On May 6, 2010, the U.S. equity markets experienced a severe disruption that, among other things, resulted in the prices of a large number of individual securities suddenly declining by significant amounts in a very short time period before suddenly reversing to prices consistent with their pre-decline levels.5 This severe price volatility led to a large number of trades being executed at temporarily depressed prices, including many that were more than 60% away from pre-decline prices. 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 See Securities Exchange Act Release No. 69070 (March 7, 2013), 78 FR 16303. 5 The events of May 6 are described more fully in a joint report by the staffs of the Commodity Futures Trading Commission (‘‘CFTC’’) and the Commission. See Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues, ‘‘Findings Regarding the Market Events of May 6, 2010,’’ dated September 30, 2010, available at https:// www.sec.gov/news/studies/2010/marketeventsreport.pdf. 1 15 E:\FR\FM\11APN1.SGM 11APN1 21654 Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES One response to the events of May 6, 2010, was the development of the single-stock circuit breaker pilot program, which was implemented through a series of rule filings by the equity exchanges and by FINRA.6 The single-stock circuit breaker was designed to reduce extraordinary market volatility in NMS stocks by imposing a five-minute trading pause when a trade was executed at a price outside of a specified percentage threshold.7 To replace the single-stock circuit breaker pilot program, the equity exchanges filed a National Market System Plan 8 pursuant to Section 11A of the Act,9 and Rule 608 thereunder,10 which featured a ‘‘limit up-limit down’’ mechanism (as amended, the ‘‘Limit UpLimit Down Plan’’ or ‘‘Plan’’). The Plan sets forth requirements that are designed to prevent trades in individual NMS stocks from occurring outside of the specified price bands. The price bands consist of a lower price band and an upper price band for each NMS stock. When one side of the market for an individual security is outside the applicable price band, i.e., the National Best Bid is below the Lower Price Band, or the National Best Offer is above the Upper Price band, the Processors 11 are required to disseminate such National Best Bid or National Best 6 For further discussion on the development of the single-stock circuit breaker pilot program, see Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (‘‘Limit UpLimit Down Plan’’ or ‘‘Plan’’). 7 See Securities Exchange Act Release Nos. 62884 (September 10, 2010), 75 FR 56618 (September 16, 2010) and Securities Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 (September 16, 2010) (SR–FINRA–2010–033) (describing the ‘‘second stage’’ of the single-stock circuit breaker pilot) and Securities Exchange Act Release No. 64735 (June 23, 2011), 76 FR 38243 (June 29, 2011) (describing the ‘‘third stage’’ of the single-stock circuit breaker pilot). 8 NYSE Euronext filed on behalf of New York Stock Exchange LLC (‘‘NYSE’’), NYSE Amex LLC (‘‘NYSE Amex’’), and NYSE Arca, Inc. (‘‘NYSE Arca’’), and the parties to the proposed National Market System Plan, BATS Exchange, Inc., BATS YExchange, Inc., Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, and National Stock Exchange, Inc. (collectively with NYSE, NYSE MKT, and NYSE Arca, the ‘‘Participants’’). On May 14, 2012, NYSE Amex filed a proposed rule change on an immediately effective basis to change its name to NYSE MKT LLC (‘‘NYSE MKT’’). See Securities Exchange Act Release No. 67037 (May 21, 2012) (SR–NYSEAmex–2012–32). 9 15 U.S.C. 78k–1. 10 17 CFR 242.608. 11 As used in the Plan, the Processor refers to the single plan processor responsible for the consolidation of information for an NMS Stock pursuant to Rule 603(b) of Regulation NMS under the Exchange Act. See id. VerDate Mar<15>2010 17:37 Apr 10, 2013 Jkt 229001 Offer 12 with a flag identifying that quote as non-executable. When the other side of the market reaches the applicable price band, i.e., the National Best Offer reaches the lower price band, or the National Best Bid reaches the upper price band, the market for an individual security enters a 15-second Limit State, and the Processors are required disseminate such National Best Offer or National Best Bid with an appropriate flag identifying it as a Limit State Quotation. Trading in that stock would exit the Limit State if, within 15 seconds of entering the Limit State, all Limit State Quotations were executed or canceled in their entirety. If the market does not exit a Limit State within 15 seconds, then the Primary Listing Exchange will declare a five-minute trading pause, which is applicable to all markets trading the security. The Primary Listing Exchange may also declare a trading pause when the stock is in a Straddle State, i.e., the National Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the NMS Stock is not in a Limit State. In order to declare a trading pause in this scenario, the Primary Listing Exchange must determine that trading in that stock deviates from normal trading characteristics such that declaring a trading pause would support the Plan’s goal to address extraordinary market volatility.13 On May 31, 2012, the Commission approved the Plan as a one-year pilot, which shall be implemented in two phases.14 The first phase of the Plan 12 ‘‘National Best Bid’’ and ‘‘National Best Offer’’ has the meaning provided in Rule 600(b)(42) of Regulation NMS under the Exchange Act. See id. 13 As set forth in more detail in the Plan, all trading centers would be required to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the display of offers below the Lower Price Band and bids above the Upper Price Band for an NMS Stock. The Processors would be able to disseminate an offer below the Lower Price Band or bid above the Upper Price Band that nevertheless may be inadvertently submitted despite such reasonable policies and procedures, but with an appropriate flag identifying it as non-executable; such bid or offer would not be included in National Best Bid or National Best Offer calculations. In addition, all trading centers would be required to develop, maintain, and enforce policies and procedures reasonably designed to prevent trades at prices outside the price bands, with the exception of single-priced opening, reopening, and closing transactions on the Primary Listing Exchange. 14 See ‘‘Limit Up-Limit Down Plan,’’ supra note 6. See also Securities Exchange Act Release No. 68953 (February 20, 2013), 78 FR 13113 (February 26, 2013) (Second Amendment to Limit Up-Limit Down Plan by BATS Exchange, Inc., BATS YExchange, Inc., Chicago Board Options Exchange, Inc., et al.) and Securities Exchange Act Release No. 69062 (March 7, 2013), 78 FR 15757 (March 12, 2013) (Third Amendment to Limit Up-Limit Down Plan by BATS Exchange, Inc., BATS Y- Exchange, Inc., Chicago Board Options Exchange, Inc., et al.) PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 shall be implemented beginning April 8, 2013.15 III. Description of the Proposal In light of and in connection with the Limit Up-Limit Down Plan, BX is adopting Chapter V, Section 3(d)(iii) to provide that the Exchange shall exclude the amount of time an NMS stock underlying a BX option is in a Limit State or Straddle State from the total amount of time in the trading day when calculating the percentage of the trading day that Options Market Makers are required to quote. Currently, under Chapter VII, Sections 5 and 6, BX requires Market Makers, on a daily basis, to make markets consistent with the applicable quoting requirements specified in Sections 5 and 6, on a continuous basis in at least 60% of the series in options in which the Market Maker is registered. To satisfy this requirement with respect to quoting a series, a Market Maker must quote such series 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as BX may announce in advance. The Exchange’s proposal would suspend a Market Maker’s continuous quoting obligation for the duration that an underlying NMS stock is in a Limit State or a Straddle State. As a result, when calculating the duration necessary for a Market Maker to meet its obligations that it post valid quotes at least 90% of the time the classes are open for trading, that time will not include the duration that the underlying is in a Limit State or Straddle State. IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to a national securities exchange.16 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,17 which, among other things, requires a national securities exchange to be so organized and have the capacity to be able to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules and regulations thereunder, and the rules of 15 See ‘‘Second Amendment to Limit Up-Limit Down Plan,’’ supra note 14. 16 In approving the proposed rule changes, the Commission has considered their impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 17 15 U.S.C. 78f(b). E:\FR\FM\11APN1.SGM 11APN1 TKELLEY on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices the exchange, and is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulation, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission finds that the proposal to suspend a Market Maker’s obligations when the underlying security is in a limit up-limit down state is consistent with the Act. During a limit up-limit down state, there may not be a reliable price for the underlying security to serve as a benchmark for market makers to price options. In addition, the absence of an executable bid or offer for the underlying security will make it more difficult for market makers to hedge the purchase or sale of an option. Given these significant changes to the normal operating conditions of market makers, the Commission finds that the Exchange’s decision to suspend a Market Maker’s obligations in these limited circumstances is consistent with the Act. The Commission notes, however, that the Plan was approved on a pilot basis and its Participants will monitor how it is functioning in the equity markets during the pilot period. To this end, the Commission expects that, upon implementation of the Plan, the Exchange will continue monitoring the quoting requirements that are being amended in this proposed rule change and determine if any necessary adjustments are required to ensure that they remain consistent with the Act. The Commission also notes that the Exchange did not propose to waive its bid-ask spread requirements for Market Makers when the underlying is in a Limit or Straddle State. The Commission believes that retaining this requirement should help ensure the quality of the quotes that are entered and preserves one of the obligations of being a Market Maker. In addition, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act 18 for approving the proposed rule change on an accelerated basis. The proposal is related to the Plan, which will become operative on April 8, 2013.19 Without accelerated approval, the proposed rule change, and any attendant benefits, would take effect after the Plan’s implementation date. Accordingly, the Commission finds that good cause exists for approving the proposed rule change on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 20 that the proposed rule change (SR–BX–2013– 022) is approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–08478 Filed 4–10–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69322; File No. SR– NASDAQ–2013–061] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Rule 4120 April 5, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 1, 2013, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘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 Exchange. 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 NASDAQ proposes to adopt NASDAQ Rule 4120(c)(7)(D) concerning the extension of the Display Only Period conducted prior to the IPO Halt Cross under NASDAQ Rule 4753. The Exchange has designated the proposed changes herein as immediately effective. The text of the proposed rule change is below. Proposed new language is underlined; proposed deletions are in brackets. 20 15 U.S.C. 78f(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 21 17 18 15 U.S.C. 78s(b)(2) supra note 15. 19 See VerDate Mar<15>2010 17:37 Apr 10, 2013 Jkt 229001 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 21655 4120. Trading Halts (a)–(b) No change. (c) Procedure for Initiating a Trading Halt (1)–(6) No change. (7) (A) A trading halt or pause initiated under Rule 4120(a)(1), (4), (5), (6), (9), (10), (11) or Rule 4120(b) shall be terminated when Nasdaq releases the security for trading. Prior to terminating the halt, there will be a 5-minute Display Only Period during which market participants may enter quotations and orders in that security in Nasdaq systems. At the conclusion of the 5-minute Display Only Period, the security shall be released for trading unless Nasdaq extends the Display Only Period for an additional 1-minute period pursuant to subparagraph (C) below. At the conclusion of the Display Only Period, trading shall immediately resume pursuant to Rule 4753. (B) A trading halt initiated under Rule 4120(a)(7) shall be terminated when Nasdaq releases the security for trading. Prior to terminating the halt, there will be a 15-minute Display Only Period during which market participants may enter quotes and orders in that security in Nasdaq systems. In addition, beginning at 7 a.m., market participants may enter Market Hours Day Orders in a security that is the subject of an Initial Public Offering on Nasdaq and designate such orders to be held until the beginning of the Display Only Period, at which time they will be entered into the system. At the conclusion of the 15-minute Display Only Period, the security shall be released for trading unless Nasdaq extends the Display Only Period for up to six additional 5-minute Display Only Periods pursuant to subparagraph (C) or (D) below. At the conclusion of the Display Only Period(s), there shall be an additional delay of between zero and 15 seconds (randomly selected) and then trading shall resume pursuant to Rule 4753. (C) If at the end of a Display Only Period, Nasdaq detects an order imbalance in the security, Nasdaq will extend the Display Only Period as permitted under subparagraphs (A) and (B) above. Order imbalances shall be established when (i) the Current Reference Prices, as defined in Rule 4753(a)(2)(A), disseminated 15 seconds and immediately prior to the end of the Display Only Period differ by more than the greater of 5 percent or 50 cents, or (ii) all buy or sell market orders will not be executed in the cross. (D) At any time within the last five minutes prior to the end of a Display E:\FR\FM\11APN1.SGM 11APN1

Agencies

[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21653-21655]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08478]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69334; File No. SR-BX-2013-022]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving, on an Accelerated Basis, Proposed Rule Change To Adopt 
Chapter V, Section 3(d)(iii) Regarding Quoting Obligations

April 5, 2013.

I. Introduction

    On March 5, 2013, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
adopt Chapter V, Section 3(d)(iii) regarding quoting obligations. The 
proposed rule change was published for comment in the Federal Register 
on March 14, 2013.\4\ The Commission received no comment letters on the 
proposal. This order approves the proposed rule change on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 69070 (March 7, 
2013), 78 FR 16303.
---------------------------------------------------------------------------

II. Background

    On May 6, 2010, the U.S. equity markets experienced a severe 
disruption that, among other things, resulted in the prices of a large 
number of individual securities suddenly declining by significant 
amounts in a very short time period before suddenly reversing to prices 
consistent with their pre-decline levels.\5\ This severe price 
volatility led to a large number of trades being executed at 
temporarily depressed prices, including many that were more than 60% 
away from pre-decline prices.

[[Page 21654]]

One response to the events of May 6, 2010, was the development of the 
single-stock circuit breaker pilot program, which was implemented 
through a series of rule filings by the equity exchanges and by 
FINRA.\6\ The single-stock circuit breaker was designed to reduce 
extraordinary market volatility in NMS stocks by imposing a five-minute 
trading pause when a trade was executed at a price outside of a 
specified percentage threshold.\7\
---------------------------------------------------------------------------

    \5\ The events of May 6 are described more fully in a joint 
report by the staffs of the Commodity Futures Trading Commission 
(``CFTC'') and the Commission. See Report of the Staffs of the CFTC 
and SEC to the Joint Advisory Committee on Emerging Regulatory 
Issues, ``Findings Regarding the Market Events of May 6, 2010,'' 
dated September 30, 2010, available at https://www.sec.gov/news/studies/2010/marketevents-report.pdf.
    \6\ For further discussion on the development of the single-
stock circuit breaker pilot program, see Securities Exchange Act 
Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) 
(``Limit Up-Limit Down Plan'' or ``Plan'').
    \7\ See Securities Exchange Act Release Nos. 62884 (September 
10, 2010), 75 FR 56618 (September 16, 2010) and Securities Exchange 
Act Release No. 62883 (September 10, 2010), 75 FR 56608 (September 
16, 2010) (SR-FINRA-2010-033) (describing the ``second stage'' of 
the single-stock circuit breaker pilot) and Securities Exchange Act 
Release No. 64735 (June 23, 2011), 76 FR 38243 (June 29, 2011) 
(describing the ``third stage'' of the single-stock circuit breaker 
pilot).
---------------------------------------------------------------------------

    To replace the single-stock circuit breaker pilot program, the 
equity exchanges filed a National Market System Plan \8\ pursuant to 
Section 11A of the Act,\9\ and Rule 608 thereunder,\10\ which featured 
a ``limit up-limit down'' mechanism (as amended, the ``Limit Up-Limit 
Down Plan'' or ``Plan'').
---------------------------------------------------------------------------

    \8\ NYSE Euronext filed on behalf of New York Stock Exchange LLC 
(``NYSE''), NYSE Amex LLC (``NYSE Amex''), and NYSE Arca, Inc. 
(``NYSE Arca''), and the parties to the proposed National Market 
System Plan, BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago 
Board Options Exchange, Incorporated (``CBOE''), Chicago Stock 
Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial 
Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, the Nasdaq Stock Market LLC, and National Stock Exchange, 
Inc. (collectively with NYSE, NYSE MKT, and NYSE Arca, the 
``Participants''). On May 14, 2012, NYSE Amex filed a proposed rule 
change on an immediately effective basis to change its name to NYSE 
MKT LLC (``NYSE MKT''). See Securities Exchange Act Release No. 
67037 (May 21, 2012) (SR-NYSEAmex-2012-32).
    \9\ 15 U.S.C. 78k-1.
    \10\ 17 CFR 242.608.
---------------------------------------------------------------------------

    The Plan sets forth requirements that are designed to prevent 
trades in individual NMS stocks from occurring outside of the specified 
price bands. The price bands consist of a lower price band and an upper 
price band for each NMS stock. When one side of the market for an 
individual security is outside the applicable price band, i.e., the 
National Best Bid is below the Lower Price Band, or the National Best 
Offer is above the Upper Price band, the Processors \11\ are required 
to disseminate such National Best Bid or National Best Offer \12\ with 
a flag identifying that quote as non-executable. When the other side of 
the market reaches the applicable price band, i.e., the National Best 
Offer reaches the lower price band, or the National Best Bid reaches 
the upper price band, the market for an individual security enters a 
15-second Limit State, and the Processors are required disseminate such 
National Best Offer or National Best Bid with an appropriate flag 
identifying it as a Limit State Quotation. Trading in that stock would 
exit the Limit State if, within 15 seconds of entering the Limit State, 
all Limit State Quotations were executed or canceled in their entirety. 
If the market does not exit a Limit State within 15 seconds, then the 
Primary Listing Exchange will declare a five-minute trading pause, 
which is applicable to all markets trading the security.
---------------------------------------------------------------------------

    \11\ As used in the Plan, the Processor refers to the single 
plan processor responsible for the consolidation of information for 
an NMS Stock pursuant to Rule 603(b) of Regulation NMS under the 
Exchange Act. See id.
    \12\ ``National Best Bid'' and ``National Best Offer'' has the 
meaning provided in Rule 600(b)(42) of Regulation NMS under the 
Exchange Act. See id.
---------------------------------------------------------------------------

    The Primary Listing Exchange may also declare a trading pause when 
the stock is in a Straddle State, i.e., the National Best Bid (Offer) 
is below (above) the Lower (Upper) Price Band and the NMS Stock is not 
in a Limit State. In order to declare a trading pause in this scenario, 
the Primary Listing Exchange must determine that trading in that stock 
deviates from normal trading characteristics such that declaring a 
trading pause would support the Plan's goal to address extraordinary 
market volatility.\13\
---------------------------------------------------------------------------

    \13\ As set forth in more detail in the Plan, all trading 
centers would be required to establish, maintain, and enforce 
written policies and procedures reasonably designed to prevent the 
display of offers below the Lower Price Band and bids above the 
Upper Price Band for an NMS Stock. The Processors would be able to 
disseminate an offer below the Lower Price Band or bid above the 
Upper Price Band that nevertheless may be inadvertently submitted 
despite such reasonable policies and procedures, but with an 
appropriate flag identifying it as non-executable; such bid or offer 
would not be included in National Best Bid or National Best Offer 
calculations. In addition, all trading centers would be required to 
develop, maintain, and enforce policies and procedures reasonably 
designed to prevent trades at prices outside the price bands, with 
the exception of single-priced opening, reopening, and closing 
transactions on the Primary Listing Exchange.
---------------------------------------------------------------------------

    On May 31, 2012, the Commission approved the Plan as a one-year 
pilot, which shall be implemented in two phases.\14\ The first phase of 
the Plan shall be implemented beginning April 8, 2013.\15\
---------------------------------------------------------------------------

    \14\ See ``Limit Up-Limit Down Plan,'' supra note 6. See also 
Securities Exchange Act Release No. 68953 (February 20, 2013), 78 FR 
13113 (February 26, 2013) (Second Amendment to Limit Up-Limit Down 
Plan by BATS Exchange, Inc., BATS Y- Exchange, Inc., Chicago Board 
Options Exchange, Inc., et al.) and Securities Exchange Act Release 
No. 69062 (March 7, 2013), 78 FR 15757 (March 12, 2013) (Third 
Amendment to Limit Up-Limit Down Plan by BATS Exchange, Inc., BATS 
Y- Exchange, Inc., Chicago Board Options Exchange, Inc., et al.)
    \15\ See ``Second Amendment to Limit Up-Limit Down Plan,'' supra 
note 14.
---------------------------------------------------------------------------

III. Description of the Proposal

    In light of and in connection with the Limit Up-Limit Down Plan, BX 
is adopting Chapter V, Section 3(d)(iii) to provide that the Exchange 
shall exclude the amount of time an NMS stock underlying a BX option is 
in a Limit State or Straddle State from the total amount of time in the 
trading day when calculating the percentage of the trading day that 
Options Market Makers are required to quote.
    Currently, under Chapter VII, Sections 5 and 6, BX requires Market 
Makers, on a daily basis, to make markets consistent with the 
applicable quoting requirements specified in Sections 5 and 6, on a 
continuous basis in at least 60% of the series in options in which the 
Market Maker is registered. To satisfy this requirement with respect to 
quoting a series, a Market Maker must quote such series 90% of the 
trading day (as a percentage of the total number of minutes in such 
trading day) or such higher percentage as BX may announce in advance. 
The Exchange's proposal would suspend a Market Maker's continuous 
quoting obligation for the duration that an underlying NMS stock is in 
a Limit State or a Straddle State. As a result, when calculating the 
duration necessary for a Market Maker to meet its obligations that it 
post valid quotes at least 90% of the time the classes are open for 
trading, that time will not include the duration that the underlying is 
in a Limit State or Straddle State.

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and rules and 
regulations thereunder applicable to a national securities 
exchange.\16\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\17\ which, 
among other things, requires a national securities exchange to be so 
organized and have the capacity to be able to carry out the purposes of 
the Act and to enforce compliance by its members and persons associated 
with its members with the provisions of the Act, the rules and 
regulations thereunder, and the rules of

[[Page 21655]]

the exchange, and is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulation, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \16\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    The Commission finds that the proposal to suspend a Market Maker's 
obligations when the underlying security is in a limit up-limit down 
state is consistent with the Act. During a limit up-limit down state, 
there may not be a reliable price for the underlying security to serve 
as a benchmark for market makers to price options. In addition, the 
absence of an executable bid or offer for the underlying security will 
make it more difficult for market makers to hedge the purchase or sale 
of an option. Given these significant changes to the normal operating 
conditions of market makers, the Commission finds that the Exchange's 
decision to suspend a Market Maker's obligations in these limited 
circumstances is consistent with the Act.
    The Commission notes, however, that the Plan was approved on a 
pilot basis and its Participants will monitor how it is functioning in 
the equity markets during the pilot period. To this end, the Commission 
expects that, upon implementation of the Plan, the Exchange will 
continue monitoring the quoting requirements that are being amended in 
this proposed rule change and determine if any necessary adjustments 
are required to ensure that they remain consistent with the Act.
    The Commission also notes that the Exchange did not propose to 
waive its bid-ask spread requirements for Market Makers when the 
underlying is in a Limit or Straddle State. The Commission believes 
that retaining this requirement should help ensure the quality of the 
quotes that are entered and preserves one of the obligations of being a 
Market Maker.
    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act \18\ for approving the proposed rule change on an 
accelerated basis. The proposal is related to the Plan, which will 
become operative on April 8, 2013.\19\ Without accelerated approval, 
the proposed rule change, and any attendant benefits, would take effect 
after the Plan's implementation date. Accordingly, the Commission finds 
that good cause exists for approving the proposed rule change on an 
accelerated basis.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2)
    \19\ See supra note 15.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\20\ that the proposed rule change (SR-BX-2013-022) is approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08478 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.