Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Outbound Routing, 6264-6266 [2014-02137]

Download as PDF 6264 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION 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– NASDAQ–2014–008 on the subject line. Paper Comments Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Outbound Routing January 28, 2014. • 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–NASDAQ–2014–008. 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– NASDAQ–2014–008 and should be submitted on or before February 24, 2014 mstockstill on DSK4VPTVN1PROD with NOTICES [Release No. 34–71421; File No. SR–BX– 2014–003] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–02134 Filed 1–31–14; 8:45 am] 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 15, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, 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 The Exchange proposes to use Nasdaq Execution Services, LLC (‘‘NES’’) as opposed to Nasdaq Options Services LLC (‘‘NOS’’) for outbound order routing from the BX Options market, as explained further below. The Exchange also proposes to permit the Exchange to route equities and options orders through NES either directly or through a third party routing broker-dealer, as explained further below. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqomxbx. cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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. BILLING CODE 8011–01–P U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. CFR 200.30–3(a)(12). VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 PO 00000 Frm 00121 Fmt 4703 1. Purpose The purpose of the proposal is to update the Exchange’s rules to reflect the ability to route orders to other exchanges using either the Exchange’s affiliated broker-dealer or a third party unaffiliated broker-dealer, which the Exchange may choose to use for efficiency and potential cost savings. Today, the relevant Exchange rules provide that the Exchange shall route orders in options via NOS and in equities via NES. Both NOS and NES are affiliates and members of BX. As a result, certain conditions have been imposed on the existing routing arrangements.3 Replacing NOS With NES The Exchange proposes to amend its rules to provide that it shall use NES for routing orders in options rather than NOS. The Exchange has determined to use NES for outbound routing in options, in addition to equities. The Exchange originally set up its affiliated broker-dealers as two separate entities. Now, the Exchange believes that this is unnecessary and costly. Accordingly, pursuant to BX Rules, Chapter VI, Section 11, NES will now be the outbound routing broker for BX Options. As the new Routing Facility for options, NES will operate the same way as NOS currently does, in terms of routing options orders to destination options exchanges. This is substantially similar to NYSEArca’s use of its affiliate Archipelago Securities LLC for order routing in both equities and options. Third-Party Routing Broker The Exchange also proposes to codify in its rules the ability to use a thirdparty routing broker to route to away exchanges, rather than routing directly through NES, for both equities and options. To date, the Exchange has used a third-party routing broker in equities and is amending Rule 4758 to clarify this and incorporate the use of a thirdparty routing broker expressly into that rule. Specifically, today, the Exchange routes equities orders to away markets through NES, which, in turn, sometimes routes directly to away markets; in addition, sometimes when the Exchange routes equities orders through NES today, NES routes those orders through a third-party routing broker. 3 See, e.g., Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR–BX–2012–030) at 39280. 1 15 18 17 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Sfmt 4703 E:\FR\FM\03FEN1.SGM 03FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices In options, the Exchange currently routes options orders to NOS, which routes directly to away markets. The Exchange proposes to use NES, rather than NOS, as explained above, and to have NES route either directly to other options exchanges or to a third-party routing broker (which will, in turn, route to other options exchanges). The Exchange proposes to amend Chapter VI, Section 11 of BX Options rules accordingly. Regardless of whether a third-party routing broker is used in either equities or options, all routing will go through NES, but the Exchange could determine to direct NES to route orders to certain exchanges using a routing broker rather than routing an order directly. The Exchange previously stated that from time to time, it may use nonaffiliate third-party broker-dealers to provide outbound routing services (i.e., third-party Routing Brokers).4 In those cases, orders are submitted to the thirdparty Routing Broker through the affiliated routing broker, and the thirdparty Routing Broker routes the orders to the routing destination in its name. Under this proposal, the relevant rules would now expressly provide that the Exchange could use one or more third-party unaffiliated routing brokerdealers (‘‘routing brokers’’). Specifically, the Exchange proposes to amend BX Options Rules, Chapter VI, Section 11, which applies to options, to refer to such routing brokers. The Exchange proposes to similarly amend Rule 4758(b) respecting equities. The Exchange proposes to further amend its rules with respect to certain policies and procedures. Specifically, BX Options Rules, Chapter VI, Section 11(e) and BX Rule 4758 currently provide that the Exchange shall establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange and the Routing Facility, and any other entity, including any affiliate of the Routing Facility. The Exchange proposes to amend those rules to provide that, where there is a routing broker, the Exchange shall establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange, the Routing Facility and any routing broker, and any other entity, including any 4 See Securities Exchange Act Release Nos. 67280 (June 27, 2012), 77 FR 39552 (July 3, 2012) (SR–BX– 2012–034) at note 6; and 68394 (December 10, 2012), 77 FR 74524 (December 14, 2012) (SR–BX– 2012–073) at note 4. VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 affiliate of the routing broker (and if the routing broker or any of its affiliates engages in any other business activities other than providing routing services to the Exchange, between the segment of the routing broker or affiliate that provides the other business activities and the segment of the routing broker that provides the routing services).5 This way, this provision extends to the routing broker, if one is used. In both the proposed equities and options rules, the Exchange proposes to provide that the Exchange may not use a routing broker for which the Exchange or any affiliate of the Exchange is the designated examining authority. This is similar to the existing provisions that do not permit the Exchange to be the designated examining authority for its affiliated routing brokers.6 The Exchange also proposes to expressly state in Rule 4758(b)(1) and BX Options Rules, Chapter VI, Section 11(e) that the Exchange will determine the logic that provides when, how, and where orders are routed away to other exchanges. In addition, the routing broker(s) cannot change the terms of an order or the routing instructions, nor does the routing broker have any discretion about where to route an order. This is consistent with, but more specific than, the current language that states that routing is performed under the direction of the Exchange.7 The Exchange may determine to use a different routing broker by product or by destination exchange, depending upon the costs and technological efficiencies involved. The proposal is intended to allow the Exchange to structure its routing arrangements accordingly. At a minimum, the Exchange anticipates using a routing broker to access certain markets where the Exchange finds that the costs of maintaining a membership (for NES) and/or the costs of connectivity and execution do not make sense in light of the number or types of orders the Exchange typically routes to that particular market. These costs necessarily determine the ultimate costs to the Exchange of routing to a market, and, in turn, affect how the Exchange chooses to recoup those costs through 5 This is substantially similar to NYSEArca Rule 6.96(a)(8). 6 See BX Options Chapter VI, Section 11(e) (which currently provides that NOS is a brokerdealer that is a member of an unaffiliated SRO which is the designated examining authority for the broker-dealer) and Rule 4758(b)(4) (which currently provides that the designated examining authority of NES shall be a self-regulatory organization unaffiliated with the Exchange or any of its affiliates). This is also substantially similar to NYSEArca Rule 6.96(a)(7). 7 This is based on NYSEArca Rule 6.96(a)(1)(A). PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 6265 its own transaction fees.8 Sometimes, it will not make economic sense for NES to access an exchange directly. Accordingly, the Exchange intends to use a routing broker where the Exchange determines that it is appropriate. In addition to costs, the Exchange will also consider ease of connectivity and execution as well as general reliability in selecting a routing broker. For several weeks, the Exchange has been working with the Financial Regulatory Authority (‘‘FINRA’’) and The Options Clearing Corporation (‘‘OCC’’) to secure the necessary approvals for NES to perform these functions. The Exchange has now secured those approvals. The Exchange seeks to complete this process and implement this proposal in January or February. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 9 in general, and furthers the objectives of Section 6(b)(5) of the Act 10 in particular, in that it is designed 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, by providing an alternative routing arrangement. The proposal should remove impediments to and perfect the mechanism of a free and open market and a national market system by providing customer order protection and by facilitating trading at away exchanges so customer orders trade at the best market price. The proposal should also protect investors and the public interest by fostering compliance with the Options Order Protection and Locked/Crossed Market Plan. The Exchange also believes that the proposal to use NES rather than NOS for options routing is designed to promote just and equitable principles of trade and to protect investors and the public interest, by eliminating the costs and inefficiencies associated with operating a separate broker-dealer for options routing. In addition, the Exchange believes that the proposal is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, because there are specific protections pertaining to the routing broker in light of the potential conflict of interest where the 8 For these reasons, today, transaction fees for orders vary depending on the Market where an order is ultimately executed. See e.g., BX Rule 7000 series and BX Options Rules, Chapter XV. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). E:\FR\FM\03FEN1.SGM 03FEN1 6266 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices member routing broker could have access to information regarding other members’ orders or the routing of those orders. These protections include the Exchange’s control over all routing logic as well as the confidentiality of routing information.11 (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. The proposal is pro-competitive because it enables broker-dealers other than NOS and NES to provide routing services to the Exchange, which has the potential to reduce the Exchange’s costs of routing orders and, potentially, the fees the Exchange charges for routed orders. The proposal does not raise issues of intramarket competition, because the Exchange’s decision to route through a particular routing broker would impact all participants equally. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 12 and subparagraph (f)(6) of Rule 19b–4 thereunder.13 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. mstockstill on DSK4VPTVN1PROD with NOTICES 11 See proposed Rules 4758(b)(1) and (8) and BX Options Rules, Chapter VI, Section 11(e). 12 15 U.S.C. 78s(b)(3)(a)(ii). 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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. VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–02137 Filed 1–31–14; 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: BILLING CODE 8011–01–P Electronic Comments AGENCY: • 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–2014–003 on the subject line. ACTION: 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–2014–003. 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– 2014–003 and should be submitted on or before February 24, 2014. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 SMALL BUSINESS ADMINISTRATION [Disaster Declaration #13829 and #13830] Illinois Disaster Number IL–00043 Small Business Administration. Amendment 1. This is an amendment of the Presidential declaration of a major disaster for the State of Illinois (FEMA— 4157—DR), dated 11/26/2013. Incident: Severe storms, straight-line winds, and tornadoes. Incident Period: 11/17/2013. Effective Date: 01/24/2014. Physical Loan Application Deadline Date: 02/03/2014. EIDL Loan Application Deadline Date: 08/26/2014. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for the State of Illinois, dated 11/26/2013 is hereby amended to extend the deadline for filing applications for physical damages as a result of this disaster to 02/03/2014. All other information in the original declaration remains unchanged. SUMMARY: (Catalog of Federal Domestic Assistance Numbers 59002 and 59008). James E. Rivera, Associate Administrator, for Disaster Assistance. [FR Doc. 2014–02120 Filed 1–31–14; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION Military Reservist Economic Injury Disaster Loans Interest Rate for Second Quarter FY 2014. In accordance with the Code of Federal Regulations 13—Business Credit and Assistance § 123.512, the following 14 17 E:\FR\FM\03FEN1.SGM CFR 200.30–3(a)(12). 03FEN1

Agencies

[Federal Register Volume 79, Number 22 (Monday, February 3, 2014)]
[Notices]
[Pages 6264-6266]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71421; File No. SR-BX-2014-003]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Outbound 
Routing

January 28, 2014.
    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 15, 2014, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, 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.
---------------------------------------------------------------------------

    \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 use Nasdaq Execution Services, LLC 
(``NES'') as opposed to Nasdaq Options Services LLC (``NOS'') for 
outbound order routing from the BX Options market, as explained further 
below. The Exchange also proposes to permit the Exchange to route 
equities and options orders through NES either directly or through a 
third party routing broker-dealer, as explained further below.
    The text of the proposed rule change is available on the Exchange's 
Web site at https://nasdaqomxbx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposal is to update the Exchange's rules to 
reflect the ability to route orders to other exchanges using either the 
Exchange's affiliated broker-dealer or a third party unaffiliated 
broker-dealer, which the Exchange may choose to use for efficiency and 
potential cost savings.
    Today, the relevant Exchange rules provide that the Exchange shall 
route orders in options via NOS and in equities via NES. Both NOS and 
NES are affiliates and members of BX. As a result, certain conditions 
have been imposed on the existing routing arrangements.\3\
---------------------------------------------------------------------------

    \3\ See, e.g., Securities Exchange Act Release No. 67256 (June 
26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) at 39280.
---------------------------------------------------------------------------

Replacing NOS With NES
    The Exchange proposes to amend its rules to provide that it shall 
use NES for routing orders in options rather than NOS. The Exchange has 
determined to use NES for outbound routing in options, in addition to 
equities. The Exchange originally set up its affiliated broker-dealers 
as two separate entities. Now, the Exchange believes that this is 
unnecessary and costly. Accordingly, pursuant to BX Rules, Chapter VI, 
Section 11, NES will now be the outbound routing broker for BX Options. 
As the new Routing Facility for options, NES will operate the same way 
as NOS currently does, in terms of routing options orders to 
destination options exchanges. This is substantially similar to 
NYSEArca's use of its affiliate Archipelago Securities LLC for order 
routing in both equities and options.
Third-Party Routing Broker
    The Exchange also proposes to codify in its rules the ability to 
use a third-party routing broker to route to away exchanges, rather 
than routing directly through NES, for both equities and options. To 
date, the Exchange has used a third-party routing broker in equities 
and is amending Rule 4758 to clarify this and incorporate the use of a 
third-party routing broker expressly into that rule. Specifically, 
today, the Exchange routes equities orders to away markets through NES, 
which, in turn, sometimes routes directly to away markets; in addition, 
sometimes when the Exchange routes equities orders through NES today, 
NES routes those orders through a third-party routing broker.

[[Page 6265]]

    In options, the Exchange currently routes options orders to NOS, 
which routes directly to away markets. The Exchange proposes to use 
NES, rather than NOS, as explained above, and to have NES route either 
directly to other options exchanges or to a third-party routing broker 
(which will, in turn, route to other options exchanges). The Exchange 
proposes to amend Chapter VI, Section 11 of BX Options rules 
accordingly.
    Regardless of whether a third-party routing broker is used in 
either equities or options, all routing will go through NES, but the 
Exchange could determine to direct NES to route orders to certain 
exchanges using a routing broker rather than routing an order directly.
    The Exchange previously stated that from time to time, it may use 
non-affiliate third-party broker-dealers to provide outbound routing 
services (i.e., third-party Routing Brokers).\4\ In those cases, orders 
are submitted to the third-party Routing Broker through the affiliated 
routing broker, and the third-party Routing Broker routes the orders to 
the routing destination in its name.
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    \4\ See Securities Exchange Act Release Nos. 67280 (June 27, 
2012), 77 FR 39552 (July 3, 2012) (SR-BX-2012-034) at note 6; and 
68394 (December 10, 2012), 77 FR 74524 (December 14, 2012) (SR-BX-
2012-073) at note 4.
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    Under this proposal, the relevant rules would now expressly provide 
that the Exchange could use one or more third-party unaffiliated 
routing broker-dealers (``routing brokers''). Specifically, the 
Exchange proposes to amend BX Options Rules, Chapter VI, Section 11, 
which applies to options, to refer to such routing brokers. The 
Exchange proposes to similarly amend Rule 4758(b) respecting equities. 
The Exchange proposes to further amend its rules with respect to 
certain policies and procedures. Specifically, BX Options Rules, 
Chapter VI, Section 11(e) and BX Rule 4758 currently provide that the 
Exchange shall establish and maintain procedures and internal controls 
reasonably designed to adequately restrict the flow of confidential and 
proprietary information between the Exchange and the Routing Facility, 
and any other entity, including any affiliate of the Routing Facility. 
The Exchange proposes to amend those rules to provide that, where there 
is a routing broker, the Exchange shall establish and maintain 
procedures and internal controls reasonably designed to adequately 
restrict the flow of confidential and proprietary information between 
the Exchange, the Routing Facility and any routing broker, and any 
other entity, including any affiliate of the routing broker (and if the 
routing broker or any of its affiliates engages in any other business 
activities other than providing routing services to the Exchange, 
between the segment of the routing broker or affiliate that provides 
the other business activities and the segment of the routing broker 
that provides the routing services).\5\ This way, this provision 
extends to the routing broker, if one is used.
---------------------------------------------------------------------------

    \5\ This is substantially similar to NYSEArca Rule 6.96(a)(8).
---------------------------------------------------------------------------

    In both the proposed equities and options rules, the Exchange 
proposes to provide that the Exchange may not use a routing broker for 
which the Exchange or any affiliate of the Exchange is the designated 
examining authority. This is similar to the existing provisions that do 
not permit the Exchange to be the designated examining authority for 
its affiliated routing brokers.\6\
---------------------------------------------------------------------------

    \6\ See BX Options Chapter VI, Section 11(e) (which currently 
provides that NOS is a broker-dealer that is a member of an 
unaffiliated SRO which is the designated examining authority for the 
broker-dealer) and Rule 4758(b)(4) (which currently provides that 
the designated examining authority of NES shall be a self-regulatory 
organization unaffiliated with the Exchange or any of its 
affiliates). This is also substantially similar to NYSEArca Rule 
6.96(a)(7).
---------------------------------------------------------------------------

    The Exchange also proposes to expressly state in Rule 4758(b)(1) 
and BX Options Rules, Chapter VI, Section 11(e) that the Exchange will 
determine the logic that provides when, how, and where orders are 
routed away to other exchanges. In addition, the routing broker(s) 
cannot change the terms of an order or the routing instructions, nor 
does the routing broker have any discretion about where to route an 
order. This is consistent with, but more specific than, the current 
language that states that routing is performed under the direction of 
the Exchange.\7\
---------------------------------------------------------------------------

    \7\ This is based on NYSEArca Rule 6.96(a)(1)(A).
---------------------------------------------------------------------------

    The Exchange may determine to use a different routing broker by 
product or by destination exchange, depending upon the costs and 
technological efficiencies involved. The proposal is intended to allow 
the Exchange to structure its routing arrangements accordingly. At a 
minimum, the Exchange anticipates using a routing broker to access 
certain markets where the Exchange finds that the costs of maintaining 
a membership (for NES) and/or the costs of connectivity and execution 
do not make sense in light of the number or types of orders the 
Exchange typically routes to that particular market. These costs 
necessarily determine the ultimate costs to the Exchange of routing to 
a market, and, in turn, affect how the Exchange chooses to recoup those 
costs through its own transaction fees.\8\ Sometimes, it will not make 
economic sense for NES to access an exchange directly. Accordingly, the 
Exchange intends to use a routing broker where the Exchange determines 
that it is appropriate. In addition to costs, the Exchange will also 
consider ease of connectivity and execution as well as general 
reliability in selecting a routing broker.
---------------------------------------------------------------------------

    \8\ For these reasons, today, transaction fees for orders vary 
depending on the Market where an order is ultimately executed. See 
e.g., BX Rule 7000 series and BX Options Rules, Chapter XV.
---------------------------------------------------------------------------

    For several weeks, the Exchange has been working with the Financial 
Regulatory Authority (``FINRA'') and The Options Clearing Corporation 
(``OCC'') to secure the necessary approvals for NES to perform these 
functions. The Exchange has now secured those approvals. The Exchange 
seeks to complete this process and implement this proposal in January 
or February.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that it is designed 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, by providing an alternative routing arrangement. The proposal 
should remove impediments to and perfect the mechanism of a free and 
open market and a national market system by providing customer order 
protection and by facilitating trading at away exchanges so customer 
orders trade at the best market price. The proposal should also protect 
investors and the public interest by fostering compliance with the 
Options Order Protection and Locked/Crossed Market Plan. The Exchange 
also believes that the proposal to use NES rather than NOS for options 
routing is designed to promote just and equitable principles of trade 
and to protect investors and the public interest, by eliminating the 
costs and inefficiencies associated with operating a separate broker-
dealer for options routing. In addition, the Exchange believes that the 
proposal is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, because there are specific 
protections pertaining to the routing broker in light of the potential 
conflict of interest where the

[[Page 6266]]

member routing broker could have access to information regarding other 
members' orders or the routing of those orders. These protections 
include the Exchange's control over all routing logic as well as the 
confidentiality of routing information.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See proposed Rules 4758(b)(1) and (8) and BX Options Rules, 
Chapter VI, Section 11(e).
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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. The proposal is pro-competitive 
because it enables broker-dealers other than NOS and NES to provide 
routing services to the Exchange, which has the potential to reduce the 
Exchange's costs of routing orders and, potentially, the fees the 
Exchange charges for routed orders. The proposal does not raise issues 
of intra-market competition, because the Exchange's decision to route 
through a particular routing broker would impact all participants 
equally.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-BX-2014-003 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-2014-003. 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-2014-003 and should be 
submitted on or before February 24, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02137 Filed 1-31-14; 8:45 am]
BILLING CODE 8011-01-P
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