Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify and Reorganize Chapter VI (Trading Systems), Section 8 (BX Opening and Halt Cross) of the Exchange's Options Rules, 10179-10187 [2015-03819]
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Federal Register / Vol. 80, No. 37 / Wednesday, February 25, 2015 / Notices
will allow the obvious error pilot
program to continue uninterrupted
while the industry gains further
experience operating under the Plan,
and avoid any investor confusion that
could result from a temporary
interruption in the pilot program. For
this reason, the Commission designates
the proposed rule change to be operative
upon filing.9
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. 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:
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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–
BOX–2015–13 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BOX–2015–13. 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
9 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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 such
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–BOX–
2015–13, and should be submitted on or
before March 18, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Brent J. Fields,
Secretary.
[FR Doc. 2015–03814 Filed 2–24–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74310; File No. SR–BX–
2015–010]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Modify and
Reorganize Chapter VI (Trading
Systems), Section 8 (BX Opening and
Halt Cross) of the Exchange’s Options
Rules
February 19, 2015.
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 February
9, 2015, 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 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 the Substance
of the Proposed Rule Change
The Exchange proposes to modify and
reorganize Chapter VI (Trading
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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10179
Systems), Section 8 (BX Opening and
Halt Cross) of the Exchange’s Options
rules. The proposal would update or
add Section 1 and Section 8 definitions
in respect of the BX Opening and Halt
Cross. The proposal would also make
changes regarding: The criteria for
opening of trading or resumption of
trading after a halt; BX posting on its
Web site any changes to the
dissemination interval or prior Order
Imbalance Indicator; the procedure if
more than one price exists; the
procedure if there are unexecuted
contracts; and the ability of firms to
elect that orders be returned in symbols
that were not opened on BX before the
conclusion of the Opening Order Cancel
Timer.
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 proposed rule
change is to modify BX Chapter VI,
Section 1 and Section 8 to update or add
definitions, which include Current
Reference Price, BX Opening Cross,
Eligible Interest, Valid Width National
Best Bid or Offer (‘‘Valid Width
NBBO’’), Away Best Bid or Offer
(‘‘ABBO’’), and On the Open Order
(‘‘OPG’’). The purpose is to also make
changes regarding: The criteria for
opening of trading or resumption of
trading after a halt; BX posting on its
Web site any changes to the
dissemination interval or prior Order
Imbalance Indicator; the procedure if
more than one price exists; the
procedure if there are unexecuted
contracts; and the ability of firms to
elect that orders be returned in symbols
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that were not opened on BX before the
conclusion of the Opening Order Cancel
Timer.3
Section 8 of Chapter VI describes the
BX opening and halt cross and opening
imbalance process (‘‘Opening Cross’’).
Section 8(a) currently contains
definitions that are applicable to Section
8. Section 8(b) currently states that for
the opening of trading of System
Securities,4 the Opening Cross shall
occur at or after 9:30 a.m. Eastern Time 5
if any of the following ‘‘conditions’’
occur: (1) There is no Imbalance; 6 (2)
the dissemination of a regular market
hours quote or trade (as determined by
the Exchange on a class-by-class basis)
by the Market for the Underlying
Security 7 has occurred (or, in the case
of index options, the Exchange has
received the opening price of the
underlying index); or (3) in the case of
a trading halt, when trading resumes
pursuant to Chapter V, Section 4, and a
certain number (as the Exchange may
determine from time to time) of other
options exchanges have disseminated a
firm quote on the Options Price
Reporting Authority (‘‘OPRA’’).8 Market
hours trading on BX Options in specific
options commences, or in the case of
specific halted options resumes, when
the BX Opening Cross concludes.
Section 8(c) currently describes the
procedure if firm quotes are not
disseminated for an option by the
predetermined number of options
exchanges by a specific time during the
day that is determined by the
3 The Exchange will explain the proposed change
to its participants via an Options Trader Alert.
4 ‘‘System Securities’’ means all options that are
currently trading on BX Options pursuant to
Chapter IV. All other options are ‘‘Non System
Securities.’’ Chapter VI, Section 1(b).
5 In this proposal, all time is Eastern Time unless
otherwise noted.
6 ‘‘Imbalance’’ means the number of contracts of
Eligible Interest that may not be equal. Chapter VI,
Section 8(a)(1). ‘‘Eligible Interest’’ means any
quotation or any order that may be entered into the
system and designated with a time-in-force of IOC,
DAY, GTC. Chapter VI, Section 8(a)(4). The
Exchange is deleting the reference to Imbalance
from Section 8(b) because, as discussed, the
occurrence of the Opening Cross depends on the
parameters proposed in Section 8(b) rather than on
whether there is an imbalance.
7 ‘‘Market for the Underlying Security’’ means
either the primary listing market, the primary
volume market (defined as the market with the most
liquidity in that underlying security for the
previous two calendar months), or the first market
to open the underlying security, as determined by
the Exchange on an issue-by-issue basis and
announced to the membership on the Exchange’s
Web site. Chapter VI, Section 8(a)(5).
8 For better readability, this part of Section 8(b)
is proposed to be broken into two sentences and the
phrase ‘‘the Opening Cross shall occur’’ inserted.
Reference to firm quote on OPRA is proposed to be
deleted from this part of Section 8(b) and is, as
discussed, put into proposed Section 8(b)(2)(B).
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Exchange; 9 provided that dissemination
of a regular market hours quote or trade
by the Market for the Underlying
Security has occurred (or, in the case of
index options, the Exchange has
received the opening price of the
underlying index). This filing proposes
several changes to enhance the usability
and effectiveness of Section 8 regarding
the opening and halt cross and
imbalance process.
First, the Exchange proposes to
update or add new Section 8
definitions.
The Exchange proposes a change to
the definition of ‘‘Current Reference
Price’’. Current Section 8(a)(2)(A)
defines the ‘‘Current Reference Price’’ to
mean: (i) The single price at which the
maximum number of contracts of
Eligible Interest can be paired at or
within the NBBO; (ii) If more than one
price exists under subparagraph (i), the
Current reference Price shall mean the
entered price at which contracts will
remain unexecuted in the cross; (iii) If
more than one price exists under
subparagraph (ii), the Current Reference
Price shall mean the price that is closest
to the midpoint of the (1) National Best
Bid or the last offer on BX against which
contracts will be traded whichever is
higher, and (2) National Best Offer or
the last bid on BX against which
contracts will be traded whichever is
lower. Proposed Section 8(a)(2)(A) seeks
to simplify the definition of the
‘‘Current Reference Price’’ to state that
‘‘Current Reference Price’’ shall mean an
indication of what the Opening Cross
price would be at a particular point in
time. The ‘‘Current Reference Price’’
determination will be substantively
similar to what is currently described in
Section 8(a)(2)(A), with the criteria for
the Opening Cross price, as discussed
below, set forth elsewhere in Section
8,10 according to various parameters
(e.g. existence of opening interest,
existence of Valid Width NBBO,
whether the issue is open elsewhere).11
The Exchange believes that this
construction makes the rule easier to
follow. In addition, this construction
also makes the language contained in
current Section 8(a)(2)(E) no longer
necessary as it is replaced with the new
9 The specific time of day, currently 9:45 a.m., is
disseminated at https://www.nasdaqtrader.com/
Content/TechnicalSupport/BXOptions_
SystemSettings.pdf.
10 See proposed Section 8(b).
11 Simultaneously, the price parameters are
deleted from current Section 8(a)(2)(A). In a similar
vein, current Section 8(a)(2)(E) indicative prices are
deleted. The Exchange is re-organizing Section 8
and thereby deleting the noted price parameters and
indicative prices in order to offer an integrated
description of the opening process in proposed
Section 8(b).
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definition proposed for ‘‘Current
Reference Price’’ in Section 8(a)(2)(A)
and proposed criteria for the Opening
Cross price set forth in Section 8(b).
Thus, the Exchange proposes to delete
current Section 8(a)(2)(E).
The Exchange proposes a change to
the definition of ‘‘BX Opening Cross’’.
Specifically, in proposed Section 8(a)(3)
the Exchange introduces a clarifying
change that references opening or
resuming trading, and states that ‘‘BX
Opening Cross’’ shall mean the process
for opening or resuming trading
pursuant to this rule and shall include
the process for determining the price at
which Eligible Interest, as discussed
below, shall be executed at the open of
trading for the day, or the open of
trading for a halted option, and the
process for executing that Eligible
Interest.
The Exchange proposes to define a
new order type in Section 1(e)(11), ‘‘On
the Open Order’’, which is an order
with a designated time-in-force of
OPG.12 An On the Open Order will be
executable only during the Opening
Cross. If such order is not executed in
its entirety during the Opening Cross,
the order, or any unexecuted portion of
such order, will be cancelled back to the
entering participant.
The Exchange proposes a change to
the definition of ‘‘Eligible Interest’’
contained in current Section 8(a)(4).
Specifically, in Section 8(a)(4) the
Exchange proposes a change to reflect
the addition of a new order type, On the
Open Order, with a time-in force of
OPG, so that ‘‘Eligible Interest’’ shall
mean any quotation or any order that
may be entered into the system and
designated with a time-in-force of IOC
(immediate-or-cancel), DAY (day order),
GTC (good-till-cancelled), and OPG. The
Exchange also proposes new language to
indicate how certain time-in-force
orders will be handled, to state that
orders received via FIX protocol prior to
the BX Opening Cross designated with
a time-in-force of IOC will be rejected
and shall not be considered Eligible
Interest. Orders received via SQF prior
to the BX Opening Cross designated
with a time-in-force of IOC will remain
in-force through the opening and shall
be cancelled immediately after the
opening. The Exchange notes that FIX
protocol users generally prefer a cancel
if an order is not executed immediately
in order that these users have an a
opportunity to access other markets.
SQF users are liquidity providers who
12 The term ‘‘On the Open Order’’ (OPG) is also
proposed to be added as a Time in Force to Chapter
VI, Sec 1(g), and is added as an Order Type to
Chapter VI, Sec. 8(a)(4).
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prefer that the order lives throughout
the entire opening process, until it is
clear their liquidity was not utilized in
the opening. The Exchange believes that
these changes help to clarify how
eligible quotations and orders are
handled in the opening process.
The Exchange proposes to add the
concept of a Valid Width NBBO and
ABBO with respect to away and onExchange interest. Specifically, in
proposed Section 8(a)(6) the Exchange
defines ‘‘Valid Width NBBO’’ as the
combination of all away market quotes
and any combination of BX Optionsregistered Market Maker (‘‘Market
Maker’’) orders and quotes received over
the SQF Protocol within a specified bid/
ask differential as established and
published by the Exchange. The Valid
Width NBBO will be configurable by
underlying, and a table with valid width
differentials will be posted by BX on its
Web site. Away markets that are crossed
(e.g. AMEX crosses AMEX, AMEX
crosses CBOE) will void all Valid Width
NBBO calculations. If any Market Maker
orders or quotes on BX Options are
crossed internally, then all such orders
and quotes will be excluded from the
Valid Width NBBO calculation. In
addition, in proposed Section 8(a)(7),
the Exchange defines ‘‘ABBO’’ as the
displayed National Best Bid or Offer not
including the Exchange’s Best Bid or
Offer.
The Exchange is making these
proposals to ensure that all away market
quotes and any combination of Market
Maker orders and quotes,13 whether
they include the Exchange’s Best Bid or
Offer or not, are represented. The
Exchange believes that including (or
adding) the proposed Valid Width
NBBO and ABBO within the opening
rule should be beneficial to market
participants by offering a more robust
Opening Cross process. The proposed
change will significantly enhance the
price discovery mechanism in the
opening process to include not only
Market Maker orders and quotes but
also away market interest.14
13 In respect of the Valid Width NBBO, the orders
and quotes on the Exchange would be received over
the SQF Protocol.
14 Current Section 8(b)(2)(B) and (b)(2)(C) discuss
the Opening Cross procedure if more than one price
exists. As noted below, the Exchange proposes to
add language to current Section 8(b)(2)(C) regarding
unexecuted contracts. Proposed Section 8(b)(5) and
(b)(6) (renumbered from current Section 8(b)(3) and
(b)(4), respectively) discuss how Eligible Interest
would be handled vis a vis the Opening Cross;
proposed (b)(5) states that if the BX Opening Cross
price is selected and not all Eligible Interest
available in BX Options is executed, then all
Eligible Interest shall be executed at the BX
Opening Cross price in accordance with the
execution algorithm assigned to the associated
underlying option. No changes are proposed to
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Following are examples to illustrate,
among other things, the calculation of
the Valid Width NBBO as proposed in
Section 8(a)(6) and the definition of the
ABBO as proposed in Section 8(a)(7).
Example 1 (normal market
conditions). Assume that the Valid
Width NBBO bid/ask differential is set
by the Exchange at .10. MM1 is quoting
on the Exchange .90–1.15 and MM2 is
quoting on the Exchange .80–.95, thus
making the BX BBO .90–.95. Assume
the ABBO is .85–1.00. The Exchange
considers all bid and all offers to
determine the bid/ask differential; in
this example, the best bid/ask is .90–.95
which satisfies the required .10 bid/ask
differential and is considered a Valid
Width NBBO. Pursuant to the rule
proposed in Section 8(b)(2)(A), BX
Options will open with no trade and
BBO disseminated as .90–.95.
Example 2 (away markets are
crossed). Assume the Valid Width
NBBO bid/ask differential is set by the
Exchange at .10. MM1 is quoting on the
Exchange 1.05–1.15 and MM2 is quoting
on the Exchange 1.00–1.10, thus making
the BX BBO 1.05–.1.10. Assume
Exchange 2 is quoting .90–1.10 and
Exchange 3 is quoting .70–.85. Since the
ABBO is crossed (.90–.85), Valid Width
NBBO calculations are not taken into
account until the away markets are no
longer crossed. Once the away markets
are no longer crossed, the Exchange will
determine if a Valid Width NBBO can
be calculated. Assume the ABBO
uncrosses because Exchange 3 updates
their quote to .90–1.15, the BX BBO of
1.05–1.10 is considered a Valid Width
NBBO. Pursuant to the rule proposed in
Section 8(b)(2)(A), BX Options will
open with no trade and BBO
disseminated as 1.05–1.10.
Example 3 (BX Options orders/quotes
are crossed, ABBO is Valid Width
NBBO). Assume that the Valid Width
NBBO bid/ask differential is set by the
Exchange at .10. MM1 is quoting on the
Exchange 1.05–1.15 (10x10 contracts)
and MM2 is quoting on the Exchange
.90–.95 (10x10 contracts), thus making
the BX BBO crossed, 1.05–.95, while
another MM3 is quoting on the
Exchange at .90–1.15 (10x10 contracts).
Since the BX BBO is crossed, the
Sections 8(b)(6) and 8(b)(7) other than renumbering. Section 8 (b)(6) (renumbered from
current Section 8(b)(4)) states that all Eligible
Interest executed in the BX Opening Cross shall be
executed at the BX Opening Cross price. Proposed
Section 8(b)(7) (renumbered from current Section
8(b)(5)) discusses the procedure of disseminating
one additional Order Imbalance Indicator, if the
conditions specified in proposed Section 8(b) have
occurred, but there is an imbalance containing
marketable routable interest; any remaining
Imbalance will be canceled, posted, or routed as per
the directions on the customer’s order.
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10181
crossing quotes are excluded from the
Valid Width NBBO calculation.
However, assume Exchange 2 is quoting
.95–1.10 and Exchange 3 is quoting .95–
1.05, resulting in an uncrossed ABBO of
.95–1.05. The ABBO of .95–1.05 meets
the required .10 bid/ask differential and
is considered a Valid Width NBBO. The
Opening Cross will follow the rules set
forth in proposed Section 8(b)(4)(B)
because MM1 and MM2 have 10
contracts each which cross and there is
more than one price at which those
contracts could execute. Thus, the
Opening Cross will occur with 10
contracts executing at 1.00, which is the
mid-point of the National Best Bid and
the National Best Offer. At the end of
the opening process, only the quote
from MM3 remains so the BX Options
disseminated quote at the end of
opening process will be .90–1.15 (10x10
contracts).
Second, in current Section 8(b) the
Exchange proposes to remove language
that ‘‘there is no Imbalance’’ and
language regarding ‘‘on a class-by-class
basis’’, and proposes to add additional
clarifying language pertaining to an
Opening Cross after a trading halt. The
Imbalance language is being removed
from the introductory sentence of
current Section 8(b) to make the
language of the Processing of the
Opening Cross apply more generally.
The details surrounding the Opening
Cross as it relates specifically to an
Imbalance is currently provided for in
Section 8(b)(5) and is being added in
new proposed Section 8(b)(4)(C). The
Exchange proposes to remove the ‘‘on a
class-by-class basis’’ language because
the Exchange will use a regular market
hours quote or trade (as determined by
the Exchange) for all classes on the
Exchange for the Opening Cross,
without distinguishing among different
classes. Additionally, the Exchange
proposes to add language to current
Section 8(b) to make it clear that an
Opening Cross shall occur after a
trading halt when trading resumes
pursuant to Chapter V, Section 4.15
Third, the Exchange proposes to add
certain criteria to current Section 8(b),
in order to describe how the opening
process will differ depending on
whether a trade is possible or not on BX
Options. Provided that the ABBO is not
crossed these criteria necessitate, per
15 Chapter V, Section 4 states that trading in an
option that has been the subject of a halt under
Section 3 of Chapter V shall be resumed upon the
determination by BX Regulation, that the conditions
which led to the halt are no longer present or that
the interests of a fair and orderly market are best
served by a resumption of trading. Trading shall
resume according to the process set forth in
proposed Chapter VI, Section 8 of the rules.
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proposed new Section 8(b)(1), that a
Valid Width NBBO will always be
required to open a series when there is
tradable interest on BX Options; and
require, per proposed new Section
8(b)(2), that in cases where there is no
tradable interest, any one of three
conditions could trigger a series on BX
Options to open. Those conditions are
listed in proposed new (b)(2) as: (A) A
Valid Width NBBO is present, (B) a
certain number of other options
exchanges (as determined by the
Exchange) have disseminated a firm
quote on OPRA, or (C) a certain period
of time (as determined by the Exchange)
has elapsed.16 The Exchange believes
that listing these criteria will, similarly
to other proposed changes, organize and
clarify the opening process and make it
more robust and protective for market
participants. The requirement of a Valid
Width NBBO being present will help to
ensure that opening execution prices are
rational based on what is present in the
broader marketplace during the opening
process.
Fourth, the Exchange proposes
changes to provide additional
information during the opening process.
Current Section 8(b)(1) indicates that BX
shall disseminate an Order Imbalance
Indicator every 5 seconds and does not
allow for a shorter dissemination
interval. New proposed Section 8(b)(3)
indicates that BX shall disseminate by
electronic means an Order Imbalance
Indicator 17 every 5 seconds beginning
between 9:20 a.m. and 9:28 a.m., or a
shorter dissemination interval as
established by BX Options, with the
default being set at 9:25 a.m. The start
of dissemination, dissemination
interval, and changes to prior Order
Imbalance Indicators, if any, shall be
posted on the Exchange Web site. To
further enhance price discovery and
disclosure regarding the Opening Cross
process, the Exchange proposes to add
the ability for it to disseminate
imbalances more frequently, which the
rule currently does not allow for. The
Exchange will indicate start of
dissemination and the dissemination
interval on its Web site. The Exchange
16 In the case of a crossed ABBO, the conditions
set forth in new proposed Section (8)(b)(1) and
(b)(2) will become operative when the ABBO
becomes uncrossed.
17 ‘‘Order Imbalance Indicator’’ means a message
disseminated by electronic means containing
information about Eligible Interest and the price in
penny increments at which such interest would
execute at the time of dissemination. For the
information disseminated by the Order Imbalance
Indicator (e.g. Current Reference Price, number of
paired contracts, size and buy/sell direction of
Imbalance, indicative prices), see Chapter VI,
Section 8(a)(2). The term ‘‘order’’ means a firm
commitment to buy or sell options contracts.
Chapter 1, Section 1(a)(5).
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believes that, like the other proposed
changes, this proposed enhancement
regarding additional information
disclosure should prove to be very
helpful to market participants,
particularly those that are involved in
adding liquidity during the Opening
Cross process.
Fifth, the Exchange proposes to add
language regarding how the Opening
Cross will occur in relation to the Valid
Width NBBO, and further what would
happen if more than one price exists
under certain circumstances. With this
proposal, current Section 8(b)(2)(B) will
be deleted and the determination of the
Opening Cross price will be more fully
described under proposed new Section
8(b)(4)(A)–(C). The new language added
to current subparagraph (A) stipulates
that the Opening Cross shall occur at the
price that maximizes the number of
contracts of Eligible Interest in BX
Options to be executed at or within the
ABBO and within a defined range, as
established and published by the
Exchange, of the Valid Width NBBO.
Current subparagraph (A) simply states
the Opening Cross shall occur at the
price that maximizes the number of
contracts of Eligible Interest in BX
Options to be executed at or within the
NBBO. The new proposed language
being added to (A) will require that the
Opening Cross price not only be at a
price at or within the ABBO but also be
within a defined range of the Valid
Width NBBO. This addition will ensure
that the Exchange does not open at a
price too far away from the best interest
available in the marketplace as a whole.
The new proposed Section 8(b)(4)(B)
and (C) describe in detail at what price
the Opening Cross will occur if there
exists more than one price under
Section 8(b)(4)(A) at which the
maximum number of contracts could be
executed at or within the ABBO and
equal to or within a defined range of the
Valid Width NBBO. Current Section
8(b)(2)(C) (renumbered as proposed to
(b)(4)(B)) states that if more than one
price exists under subparagraph (B),18
the BX Opening Cross shall occur at the
price that is closest to the midpoint
price of (1) the National Best Bid or the
last offer on BX Options against which
contracts will be traded whichever is
higher, and (2) the National Best Offer
or the last bid on BX Options against
18 Current Section 8(b)(2)(B) currently states that
if more than one price exists under subparagraph
(A), the BX Opening Cross shall occur at the entered
price at which contracts will remain unexecuted in
the cross. Subparagraph (A) states that the BX
Opening Cross shall occur at the price that
maximizes the number of contracts of Eligible
Interest in BX Options to be executed at or within
the National Best Bid and Offer.
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which contracts will be traded
whichever is lower. In an effort to make
the rule language more precise and to
signify that to the extent possible the
Opening Cross will occur at the
midpoint price, the Exchange proposes
to delete the language ‘‘the price that is
closest to’’. New subparagraph (B), as
proposed, will read that if more than
one price exists under subparagraph
(A) 19 and there are no contracts that
would remain unexecuted in the cross,
the BX Opening Cross shall occur at the
midpoint price, rounded to the penny
closest to the price of the last execution
in that series and in the absence of a
previous execution price, the price will
round up, if necessary.20 The price is
determined using the midpoint of (1)
the National Best Bid or the last offer on
BX Options against which contracts will
be traded whichever is higher, and (2)
National Best Offer or the last bid on BX
Options against which contracts will be
traded whichever is lower.21 The
Exchange believes the proposed
language more fully describes how
rounding is applied to determine the
opening execution price in place of a
general statement of ‘‘the price that is
closest to the midpoint price’’. In
addition, the Exchange proposes new
subparagraph (C) to describe the price at
which the Opening Cross will occur
when more than one price exists under
subparagraph (A) and there are contracts
which would remain unexecuted in the
cross which was previously described in
Section 8(b)(2)(B) with less granularity
and without consideration of the new
Valid Width NBBO. New proposed
subparagraph (C) will state if more than
one price exists under subparagraph (A),
and contracts would remain unexecuted
in the cross, then the opening price will
be the highest/lowest price, in the case
of a buy/sell imbalance, at which the
maximum number of contracts can trade
which is equal to or within a defined
range as established and published by
the Exchange,22 of the Valid Width
19 The Exchange proposes to change the
subparagraph reference from (B) to (A) as current
subparagraph (B) is being deleted and expanded
upon with new subparagraphs (B) and (C).
20 The Exchange notes that rounding will be
applied, if needed, in the following manner: If the
previous closing price is less than the midpoint,
then the opening price rounds down; and if the
previous closing price is greater than the midpoint,
or if there is no closing price, then the opening
price rounds up. For example, if there is a midpoint
of 1.045, the opening price would be rounded to
1.04 if the previous closing price was 1.00, and
would be rounded to 1.05 if the previous closing
price was 1.10.
21 A reference to BX OPTIONS is being corrected
to read BX Options. No change in meaning is
intended.
22 The Exchange notes that the system will also
calculate a defined range to limit the range of prices
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NBBO on the contra side of the
imbalance that would not trade through
the ABBO. Where there is more than
one price and there is an imbalance, in
Section 8(b)(4)(C) the Exchange is
proposing that the Opening Cross price
also be within a defined range of the
Valid Width NBBO on the contra side of
the imbalance, to help ensure that the
opening price does not stray too far from
the best prices available and that the
opening price is rational. In addition,
the Opening Cross price will be the
highest price, in the case of a buy
imbalance, where the maximum number
of contracts can trade which is equal to
or within the defined range of the Valid
Width NBBO. Similarly, in the case of
a sell imbalance, the Opening Cross
price will be the lowest price at which
the maximum number of contracts can
trade which is equal to or within the
defined range of the Valid Width NBBO.
This serves to provide opening
execution price protections as well as an
Opening Cross price which will not
have residual unexecuted interest
reflected in the marketplace, after the
Opening Cross execution, at a price
which crosses the Opening Cross
execution price.
The following examples illustrate,
among other things, the determination
of the Opening Cross price.
Example 4 (no imbalance and one
possible price). Assume a Valid Width
NBBO bid/ask differential allowance of
.10 and a defined range of .10. Also,
assume that the ABBO is 1.00–1.10
(10x10 contracts) and the BX BBO is
.99–1.15 (10x10 contracts) which
represents a quote from MM1. Assume
that a Customer Order 1 comes in to Buy
10 contracts for 1.05 and a Customer
Order 2 comes in to Sell 10 contracts at
1.05. Once regular markets hours have
begun and the underlying security has
opened, the system determines if there
is a Valid Width Quote present. While
the BX BBO of .99–1.15 is wider than
the allowed bid/ask differential to
qualify as a Valid Width NBBO on its
own, the ABBO market of 1.00–1.10
does qualify as a Valid Width NBBO. In
this scenario, there is not an opening
imbalance since there are 10 contracts
on both the buy and sell side which
could possibly trade. Thus, the Opening
Cross will follow the rules set forth in
proposed Section 8(b)(4)(A). Under this
rule, the Opening Cross will occur at the
price which maximizes the number of
contracts of Eligible Interest at or within
the ABBO and within a defined range of
the Valid Width NBBO. In this scenario,
the Opening Cross price will be 1.05
at which an order will be allowed to execute.
Chapter VI, Section 10 (7).
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with 10 contracts executing and BX
BBO disseminated as .99–1.15.
Example 5 (no imbalance and more
than one possible price). Assume a
Valid Width NBBO bid/ask differential
allowance of .10 and a defined range of
.10. Assume the ABBO is 1.00–1.10
(10x10 contracts) and the BX BBO is
.99–1.11 (10x10 contracts) which
represents a quote from MM1. Assume
that a Customer Order 1 comes in to Buy
10 contracts for 1.08, and a Customer
Order 2 comes in to Sell 10 contracts at
1.00. Once regular markets hours have
begun and the underlying security has
opened, the system determines if there
is a Valid Width Quote present. While
the BX BBO of .99–1.11 is wider than
the allowed bid/ask differential to
qualify as a Valid Width NBBO on its
own, the ABBO market of 1.00–1.10
does qualify as a Valid Width NBBO. In
this scenario, there is not an imbalance
as there are 10 contracts to buy and 10
contracts to sell, however, there exist
multiple price points at which those 10
contracts could execute within the
ABBO and within a .10 range of the
Valid Width NBBO. Thus, the Opening
Cross will follow the rules set forth in
proposed Section 8(b)(4)(B) and the
Opening Cross will occur with 10
contracts executing at 1.04. 1.04
represents the midpoint of 1.00 (the last
offer on BX Options against which
contracts will be traded or the National
Best Bid since the two are equal) and
1.08 (the last bid on BX Options against
which contracts will be traded). If the
example is changed slightly such that
Order 1 is a market order to Buy 10
contracts, the Opening Cross will occur
with 10 contracts executing at 1.05
which represents the midpoint of 1.00
(the last offer on BX Options against
which contracts will be traded or the
National Best Bid since the two are
equal) and 1.10 (the National Best Offer
against which contracts will be traded).
The market order is considered to be a
price higher than the National Best Offer
and outside of the NBBO therefore, the
National Best Offer is used in
determining the Opening Cross price.
The BX BBO disseminated after the
opening in either case will be .99–1.11.
Example 6 (imbalance and more than
one possible price). Assume that the
ABBO is 1.05–1.50 (10x10 contracts)
and MM1 is quoting on BX Options
1.15–1.20 (10x10 contracts) as well as
MM2 is quoting on BX Options 1.05–
1.50 (10x10 contracts). Also assume that
the Valid Width NBBO bid/ask
differential allowance and defined range
are each .10. Also assume a Customer
Order 1 is entered to Buy 30 contracts
for 1.45. In this example, the Valid
Width NBBO is comprised solely of the
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10183
BX Options 1.15–1.20 quote. There is
more than one price at which the
Exchange can maximize the number of
contracts executed, 10 contracts, during
the Opening Cross and there exist
multiple prices at which 20 contracts
will remain unexecuted in the Opening
Cross. Thus, the Opening Cross price
will be determined under proposed
Section 8(b)(4)(C). In this example, the
Valid Width NBBO is 1.15–1.20 which
is the best bid and best offer of the MM1
quote and the ABBO and is tighter than
the allowed differential of .10. With a
defined range of .10 of the Valid Width
NBBO on the contra side of the
imbalance (1.20 +.10), and a buy
imbalance, the Opening Cross price will
be 1.30 with Order 1 buying 10
contracts from MM1. The Opening Cross
price of 1.30 represents the highest price
at which the maximum number of
contracts, 10 contracts, can trade which
is equal to or within the defined range
of the Valid Width NBBO on the contra
side of the imbalance that would not
trade through the ABBO. The remaining
unexecuted contracts will be posted on
the book and reflected in the BX
Options quote as a 1.30 bid with BX
BBO disseminated as 1.30–150 [sic]
with offer as non-firm, as proposed in
Section 8(b)(4)(C)(iii). If this example
were changed slightly such that the
ABBO was 1.05–1.25, the opening price
would be 1.25 since the Opening Cross
cannot occur at a price outside of the
ABBO.
Because new proposed subsections
(b)(1) and (b)(2) are added, current
subsections (b)(1) through (b)(5) are renumbered to (b)(3) through (b)(7), and
the reference to (b)(2) in current (b)(7)
is re-numbered to (b)(4).
Sixth, the Exchange is proposing new
language to indicate the price at which
remaining unexecuted contracts will be
posted. Specifically, in proposed
Section 8(b)(4)(C), formerly covered in
(b)(2), the Exchange proposes to state
that if more than one price exists under
subparagraph (A), and contracts would
remain unexecuted in the cross, then
the opening price will be the price at
which the maximum number of
contracts can trade that are equal to or
within the defined range of the Valid
Width NBBO on the contra side of the
imbalance that would not trade through
the ABBO. New proposed subsections
(i)–(iv) to Section 8(b)(4)(C) indicate the
price at which unexecuted contracts
will be posted on the book following the
Opening Cross and the subsequent
handling of the residual unexecuted
contracts, as follows: (i) If unexecuted
contracts remain with a limit price that
is equal to the opening price, then the
remaining unexecuted contracts will be
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posted at the opening price, displayed
one minimum price variation (MPV)
away if displaying at the opening price
would lock or cross the ABBO, with the
contra-side BX BBO reflected as firm;
(ii) if unexecuted contracts remain with
a limit price that is through the opening
price, and there is a contra side ABBO
at the opening price, then the remaining
unexecuted contracts will be posted at
the opening price, displayed one
minimum price variation (MPV) away
from the ABBO, with the contra side BX
BBO reflected as firm and order
handling of any remaining interest will
be done in accordance with the routing
and time-in-force instructions of such
interest and shall follow the Acceptable
Trade Range mechanism set forth in
Chapter VI, Section 10; (iii) if
unexecuted contracts remain with a
limit price that is through the opening
price, and there is no contra side ABBO
at the opening price, then the remaining
contracts will be posted at the opening
price, with the contra-side BX BBO
reflected as non-firm; and (iv) order
handling of any residual unexecuted
contracts will be done in accordance
with the reference price set forth in
Chapter VI, Section 10, with the
opening price representing the reference
price. This proposed behavior ensures
that residual unexecuted contracts from
the Opening Cross, regardless of their
limit prices, are posted on the book at
the opening price before subsequently
being routed pursuant to Chapter VI,
Section 11 or walked to the next
potential execution price(s) under the
Acceptable Trade Range set forth in
Chapter VI, Section 10(7), with the
opening price representing the
‘‘reference price’’ of that rule. This
enhancement to the BX Opening Cross
ensures that aggressively priced interest
does not immediately post at prices
which may be considered to be
egregious if the interest were to post and
execute immediately following the
Opening Cross. The ‘firm’ versus ‘nonfirm’ tagging of contra-side interest
when residual Opening Cross interest is
posted follows the construct currently
in place on the Exchange when
aggressive interest is received and
triggers an Acceptable Trade Range
(ATR) process. Contra-side BX BBO
interest is reflected as non-firm when
the Exchange has interest with a limit
price (or market order) that is more
aggressive than the Opening Cross price.
The purpose behind this is to ensure
that aggressively priced residual interest
maintains priority should other
aggressively priced interest be entered
before the residual interest is permitted
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to access the next allowable range of
prices.
Following are examples illustrating
the proposed rule text regarding the
handling of unexecuted contracts.
Example 7 (proposed Section
8(b)(4)(C)(i)). Assume the ABBO is 1.00–
1.10 (10x10 contracts), and the BX BBO
is .99–1.11 (10x10 contracts). Assume
there is a Customer order to Buy 10
contracts at the market and a Customer
order to Sell 50 contracts at 1.00.
Further assume the Valid Width NBBO
is defined as .10 and the defined range
is also .10. The Valid Width NBBO in
this example is comprised solely of the
ABBO which has a bid/ask differential
equal to the allowance of .10. Since
there is (1) an imbalance, (2) multiple
prices at which the maximum number
of contracts (10) can execute equal to or
within the ABBO and, (3) multiple
prices at which the maximum number
of contracts can execute equal to or
within a defined range of the Valid
Width NBBO on the contra side of the
imbalance that would not trade through
the ABBO, the Opening Cross will occur
at a price determined under Section
8(b)(4)(C). The Opening Cross will result
in 10 contracts being executed at 1.00.
The 40 remaining unexecuted contracts
will be posted as a 40 contract offer at
1.00 and displayed at 1.01 (one MPV
away from the away market bid of 1.00)
in order to not display at a price which
locks the ABBO under proposed Section
8(b)(4)(C)(i). The resulting displayed BX
BBO would be .99–1.01, reflected as
firm on both sides of the market, and the
remaining interest would be handled in
accordance with the routing and time
in-force instructions of the residual
interest.23 Since the residual interest is
posted at its limit and therefore would
not be permitted to execute at more
aggressive prices, the contra-side BX
BBO is reflected as firm.
Example 8 (proposed Section
8(b)(4)(C)(ii)). Assume the ABBO is
1.00–1.10 (10x10 contracts), and the BX
BBO is .99–1.11 (10x10 contracts).
Assume there is a Customer order to
Buy 10 contracts at the market and a
Customer order to Sell 50 contracts at
.85. Further assume the Valid Width
NBBO is defined as .10 and the defined
range is also .10. The Valid Width
NBBO in this example is comprised
solely of the ABBO which has a bid/ask
differential equal to the allowance of
.10. Since there is an imbalance and
multiple prices exist at which the
23 As set forth in proposed Section 8(b)(4)(C)(iv),
order handling of any residual interest in the
Opening Cross will also be done in accordance with
the reference price set forth in Chapter VI, Section
10, with the opening price representing the
reference price.
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maximum number of contracts (10) can
execute equal to or within the ABBO
and within a defined range of the Valid
Width NBBO without trading through
the ABBO, the Opening Cross will occur
at a price determined under Section
8(b)(4)(C). The Opening Cross would
result in 10 contracts being executed at
1.00. The 40 remaining unexecuted
contracts will be posted as a 1.00 offer
and be displayed at 1.01 so as not to
lock the away market bid under
proposed Section 8(b)(4)(C)(ii). Since
the residual interest is posted at a price
which internally locks the ABBO and
therefore would not be permitted to
execute at more aggressive prices until
the ABBO moves, the contra-side BX
BBO is reflected as firm. The resulting
displayed BX BBO would be .99–1.01,
reflected as firm on both sides of the
market, and the remaining interest
would be handled in accordance with
the routing and time-in-force
instructions of the residual interest and
in accordance with Chapter VI, Section
10 of the BX Options rules, and the
contra-side BBO will be marked as firm
or non-firm in accordance with the same
Section 10 rule.
Example 9 (proposed Section
8(b)(4)(C)(iii)). Assume the ABBO is
.00–5.00 (0x10 contracts). Also assume
the Valid Width NBBO bid/ask
differential is defined as 0.10 and the
defined range as described in proposed
Section 8(b)(4)(C) is .10. Further,
assume BX Options has received a quote
of .99–1.09 (10x10), a Customer order to
Buy 10 contracts at the market, a
Customer order to Buy 10 contracts for
.70, and a Customer order to Sell 50
contracts at .85. There is a Valid Width
NBBO present with the BX Options
quote of .99–1.09, which is equal to the
defined bid/ask differential of .10. The
Opening Cross has an imbalance on the
sell side. Since there is more than one
price at which contracts would remain
unexecuted in the cross, the Opening
Cross price is determined using the
logic included in proposed Section
8(b)(4)(C). This will result in an
execution of 20 contracts at .89, since
the Valid Width NBBO on the bid side
(contra to the imbalance side) is .99 less
the defined range of .10, with the
residual contracts of the .85 Sell Order
posted on the book at .89. The resulting
BX BBO would be reflected as .70–.89,
reflected as non-firm on the bid, firm on
the offer, and the remaining unexecuted
interest would be handled in
accordance with the routing and timein-force instructions of the residual
interest. The .70 bid is reflected as nonfirm to ensure that incoming interest
will not be permitted to immediately
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execute ahead of the more aggressively
priced Opening Cross residual interest.
The residual interest from the Opening
Cross will been handled in accordance
with Chapter VI, Section 10 of the BX
Options rules, and the contra-side BBO
will be marked as firm or non-firm in
accordance with the same Section 10
rule.
Seventh, the Exchange is proposing
new language to indicate the use of
execution algorithms assigned to the
underlying options. Specifically, in
proposed Section 8(b)(5) (formerly
(b)(3)), the Exchange proposes to delete
price/time priority and add the use of
execution algorithms by stating that if
the BX Opening Cross price is selected
and fewer than all contracts of Eligible
Interest that are available in BX Options
would be executed, all Eligible Interest
shall be executed at the BX Opening
Cross price in accordance with the
execution algorithm assigned to the
associated underlying option. By
substituting language indicating use of
execution algorithms rather than price/
time priority, the Exchange recognizes
that there are now multiple execution
allocation models,24 and these are
factored into the Opening Cross.
Lastly, the Exchange proposes to add
a provision regarding the return of
orders in un-opened symbols in the
absence of an Opening Cross. Proposed
new Section 8(c) is substituted for
current Section 8(c) and provides the
procedure if an Opening Cross in a
symbol is not initiated before the
conclusion of the Opening Order Cancel
Timer. Specifically, proposed new
Section 8(c) states that if an Opening
Cross is not initiated under such
circumstances, a firm may elect to have
orders returned by providing written
notification to the Exchange. These
orders include all non GTC orders
received over the FIX protocol. The
Opening Order Cancel Timer represents
a period of time since the underlying
market has opened, and shall be
established and disseminated by BX on
its Web site. Proposed Section 8(c) will
provide participants the ability to have
their orders returned to them if BX
Options is unable to initiate an Opening
Cross within a reasonable time of the
opening of the underlying market. In
addition, proposed Section 8(c) deletes
language which is present in current
Section 8(c) regarding how the Opening
Cross operates in relation to the
presence or absence of a regular market
hour quote or trade by the Market for
the Underlying and the process of the
Opening Cross in relation to opening
quotes or orders which lock or cross
each other. The deleted provisions are
now being more thoroughly described in
proposed Section 8(b).
The Exchange believes that the
proposed changes significantly improve
the quality of execution of BX Options’
opening. The proposed changes give
participants more choice about where,
and when, they can send orders for the
opening that would afford them the best
experience. The Exchange believes that
this should attract new order flow. The
proposed changes should prove to be
very helpful to market participants,
particularly those that are involved in
adding liquidity during the Opening
Cross. Absent these proposed
enhancements, BX Options’ opening
quality will remain less robust than on
other exchanges.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 25 in general, and furthers the
objectives of Section 6(b)(5) of the Act 26
in particular, in that the proposal 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.
The proposal is consistent with the
goals of the Act because it will enhance
and clarify the Opening Cross process,
minimize or negate unnecessary
complexity, and encourage liquidity at
the crucial time of market open. The
proposed change will also enhance the
price discovery mechanism in the
opening process to include not only
Market Maker orders and quotes but
also away market interest as represented
by quotes. The Exchange believes this
change will make the transition from the
Opening Cross period to regular market
trading more efficient and thus promote
just and equitable principles of trade
and serve to protect investors and the
public interest.
The proposal is designed to promote
just and equitable principles of trade by
updating and clarifying the rules
regarding the BX Opening and Halt
Cross. In particular, the proposal would
update or add Chapter VI, Section 8
definitions regarding BX Opening Cross,
Eligible Interest, NBBO, and ABBO in
respect of the Opening Cross and
resuming options trading after a halt.
The Exchange would add to Chapter VI,
Section 1 the definition of ‘‘On the
Opening Order’’ (OPG) as used in
Section 8 in respect of the Opening
25 15
24 See,
e.g., Chapter VI, Section 10(1).
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U.S.C. 78f(b)(5).
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Cross. The proposal would also, as
discussed, make changes in Section 8
regarding: The criteria for opening of
trading or resumption of trading after a
halt; BX posting on its Web site any
changes to the dissemination interval or
prior Order Imbalance Indicator; the
procedure if more than one price exists;
the procedure if there are unexecuted
contracts; and the ability of firms to
elect that orders be returned in symbols
that were not opened on BX Options
before the conclusion of the Opening
Order Cancel Timer.
The proposal is designed to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system. In
particular, the Exchange proposes in
Chapter VI, Section 8(b) to remove the
class-by-class quote or trade
characteristic because for the Opening
Cross the Exchange will use a regular
market hours quote or trade (as
determined by the Exchange) for all
underylings [sic] on the Exchange,
without distinguishing among
underlying symbols, or, in the case of a
trading halt the Opening Cross shall
occur when trading resumes pursuant to
Chapter V, Section 4. The Exchange
proposes to set forth in Section 8(b)
clear language describing under what
circumstances an Opening Cross will
occur, and how the Opening Cross will
occur if more than one price exists
under certain circumstances. Thus, for
example, proposed Section 8(b)(4)
specifies that if more than one price
exists under subparagraph (A), and
contracts would remain unexecuted in
the cross, then the opening price will be
the highest/lowest price, in the case of
a buy/sell imbalance, at which the
maximum number of contracts can trade
which is equal to or within a defined
range, as established and published by
the Exchange, of the Valid Width NBBO
on the contra side of the imbalance that
would not trade through the ABBO. The
Exchange proposes, in Section
8(b)(4)(C), three alternatives for how
remaining unexecuted contracts will be
handled. These include: If unexecuted
contracts remain with a limit price that
is equal to the opening price, if
unexecuted contracts remain with a
limit price that is through the opening
price and there is a contra side ABBO
at the opening price, and if unexecuted
contracts remain with a limit price that
is through the opening price and there
is no contra side ABBO at the opening
price. The Exchange also proposes to
clarify what happens if an Opening
Cross in a symbol is not initiated before
the conclusion of the Opening Order
Cancel Timer. In that case, proposed
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Section 8(c)(2) [sic] indicates that a firm
may elect to have orders returned by
providing written notification to the
Exchange. These orders include all non
GTC orders received over the FIX
protocol. The Opening Order Cancel
Timer represents a period of time since
the underlying market has opened, and
shall be established and disseminated
by the Exchange on its Web site.
The proposal is designed in general to
protect investors and the public interest.
The Exchange proposes to add certain
criteria to current Section 8(b), in order
to describe how the opening process
will differ depending on whether a trade
is possible or not on BX Options.
Assuming that ABBO is not crossed,
proposed new Chapter VI, Section
8(b)(1) states that if there is a possible
trade on BX, a Valid Width NBBO must
be present. Assuming that ABBO is not
crossed, proposed Section 8(b)(2) states
that if no trade is possible on BX, then
BX will open dependent upon one of
the following: A Valid Width NBBO is
present; a certain number of other
options exchanges (as determined by the
Exchange) have disseminated a firm
quote on OPRA; or a certain period of
time (as determined by the Exchange)
has elapsed. The Exchange proposes to
further enhance price discovery and
disclosure regarding the Opening Cross
process, by proposing in current Section
(b)(1) (renumbered to be (b)(3)) that BX
may choose to establish a dissemination
interval that is shorter than every 5
seconds; and that the Exchange will
indicate the interval on its Web site in
conjunction to other information
regarding the Opening Process.
Moreover, the Exchange proposes to add
language in current Section 8(c)(2)
regarding the return of orders in unopened symbols in the absence of an
Opening Cross. Thus, if an Opening
Cross in a symbol is not initiated before
the conclusion of the Opening Order
Cancel Timer, a firm may elect to have
orders returned by providing written
notification to the Exchange. These
orders include all non GTC orders
received over the FIX protocol. The
Opening Order Cancel Timer represents
a period of time since the underlying
market has opened, and shall be
established and disseminated by BX on
its Web site.
For the above reasons, BX believes the
proposed rule change is consistent with
the requirements of Section 6(b)(5) of
the Act. The Exchange believes that the
proposed changes significantly improve
the quality of execution of BX Options’
opening. The proposed changes give
participants more choice about where,
and when, they can send orders for the
opening that would afford them the best
VerDate Sep<11>2014
18:05 Feb 24, 2015
Jkt 235001
experience. The Exchange believes that
this should attract new order flow. The
proposed changes should prove to be
more robust and helpful to market
participants, particularly those that are
involved in adding liquidity during the
Opening Cross.
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. While the
Exchange does not believe that the
proposal should have any direct impact
on competition, it believes the proposal
should help to further clarify the
Opening Cross process and make it
more efficient, reduce order entry
complexity, enhance market liquidity,
and be beneficial to market participants.
Moreover, the Exchange believes that
the proposed changes significantly
improve the quality of execution of the
BX Options opening. The proposed
changes give participants more choice
about where, and when, they can send
orders for the opening that would afford
them the best experience. The Exchange
believes that this should attract new
order flow. Absent these proposed
enhancements, BX Options’ opening
quality will remain less robust than on
other exchanges, and the Exchange will
remain at a competitive disadvantage.
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) of the Act 27 and
subparagraph (f)(6) of Rule 19b–4
thereunder.28
27 15
U.S.C. 78s(b)(3)(a).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and the 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.
28 17
PO 00000
Frm 00143
Fmt 4703
Sfmt 4703
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–2015–010 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2015–010. 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 such
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
E:\FR\FM\25FEN1.SGM
25FEN1
Federal Register / Vol. 80, No. 37 / Wednesday, February 25, 2015 / Notices
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BX–
2015–010, and should be submitted on
or before March 18, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Brent J. Fields,
Secretary.
[FR Doc. 2015–03819 Filed 2–24–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–74308; File No. SR–
NYSEArca–2015–07]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Extending the Pilot
Period Applicable to Rule 6.65A(c),
Obvious and Catastrophic Errors, Until
October 23, 2015
February 19, 2015.
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 February
18, 2015, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to extend the
pilot period applicable to Rule 6.65A(c),
which addresses how the Exchange
treats Obvious and Catastrophic Errors
during periods of extreme market
volatility, until October 23, 2015. The
pilot period is currently set to expire on
February 20, 2015. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
18:05 Feb 24, 2015
Jkt 235001
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 those 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 parts of such
statements.
1. Purpose
The Exchange proposes to extend the
pilot period applicable to Rule 6.65A(c),
which addresses how the Exchange
treats Obvious and Catastrophic Errors
during periods of extreme market
volatility, until October 23, 2015. The
pilot period is currently set to expire on
February 20, 2015.
In April 2013, in connection with the
Plan to Address Extraordinary Market
Volatility Pursuant to Rule 608 of
Regulation NMS (the ‘‘Plan’’),3 the
Exchange adopted Rule 6.65A(c) to
provide that options executions would
not be adjusted or nullified if the
execution occurs during periods of
extreme market volatility.4 Specifically,
Rule 6.65A(c) provides that, during the
pilot period, electronic transactions in
options that overlay an NMS Stock that
occur during a Limit State or a Straddle
State (as defined by the Plan) are not
subject to review under Rule 6.87(a) for
Obvious Errors or Rule 6.87(d) for
Catastrophic Errors. Nothing in Rule
6.65A(c) prevents electronic
transactions in options that overlay an
NMS Stock that occur during a Limit
State or a Straddle State from being
reviewed on Exchange motion pursuant
to 6.87(b)(3).
The Plan has been amended several
times since inception and was not
implemented until February 24, 2014.
The Participants to the Plan recently
filed to extend the Plan’s pilot period
until October 23, 2015 (the ‘‘Eighth
3 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012) (File
No. 4–631) (Order Approving, on a Pilot Basis, the
Plan). The Plan is designed to prevent trades in
individual NMS Stocks from occurring outside of
specified Price Bands, which are described in more
detail in the Plan.
4 See Securities and Exchange Act Release No.
69340 (April 8, 2013), 78 FR 22004 (April 12, 2013)
(SR–NYSEArca–2013–10) (‘‘Approval Order’’).
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
10187
Amendment’’).5 The purpose of this
proposed extension is to provide time
for the Participants to prepare a
supplemental assessment and
recommendation regarding the Plan and
for the public to comment on such
assessment for the purpose of
determining whether there should be
any modifications to the Plan.
In order to align the pilot period for
Rule 6.65A(c) with the proposed pilot
period for the Plan, the Exchange
similarly proposes to extend the pilot
period until October 23, 2015. The
Exchange believes the benefits afforded
to market participants under Rule
6.65A(c) should continue on a pilot
basis during the same period as the Plan
pilot. The Exchange continues to believe
that adding certainty to the execution of
orders in Limit or Straddle States would
encourage market participants to
continue to provide liquidity to the
Exchange, and thus, promote a fair and
orderly market during those periods.
Thus, the Exchange believes that the
protections of current Rule 6.65A(c)
should continue while the industry
gains further experience operating the
Plan. In addition, the Exchange believes
that extending the pilot period for Rule
6.65A(c) would allow the Exchange to
continue to collect and evaluate data, as
well as to conduct further data analyses,
related to this provision.
Specifically, in connection with the
adoption of Rule 6.65A(c), the Exchange
committed to review the operation of
this provision and to analyze the impact
of Limit and Straddle States
accordingly.6 The Exchange agreed to
and has been providing to the
Commission and the public data for
each Straddle State and Limit State in
NMS Stocks underlying options traded
on the Exchange beginning in April
2013, limited to those option classes
that have at least one (1) trade on the
Exchange during a Straddle State or
Limit State.7 For each of those option
classes affected, each data record
contains the following information:
• Stock symbol, option symbol, time
at the start of the Straddle or Limit
5 See Securities Exchange Act Release No. 74110
(January 21, 2015), 80 FR 4321 (January 27, 2015)
(File No. 4–631) (notice of proposed Eighth
Amendment to the Plan).
6 Specifically, the Exchange committed to: ‘‘(1)
Evaluate the options market quality during Limit
States and Straddle States; (2) assess the character
of incoming order flow and transactions during
Limit States and Straddle States; and (3) review any
complaints from members and their customers
concerning executions during Limit States and
Straddle States.’’ See Approval Order, 78 FR at
22008.
7 See Securities Exchange Act Release No. 71869
(April 4, 2014), 79 FR 19689 (April 9, 2014) (SR–
NYSEArca–2014–36).
E:\FR\FM\25FEN1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 37 (Wednesday, February 25, 2015)]
[Notices]
[Pages 10179-10187]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03819]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74310; File No. SR-BX-2015-010]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
and Reorganize Chapter VI (Trading Systems), Section 8 (BX Opening and
Halt Cross) of the Exchange's Options Rules
February 19, 2015.
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 February 9, 2015, 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 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to modify and reorganize Chapter VI (Trading
Systems), Section 8 (BX Opening and Halt Cross) of the Exchange's
Options rules. The proposal would update or add Section 1 and Section 8
definitions in respect of the BX Opening and Halt Cross. The proposal
would also make changes regarding: The criteria for opening of trading
or resumption of trading after a halt; BX posting on its Web site any
changes to the dissemination interval or prior Order Imbalance
Indicator; the procedure if more than one price exists; the procedure
if there are unexecuted contracts; and the ability of firms to elect
that orders be returned in symbols that were not opened on BX before
the conclusion of the Opening Order Cancel Timer.
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 proposed rule change is to modify BX Chapter VI,
Section 1 and Section 8 to update or add definitions, which include
Current Reference Price, BX Opening Cross, Eligible Interest, Valid
Width National Best Bid or Offer (``Valid Width NBBO''), Away Best Bid
or Offer (``ABBO''), and On the Open Order (``OPG''). The purpose is to
also make changes regarding: The criteria for opening of trading or
resumption of trading after a halt; BX posting on its Web site any
changes to the dissemination interval or prior Order Imbalance
Indicator; the procedure if more than one price exists; the procedure
if there are unexecuted contracts; and the ability of firms to elect
that orders be returned in symbols
[[Page 10180]]
that were not opened on BX before the conclusion of the Opening Order
Cancel Timer.\3\
---------------------------------------------------------------------------
\3\ The Exchange will explain the proposed change to its
participants via an Options Trader Alert.
---------------------------------------------------------------------------
Section 8 of Chapter VI describes the BX opening and halt cross and
opening imbalance process (``Opening Cross''). Section 8(a) currently
contains definitions that are applicable to Section 8. Section 8(b)
currently states that for the opening of trading of System
Securities,\4\ the Opening Cross shall occur at or after 9:30 a.m.
Eastern Time \5\ if any of the following ``conditions'' occur: (1)
There is no Imbalance; \6\ (2) the dissemination of a regular market
hours quote or trade (as determined by the Exchange on a class-by-class
basis) by the Market for the Underlying Security \7\ has occurred (or,
in the case of index options, the Exchange has received the opening
price of the underlying index); or (3) in the case of a trading halt,
when trading resumes pursuant to Chapter V, Section 4, and a certain
number (as the Exchange may determine from time to time) of other
options exchanges have disseminated a firm quote on the Options Price
Reporting Authority (``OPRA'').\8\ Market hours trading on BX Options
in specific options commences, or in the case of specific halted
options resumes, when the BX Opening Cross concludes. Section 8(c)
currently describes the procedure if firm quotes are not disseminated
for an option by the predetermined number of options exchanges by a
specific time during the day that is determined by the Exchange; \9\
provided that dissemination of a regular market hours quote or trade by
the Market for the Underlying Security has occurred (or, in the case of
index options, the Exchange has received the opening price of the
underlying index). This filing proposes several changes to enhance the
usability and effectiveness of Section 8 regarding the opening and halt
cross and imbalance process.
---------------------------------------------------------------------------
\4\ ``System Securities'' means all options that are currently
trading on BX Options pursuant to Chapter IV. All other options are
``Non System Securities.'' Chapter VI, Section 1(b).
\5\ In this proposal, all time is Eastern Time unless otherwise
noted.
\6\ ``Imbalance'' means the number of contracts of Eligible
Interest that may not be equal. Chapter VI, Section 8(a)(1).
``Eligible Interest'' means any quotation or any order that may be
entered into the system and designated with a time-in-force of IOC,
DAY, GTC. Chapter VI, Section 8(a)(4). The Exchange is deleting the
reference to Imbalance from Section 8(b) because, as discussed, the
occurrence of the Opening Cross depends on the parameters proposed
in Section 8(b) rather than on whether there is an imbalance.
\7\ ``Market for the Underlying Security'' means either the
primary listing market, the primary volume market (defined as the
market with the most liquidity in that underlying security for the
previous two calendar months), or the first market to open the
underlying security, as determined by the Exchange on an issue-by-
issue basis and announced to the membership on the Exchange's Web
site. Chapter VI, Section 8(a)(5).
\8\ For better readability, this part of Section 8(b) is
proposed to be broken into two sentences and the phrase ``the
Opening Cross shall occur'' inserted. Reference to firm quote on
OPRA is proposed to be deleted from this part of Section 8(b) and
is, as discussed, put into proposed Section 8(b)(2)(B).
\9\ The specific time of day, currently 9:45 a.m., is
disseminated at https://www.nasdaqtrader.com/Content/TechnicalSupport/BXOptions_SystemSettings.pdf.
---------------------------------------------------------------------------
First, the Exchange proposes to update or add new Section 8
definitions.
The Exchange proposes a change to the definition of ``Current
Reference Price''. Current Section 8(a)(2)(A) defines the ``Current
Reference Price'' to mean: (i) The single price at which the maximum
number of contracts of Eligible Interest can be paired at or within the
NBBO; (ii) If more than one price exists under subparagraph (i), the
Current reference Price shall mean the entered price at which contracts
will remain unexecuted in the cross; (iii) If more than one price
exists under subparagraph (ii), the Current Reference Price shall mean
the price that is closest to the midpoint of the (1) National Best Bid
or the last offer on BX against which contracts will be traded
whichever is higher, and (2) National Best Offer or the last bid on BX
against which contracts will be traded whichever is lower. Proposed
Section 8(a)(2)(A) seeks to simplify the definition of the ``Current
Reference Price'' to state that ``Current Reference Price'' shall mean
an indication of what the Opening Cross price would be at a particular
point in time. The ``Current Reference Price'' determination will be
substantively similar to what is currently described in Section
8(a)(2)(A), with the criteria for the Opening Cross price, as discussed
below, set forth elsewhere in Section 8,\10\ according to various
parameters (e.g. existence of opening interest, existence of Valid
Width NBBO, whether the issue is open elsewhere).\11\ The Exchange
believes that this construction makes the rule easier to follow. In
addition, this construction also makes the language contained in
current Section 8(a)(2)(E) no longer necessary as it is replaced with
the new definition proposed for ``Current Reference Price'' in Section
8(a)(2)(A) and proposed criteria for the Opening Cross price set forth
in Section 8(b). Thus, the Exchange proposes to delete current Section
8(a)(2)(E).
---------------------------------------------------------------------------
\10\ See proposed Section 8(b).
\11\ Simultaneously, the price parameters are deleted from
current Section 8(a)(2)(A). In a similar vein, current Section
8(a)(2)(E) indicative prices are deleted. The Exchange is re-
organizing Section 8 and thereby deleting the noted price parameters
and indicative prices in order to offer an integrated description of
the opening process in proposed Section 8(b).
---------------------------------------------------------------------------
The Exchange proposes a change to the definition of ``BX Opening
Cross''. Specifically, in proposed Section 8(a)(3) the Exchange
introduces a clarifying change that references opening or resuming
trading, and states that ``BX Opening Cross'' shall mean the process
for opening or resuming trading pursuant to this rule and shall include
the process for determining the price at which Eligible Interest, as
discussed below, shall be executed at the open of trading for the day,
or the open of trading for a halted option, and the process for
executing that Eligible Interest.
The Exchange proposes to define a new order type in Section
1(e)(11), ``On the Open Order'', which is an order with a designated
time-in-force of OPG.\12\ An On the Open Order will be executable only
during the Opening Cross. If such order is not executed in its entirety
during the Opening Cross, the order, or any unexecuted portion of such
order, will be cancelled back to the entering participant.
---------------------------------------------------------------------------
\12\ The term ``On the Open Order'' (OPG) is also proposed to be
added as a Time in Force to Chapter VI, Sec 1(g), and is added as an
Order Type to Chapter VI, Sec. 8(a)(4).
---------------------------------------------------------------------------
The Exchange proposes a change to the definition of ``Eligible
Interest'' contained in current Section 8(a)(4). Specifically, in
Section 8(a)(4) the Exchange proposes a change to reflect the addition
of a new order type, On the Open Order, with a time-in force of OPG, so
that ``Eligible Interest'' shall mean any quotation or any order that
may be entered into the system and designated with a time-in-force of
IOC (immediate-or-cancel), DAY (day order), GTC (good-till-cancelled),
and OPG. The Exchange also proposes new language to indicate how
certain time-in-force orders will be handled, to state that orders
received via FIX protocol prior to the BX Opening Cross designated with
a time-in-force of IOC will be rejected and shall not be considered
Eligible Interest. Orders received via SQF prior to the BX Opening
Cross designated with a time-in-force of IOC will remain in-force
through the opening and shall be cancelled immediately after the
opening. The Exchange notes that FIX protocol users generally prefer a
cancel if an order is not executed immediately in order that these
users have an a opportunity to access other markets. SQF users are
liquidity providers who
[[Page 10181]]
prefer that the order lives throughout the entire opening process,
until it is clear their liquidity was not utilized in the opening. The
Exchange believes that these changes help to clarify how eligible
quotations and orders are handled in the opening process.
The Exchange proposes to add the concept of a Valid Width NBBO and
ABBO with respect to away and on-Exchange interest. Specifically, in
proposed Section 8(a)(6) the Exchange defines ``Valid Width NBBO'' as
the combination of all away market quotes and any combination of BX
Options-registered Market Maker (``Market Maker'') orders and quotes
received over the SQF Protocol within a specified bid/ask differential
as established and published by the Exchange. The Valid Width NBBO will
be configurable by underlying, and a table with valid width
differentials will be posted by BX on its Web site. Away markets that
are crossed (e.g. AMEX crosses AMEX, AMEX crosses CBOE) will void all
Valid Width NBBO calculations. If any Market Maker orders or quotes on
BX Options are crossed internally, then all such orders and quotes will
be excluded from the Valid Width NBBO calculation. In addition, in
proposed Section 8(a)(7), the Exchange defines ``ABBO'' as the
displayed National Best Bid or Offer not including the Exchange's Best
Bid or Offer.
The Exchange is making these proposals to ensure that all away
market quotes and any combination of Market Maker orders and
quotes,\13\ whether they include the Exchange's Best Bid or Offer or
not, are represented. The Exchange believes that including (or adding)
the proposed Valid Width NBBO and ABBO within the opening rule should
be beneficial to market participants by offering a more robust Opening
Cross process. The proposed change will significantly enhance the price
discovery mechanism in the opening process to include not only Market
Maker orders and quotes but also away market interest.\14\
---------------------------------------------------------------------------
\13\ In respect of the Valid Width NBBO, the orders and quotes
on the Exchange would be received over the SQF Protocol.
\14\ Current Section 8(b)(2)(B) and (b)(2)(C) discuss the
Opening Cross procedure if more than one price exists. As noted
below, the Exchange proposes to add language to current Section
8(b)(2)(C) regarding unexecuted contracts. Proposed Section 8(b)(5)
and (b)(6) (renumbered from current Section 8(b)(3) and (b)(4),
respectively) discuss how Eligible Interest would be handled vis a
vis the Opening Cross; proposed (b)(5) states that if the BX Opening
Cross price is selected and not all Eligible Interest available in
BX Options is executed, then all Eligible Interest shall be executed
at the BX Opening Cross price in accordance with the execution
algorithm assigned to the associated underlying option. No changes
are proposed to Sections 8(b)(6) and 8(b)(7) other than re-
numbering. Section 8 (b)(6) (renumbered from current Section
8(b)(4)) states that all Eligible Interest executed in the BX
Opening Cross shall be executed at the BX Opening Cross price.
Proposed Section 8(b)(7) (renumbered from current Section 8(b)(5))
discusses the procedure of disseminating one additional Order
Imbalance Indicator, if the conditions specified in proposed Section
8(b) have occurred, but there is an imbalance containing marketable
routable interest; any remaining Imbalance will be canceled, posted,
or routed as per the directions on the customer's order.
---------------------------------------------------------------------------
Following are examples to illustrate, among other things, the
calculation of the Valid Width NBBO as proposed in Section 8(a)(6) and
the definition of the ABBO as proposed in Section 8(a)(7).
Example 1 (normal market conditions). Assume that the Valid Width
NBBO bid/ask differential is set by the Exchange at .10. MM1 is quoting
on the Exchange .90-1.15 and MM2 is quoting on the Exchange .80-.95,
thus making the BX BBO .90-.95. Assume the ABBO is .85-1.00. The
Exchange considers all bid and all offers to determine the bid/ask
differential; in this example, the best bid/ask is .90-.95 which
satisfies the required .10 bid/ask differential and is considered a
Valid Width NBBO. Pursuant to the rule proposed in Section 8(b)(2)(A),
BX Options will open with no trade and BBO disseminated as .90-.95.
Example 2 (away markets are crossed). Assume the Valid Width NBBO
bid/ask differential is set by the Exchange at .10. MM1 is quoting on
the Exchange 1.05-1.15 and MM2 is quoting on the Exchange 1.00-1.10,
thus making the BX BBO 1.05-.1.10. Assume Exchange 2 is quoting .90-
1.10 and Exchange 3 is quoting .70-.85. Since the ABBO is crossed
(.90-.85), Valid Width NBBO calculations are not taken into account
until the away markets are no longer crossed. Once the away markets are
no longer crossed, the Exchange will determine if a Valid Width NBBO
can be calculated. Assume the ABBO uncrosses because Exchange 3 updates
their quote to .90-1.15, the BX BBO of 1.05-1.10 is considered a Valid
Width NBBO. Pursuant to the rule proposed in Section 8(b)(2)(A), BX
Options will open with no trade and BBO disseminated as 1.05-1.10.
Example 3 (BX Options orders/quotes are crossed, ABBO is Valid
Width NBBO). Assume that the Valid Width NBBO bid/ask differential is
set by the Exchange at .10. MM1 is quoting on the Exchange 1.05-1.15
(10x10 contracts) and MM2 is quoting on the Exchange .90-.95 (10x10
contracts), thus making the BX BBO crossed, 1.05-.95, while another MM3
is quoting on the Exchange at .90-1.15 (10x10 contracts). Since the BX
BBO is crossed, the crossing quotes are excluded from the Valid Width
NBBO calculation. However, assume Exchange 2 is quoting .95-1.10 and
Exchange 3 is quoting .95-1.05, resulting in an uncrossed ABBO of .95-
1.05. The ABBO of .95-1.05 meets the required .10 bid/ask differential
and is considered a Valid Width NBBO. The Opening Cross will follow the
rules set forth in proposed Section 8(b)(4)(B) because MM1 and MM2 have
10 contracts each which cross and there is more than one price at which
those contracts could execute. Thus, the Opening Cross will occur with
10 contracts executing at 1.00, which is the mid-point of the National
Best Bid and the National Best Offer. At the end of the opening
process, only the quote from MM3 remains so the BX Options disseminated
quote at the end of opening process will be .90-1.15 (10x10 contracts).
Second, in current Section 8(b) the Exchange proposes to remove
language that ``there is no Imbalance'' and language regarding ``on a
class-by-class basis'', and proposes to add additional clarifying
language pertaining to an Opening Cross after a trading halt. The
Imbalance language is being removed from the introductory sentence of
current Section 8(b) to make the language of the Processing of the
Opening Cross apply more generally. The details surrounding the Opening
Cross as it relates specifically to an Imbalance is currently provided
for in Section 8(b)(5) and is being added in new proposed Section
8(b)(4)(C). The Exchange proposes to remove the ``on a class-by-class
basis'' language because the Exchange will use a regular market hours
quote or trade (as determined by the Exchange) for all classes on the
Exchange for the Opening Cross, without distinguishing among different
classes. Additionally, the Exchange proposes to add language to current
Section 8(b) to make it clear that an Opening Cross shall occur after a
trading halt when trading resumes pursuant to Chapter V, Section 4.\15\
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\15\ Chapter V, Section 4 states that trading in an option that
has been the subject of a halt under Section 3 of Chapter V shall be
resumed upon the determination by BX Regulation, that the conditions
which led to the halt are no longer present or that the interests of
a fair and orderly market are best served by a resumption of
trading. Trading shall resume according to the process set forth in
proposed Chapter VI, Section 8 of the rules.
---------------------------------------------------------------------------
Third, the Exchange proposes to add certain criteria to current
Section 8(b), in order to describe how the opening process will differ
depending on whether a trade is possible or not on BX Options. Provided
that the ABBO is not crossed these criteria necessitate, per
[[Page 10182]]
proposed new Section 8(b)(1), that a Valid Width NBBO will always be
required to open a series when there is tradable interest on BX
Options; and require, per proposed new Section 8(b)(2), that in cases
where there is no tradable interest, any one of three conditions could
trigger a series on BX Options to open. Those conditions are listed in
proposed new (b)(2) as: (A) A Valid Width NBBO is present, (B) a
certain number of other options exchanges (as determined by the
Exchange) have disseminated a firm quote on OPRA, or (C) a certain
period of time (as determined by the Exchange) has elapsed.\16\ The
Exchange believes that listing these criteria will, similarly to other
proposed changes, organize and clarify the opening process and make it
more robust and protective for market participants. The requirement of
a Valid Width NBBO being present will help to ensure that opening
execution prices are rational based on what is present in the broader
marketplace during the opening process.
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\16\ In the case of a crossed ABBO, the conditions set forth in
new proposed Section (8)(b)(1) and (b)(2) will become operative when
the ABBO becomes uncrossed.
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Fourth, the Exchange proposes changes to provide additional
information during the opening process. Current Section 8(b)(1)
indicates that BX shall disseminate an Order Imbalance Indicator every
5 seconds and does not allow for a shorter dissemination interval. New
proposed Section 8(b)(3) indicates that BX shall disseminate by
electronic means an Order Imbalance Indicator \17\ every 5 seconds
beginning between 9:20 a.m. and 9:28 a.m., or a shorter dissemination
interval as established by BX Options, with the default being set at
9:25 a.m. The start of dissemination, dissemination interval, and
changes to prior Order Imbalance Indicators, if any, shall be posted on
the Exchange Web site. To further enhance price discovery and
disclosure regarding the Opening Cross process, the Exchange proposes
to add the ability for it to disseminate imbalances more frequently,
which the rule currently does not allow for. The Exchange will indicate
start of dissemination and the dissemination interval on its Web site.
The Exchange believes that, like the other proposed changes, this
proposed enhancement regarding additional information disclosure should
prove to be very helpful to market participants, particularly those
that are involved in adding liquidity during the Opening Cross process.
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\17\ ``Order Imbalance Indicator'' means a message disseminated
by electronic means containing information about Eligible Interest
and the price in penny increments at which such interest would
execute at the time of dissemination. For the information
disseminated by the Order Imbalance Indicator (e.g. Current
Reference Price, number of paired contracts, size and buy/sell
direction of Imbalance, indicative prices), see Chapter VI, Section
8(a)(2). The term ``order'' means a firm commitment to buy or sell
options contracts. Chapter 1, Section 1(a)(5).
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Fifth, the Exchange proposes to add language regarding how the
Opening Cross will occur in relation to the Valid Width NBBO, and
further what would happen if more than one price exists under certain
circumstances. With this proposal, current Section 8(b)(2)(B) will be
deleted and the determination of the Opening Cross price will be more
fully described under proposed new Section 8(b)(4)(A)-(C). The new
language added to current subparagraph (A) stipulates that the Opening
Cross shall occur at the price that maximizes the number of contracts
of Eligible Interest in BX Options to be executed at or within the ABBO
and within a defined range, as established and published by the
Exchange, of the Valid Width NBBO. Current subparagraph (A) simply
states the Opening Cross shall occur at the price that maximizes the
number of contracts of Eligible Interest in BX Options to be executed
at or within the NBBO. The new proposed language being added to (A)
will require that the Opening Cross price not only be at a price at or
within the ABBO but also be within a defined range of the Valid Width
NBBO. This addition will ensure that the Exchange does not open at a
price too far away from the best interest available in the marketplace
as a whole.
The new proposed Section 8(b)(4)(B) and (C) describe in detail at
what price the Opening Cross will occur if there exists more than one
price under Section 8(b)(4)(A) at which the maximum number of contracts
could be executed at or within the ABBO and equal to or within a
defined range of the Valid Width NBBO. Current Section 8(b)(2)(C)
(renumbered as proposed to (b)(4)(B)) states that if more than one
price exists under subparagraph (B),\18\ the BX Opening Cross shall
occur at the price that is closest to the midpoint price of (1) the
National Best Bid or the last offer on BX Options against which
contracts will be traded whichever is higher, and (2) the National Best
Offer or the last bid on BX Options against which contracts will be
traded whichever is lower. In an effort to make the rule language more
precise and to signify that to the extent possible the Opening Cross
will occur at the midpoint price, the Exchange proposes to delete the
language ``the price that is closest to''. New subparagraph (B), as
proposed, will read that if more than one price exists under
subparagraph (A) \19\ and there are no contracts that would remain
unexecuted in the cross, the BX Opening Cross shall occur at the
midpoint price, rounded to the penny closest to the price of the last
execution in that series and in the absence of a previous execution
price, the price will round up, if necessary.\20\ The price is
determined using the midpoint of (1) the National Best Bid or the last
offer on BX Options against which contracts will be traded whichever is
higher, and (2) National Best Offer or the last bid on BX Options
against which contracts will be traded whichever is lower.\21\ The
Exchange believes the proposed language more fully describes how
rounding is applied to determine the opening execution price in place
of a general statement of ``the price that is closest to the midpoint
price''. In addition, the Exchange proposes new subparagraph (C) to
describe the price at which the Opening Cross will occur when more than
one price exists under subparagraph (A) and there are contracts which
would remain unexecuted in the cross which was previously described in
Section 8(b)(2)(B) with less granularity and without consideration of
the new Valid Width NBBO. New proposed subparagraph (C) will state if
more than one price exists under subparagraph (A), and contracts would
remain unexecuted in the cross, then the opening price will be the
highest/lowest price, in the case of a buy/sell imbalance, at which the
maximum number of contracts can trade which is equal to or within a
defined range as established and published by the Exchange,\22\ of the
Valid Width
[[Page 10183]]
NBBO on the contra side of the imbalance that would not trade through
the ABBO. Where there is more than one price and there is an imbalance,
in Section 8(b)(4)(C) the Exchange is proposing that the Opening Cross
price also be within a defined range of the Valid Width NBBO on the
contra side of the imbalance, to help ensure that the opening price
does not stray too far from the best prices available and that the
opening price is rational. In addition, the Opening Cross price will be
the highest price, in the case of a buy imbalance, where the maximum
number of contracts can trade which is equal to or within the defined
range of the Valid Width NBBO. Similarly, in the case of a sell
imbalance, the Opening Cross price will be the lowest price at which
the maximum number of contracts can trade which is equal to or within
the defined range of the Valid Width NBBO. This serves to provide
opening execution price protections as well as an Opening Cross price
which will not have residual unexecuted interest reflected in the
marketplace, after the Opening Cross execution, at a price which
crosses the Opening Cross execution price.
---------------------------------------------------------------------------
\18\ Current Section 8(b)(2)(B) currently states that if more
than one price exists under subparagraph (A), the BX Opening Cross
shall occur at the entered price at which contracts will remain
unexecuted in the cross. Subparagraph (A) states that the BX Opening
Cross shall occur at the price that maximizes the number of
contracts of Eligible Interest in BX Options to be executed at or
within the National Best Bid and Offer.
\19\ The Exchange proposes to change the subparagraph reference
from (B) to (A) as current subparagraph (B) is being deleted and
expanded upon with new subparagraphs (B) and (C).
\20\ The Exchange notes that rounding will be applied, if
needed, in the following manner: If the previous closing price is
less than the midpoint, then the opening price rounds down; and if
the previous closing price is greater than the midpoint, or if there
is no closing price, then the opening price rounds up. For example,
if there is a midpoint of 1.045, the opening price would be rounded
to 1.04 if the previous closing price was 1.00, and would be rounded
to 1.05 if the previous closing price was 1.10.
\21\ A reference to BX OPTIONS is being corrected to read BX
Options. No change in meaning is intended.
\22\ The Exchange notes that the system will also calculate a
defined range to limit the range of prices at which an order will be
allowed to execute. Chapter VI, Section 10 (7).
---------------------------------------------------------------------------
The following examples illustrate, among other things, the
determination of the Opening Cross price.
Example 4 (no imbalance and one possible price). Assume a Valid
Width NBBO bid/ask differential allowance of .10 and a defined range of
.10. Also, assume that the ABBO is 1.00-1.10 (10x10 contracts) and the
BX BBO is .99-1.15 (10x10 contracts) which represents a quote from MM1.
Assume that a Customer Order 1 comes in to Buy 10 contracts for 1.05
and a Customer Order 2 comes in to Sell 10 contracts at 1.05. Once
regular markets hours have begun and the underlying security has
opened, the system determines if there is a Valid Width Quote present.
While the BX BBO of .99-1.15 is wider than the allowed bid/ask
differential to qualify as a Valid Width NBBO on its own, the ABBO
market of 1.00-1.10 does qualify as a Valid Width NBBO. In this
scenario, there is not an opening imbalance since there are 10
contracts on both the buy and sell side which could possibly trade.
Thus, the Opening Cross will follow the rules set forth in proposed
Section 8(b)(4)(A). Under this rule, the Opening Cross will occur at
the price which maximizes the number of contracts of Eligible Interest
at or within the ABBO and within a defined range of the Valid Width
NBBO. In this scenario, the Opening Cross price will be 1.05 with 10
contracts executing and BX BBO disseminated as .99-1.15.
Example 5 (no imbalance and more than one possible price). Assume a
Valid Width NBBO bid/ask differential allowance of .10 and a defined
range of .10. Assume the ABBO is 1.00-1.10 (10x10 contracts) and the BX
BBO is .99-1.11 (10x10 contracts) which represents a quote from MM1.
Assume that a Customer Order 1 comes in to Buy 10 contracts for 1.08,
and a Customer Order 2 comes in to Sell 10 contracts at 1.00. Once
regular markets hours have begun and the underlying security has
opened, the system determines if there is a Valid Width Quote present.
While the BX BBO of .99-1.11 is wider than the allowed bid/ask
differential to qualify as a Valid Width NBBO on its own, the ABBO
market of 1.00-1.10 does qualify as a Valid Width NBBO. In this
scenario, there is not an imbalance as there are 10 contracts to buy
and 10 contracts to sell, however, there exist multiple price points at
which those 10 contracts could execute within the ABBO and within a .10
range of the Valid Width NBBO. Thus, the Opening Cross will follow the
rules set forth in proposed Section 8(b)(4)(B) and the Opening Cross
will occur with 10 contracts executing at 1.04. 1.04 represents the
midpoint of 1.00 (the last offer on BX Options against which contracts
will be traded or the National Best Bid since the two are equal) and
1.08 (the last bid on BX Options against which contracts will be
traded). If the example is changed slightly such that Order 1 is a
market order to Buy 10 contracts, the Opening Cross will occur with 10
contracts executing at 1.05 which represents the midpoint of 1.00 (the
last offer on BX Options against which contracts will be traded or the
National Best Bid since the two are equal) and 1.10 (the National Best
Offer against which contracts will be traded). The market order is
considered to be a price higher than the National Best Offer and
outside of the NBBO therefore, the National Best Offer is used in
determining the Opening Cross price. The BX BBO disseminated after the
opening in either case will be .99-1.11.
Example 6 (imbalance and more than one possible price). Assume that
the ABBO is 1.05-1.50 (10x10 contracts) and MM1 is quoting on BX
Options 1.15-1.20 (10x10 contracts) as well as MM2 is quoting on BX
Options 1.05-1.50 (10x10 contracts). Also assume that the Valid Width
NBBO bid/ask differential allowance and defined range are each .10.
Also assume a Customer Order 1 is entered to Buy 30 contracts for 1.45.
In this example, the Valid Width NBBO is comprised solely of the BX
Options 1.15-1.20 quote. There is more than one price at which the
Exchange can maximize the number of contracts executed, 10 contracts,
during the Opening Cross and there exist multiple prices at which 20
contracts will remain unexecuted in the Opening Cross. Thus, the
Opening Cross price will be determined under proposed Section
8(b)(4)(C). In this example, the Valid Width NBBO is 1.15-1.20 which is
the best bid and best offer of the MM1 quote and the ABBO and is
tighter than the allowed differential of .10. With a defined range of
.10 of the Valid Width NBBO on the contra side of the imbalance (1.20
+.10), and a buy imbalance, the Opening Cross price will be 1.30 with
Order 1 buying 10 contracts from MM1. The Opening Cross price of 1.30
represents the highest price at which the maximum number of contracts,
10 contracts, can trade which is equal to or within the defined range
of the Valid Width NBBO on the contra side of the imbalance that would
not trade through the ABBO. The remaining unexecuted contracts will be
posted on the book and reflected in the BX Options quote as a 1.30 bid
with BX BBO disseminated as 1.30-150 [sic] with offer as non-firm, as
proposed in Section 8(b)(4)(C)(iii). If this example were changed
slightly such that the ABBO was 1.05-1.25, the opening price would be
1.25 since the Opening Cross cannot occur at a price outside of the
ABBO.
Because new proposed subsections (b)(1) and (b)(2) are added,
current subsections (b)(1) through (b)(5) are re-numbered to (b)(3)
through (b)(7), and the reference to (b)(2) in current (b)(7) is re-
numbered to (b)(4).
Sixth, the Exchange is proposing new language to indicate the price
at which remaining unexecuted contracts will be posted. Specifically,
in proposed Section 8(b)(4)(C), formerly covered in (b)(2), the
Exchange proposes to state that if more than one price exists under
subparagraph (A), and contracts would remain unexecuted in the cross,
then the opening price will be the price at which the maximum number of
contracts can trade that are equal to or within the defined range of
the Valid Width NBBO on the contra side of the imbalance that would not
trade through the ABBO. New proposed subsections (i)-(iv) to Section
8(b)(4)(C) indicate the price at which unexecuted contracts will be
posted on the book following the Opening Cross and the subsequent
handling of the residual unexecuted contracts, as follows: (i) If
unexecuted contracts remain with a limit price that is equal to the
opening price, then the remaining unexecuted contracts will be
[[Page 10184]]
posted at the opening price, displayed one minimum price variation
(MPV) away if displaying at the opening price would lock or cross the
ABBO, with the contra-side BX BBO reflected as firm; (ii) if unexecuted
contracts remain with a limit price that is through the opening price,
and there is a contra side ABBO at the opening price, then the
remaining unexecuted contracts will be posted at the opening price,
displayed one minimum price variation (MPV) away from the ABBO, with
the contra side BX BBO reflected as firm and order handling of any
remaining interest will be done in accordance with the routing and
time-in-force instructions of such interest and shall follow the
Acceptable Trade Range mechanism set forth in Chapter VI, Section 10;
(iii) if unexecuted contracts remain with a limit price that is through
the opening price, and there is no contra side ABBO at the opening
price, then the remaining contracts will be posted at the opening
price, with the contra-side BX BBO reflected as non-firm; and (iv)
order handling of any residual unexecuted contracts will be done in
accordance with the reference price set forth in Chapter VI, Section
10, with the opening price representing the reference price. This
proposed behavior ensures that residual unexecuted contracts from the
Opening Cross, regardless of their limit prices, are posted on the book
at the opening price before subsequently being routed pursuant to
Chapter VI, Section 11 or walked to the next potential execution
price(s) under the Acceptable Trade Range set forth in Chapter VI,
Section 10(7), with the opening price representing the ``reference
price'' of that rule. This enhancement to the BX Opening Cross ensures
that aggressively priced interest does not immediately post at prices
which may be considered to be egregious if the interest were to post
and execute immediately following the Opening Cross. The `firm' versus
`non-firm' tagging of contra-side interest when residual Opening Cross
interest is posted follows the construct currently in place on the
Exchange when aggressive interest is received and triggers an
Acceptable Trade Range (ATR) process. Contra-side BX BBO interest is
reflected as non-firm when the Exchange has interest with a limit price
(or market order) that is more aggressive than the Opening Cross price.
The purpose behind this is to ensure that aggressively priced residual
interest maintains priority should other aggressively priced interest
be entered before the residual interest is permitted to access the next
allowable range of prices.
Following are examples illustrating the proposed rule text
regarding the handling of unexecuted contracts.
Example 7 (proposed Section 8(b)(4)(C)(i)). Assume the ABBO is
1.00-1.10 (10x10 contracts), and the BX BBO is .99-1.11 (10x10
contracts). Assume there is a Customer order to Buy 10 contracts at the
market and a Customer order to Sell 50 contracts at 1.00. Further
assume the Valid Width NBBO is defined as .10 and the defined range is
also .10. The Valid Width NBBO in this example is comprised solely of
the ABBO which has a bid/ask differential equal to the allowance of
.10. Since there is (1) an imbalance, (2) multiple prices at which the
maximum number of contracts (10) can execute equal to or within the
ABBO and, (3) multiple prices at which the maximum number of contracts
can execute equal to or within a defined range of the Valid Width NBBO
on the contra side of the imbalance that would not trade through the
ABBO, the Opening Cross will occur at a price determined under Section
8(b)(4)(C). The Opening Cross will result in 10 contracts being
executed at 1.00. The 40 remaining unexecuted contracts will be posted
as a 40 contract offer at 1.00 and displayed at 1.01 (one MPV away from
the away market bid of 1.00) in order to not display at a price which
locks the ABBO under proposed Section 8(b)(4)(C)(i). The resulting
displayed BX BBO would be .99-1.01, reflected as firm on both sides of
the market, and the remaining interest would be handled in accordance
with the routing and time in-force instructions of the residual
interest.\23\ Since the residual interest is posted at its limit and
therefore would not be permitted to execute at more aggressive prices,
the contra-side BX BBO is reflected as firm.
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\23\ As set forth in proposed Section 8(b)(4)(C)(iv), order
handling of any residual interest in the Opening Cross will also be
done in accordance with the reference price set forth in Chapter VI,
Section 10, with the opening price representing the reference price.
---------------------------------------------------------------------------
Example 8 (proposed Section 8(b)(4)(C)(ii)). Assume the ABBO is
1.00-1.10 (10x10 contracts), and the BX BBO is .99-1.11 (10x10
contracts). Assume there is a Customer order to Buy 10 contracts at the
market and a Customer order to Sell 50 contracts at .85. Further assume
the Valid Width NBBO is defined as .10 and the defined range is also
.10. The Valid Width NBBO in this example is comprised solely of the
ABBO which has a bid/ask differential equal to the allowance of .10.
Since there is an imbalance and multiple prices exist at which the
maximum number of contracts (10) can execute equal to or within the
ABBO and within a defined range of the Valid Width NBBO without trading
through the ABBO, the Opening Cross will occur at a price determined
under Section 8(b)(4)(C). The Opening Cross would result in 10
contracts being executed at 1.00. The 40 remaining unexecuted contracts
will be posted as a 1.00 offer and be displayed at 1.01 so as not to
lock the away market bid under proposed Section 8(b)(4)(C)(ii). Since
the residual interest is posted at a price which internally locks the
ABBO and therefore would not be permitted to execute at more aggressive
prices until the ABBO moves, the contra-side BX BBO is reflected as
firm. The resulting displayed BX BBO would be .99-1.01, reflected as
firm on both sides of the market, and the remaining interest would be
handled in accordance with the routing and time-in-force instructions
of the residual interest and in accordance with Chapter VI, Section 10
of the BX Options rules, and the contra-side BBO will be marked as firm
or non-firm in accordance with the same Section 10 rule.
Example 9 (proposed Section 8(b)(4)(C)(iii)). Assume the ABBO is
.00-5.00 (0x10 contracts). Also assume the Valid Width NBBO bid/ask
differential is defined as 0.10 and the defined range as described in
proposed Section 8(b)(4)(C) is .10. Further, assume BX Options has
received a quote of .99-1.09 (10x10), a Customer order to Buy 10
contracts at the market, a Customer order to Buy 10 contracts for .70,
and a Customer order to Sell 50 contracts at .85. There is a Valid
Width NBBO present with the BX Options quote of .99-1.09, which is
equal to the defined bid/ask differential of .10. The Opening Cross has
an imbalance on the sell side. Since there is more than one price at
which contracts would remain unexecuted in the cross, the Opening Cross
price is determined using the logic included in proposed Section
8(b)(4)(C). This will result in an execution of 20 contracts at .89,
since the Valid Width NBBO on the bid side (contra to the imbalance
side) is .99 less the defined range of .10, with the residual contracts
of the .85 Sell Order posted on the book at .89. The resulting BX BBO
would be reflected as .70-.89, reflected as non-firm on the bid, firm
on the offer, and the remaining unexecuted interest would be handled in
accordance with the routing and time-in-force instructions of the
residual interest. The .70 bid is reflected as non-firm to ensure that
incoming interest will not be permitted to immediately
[[Page 10185]]
execute ahead of the more aggressively priced Opening Cross residual
interest. The residual interest from the Opening Cross will been
handled in accordance with Chapter VI, Section 10 of the BX Options
rules, and the contra-side BBO will be marked as firm or non-firm in
accordance with the same Section 10 rule.
Seventh, the Exchange is proposing new language to indicate the use
of execution algorithms assigned to the underlying options.
Specifically, in proposed Section 8(b)(5) (formerly (b)(3)), the
Exchange proposes to delete price/time priority and add the use of
execution algorithms by stating that if the BX Opening Cross price is
selected and fewer than all contracts of Eligible Interest that are
available in BX Options would be executed, all Eligible Interest shall
be executed at the BX Opening Cross price in accordance with the
execution algorithm assigned to the associated underlying option. By
substituting language indicating use of execution algorithms rather
than price/time priority, the Exchange recognizes that there are now
multiple execution allocation models,\24\ and these are factored into
the Opening Cross.
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\24\ See, e.g., Chapter VI, Section 10(1).
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Lastly, the Exchange proposes to add a provision regarding the
return of orders in un-opened symbols in the absence of an Opening
Cross. Proposed new Section 8(c) is substituted for current Section
8(c) and provides the procedure if an Opening Cross in a symbol is not
initiated before the conclusion of the Opening Order Cancel Timer.
Specifically, proposed new Section 8(c) states that if an Opening Cross
is not initiated under such circumstances, a firm may elect to have
orders returned by providing written notification to the Exchange.
These orders include all non GTC orders received over the FIX protocol.
The Opening Order Cancel Timer represents a period of time since the
underlying market has opened, and shall be established and disseminated
by BX on its Web site. Proposed Section 8(c) will provide participants
the ability to have their orders returned to them if BX Options is
unable to initiate an Opening Cross within a reasonable time of the
opening of the underlying market. In addition, proposed Section 8(c)
deletes language which is present in current Section 8(c) regarding how
the Opening Cross operates in relation to the presence or absence of a
regular market hour quote or trade by the Market for the Underlying and
the process of the Opening Cross in relation to opening quotes or
orders which lock or cross each other. The deleted provisions are now
being more thoroughly described in proposed Section 8(b).
The Exchange believes that the proposed changes significantly
improve the quality of execution of BX Options' opening. The proposed
changes give participants more choice about where, and when, they can
send orders for the opening that would afford them the best experience.
The Exchange believes that this should attract new order flow. The
proposed changes should prove to be very helpful to market
participants, particularly those that are involved in adding liquidity
during the Opening Cross. Absent these proposed enhancements, BX
Options' opening quality will remain less robust than on other
exchanges.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \25\ in general, and furthers the objectives of Section
6(b)(5) of the Act \26\ in particular, in that the proposal 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.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposal is consistent with the goals of the Act because it
will enhance and clarify the Opening Cross process, minimize or negate
unnecessary complexity, and encourage liquidity at the crucial time of
market open. The proposed change will also enhance the price discovery
mechanism in the opening process to include not only Market Maker
orders and quotes but also away market interest as represented by
quotes. The Exchange believes this change will make the transition from
the Opening Cross period to regular market trading more efficient and
thus promote just and equitable principles of trade and serve to
protect investors and the public interest.
The proposal is designed to promote just and equitable principles
of trade by updating and clarifying the rules regarding the BX Opening
and Halt Cross. In particular, the proposal would update or add Chapter
VI, Section 8 definitions regarding BX Opening Cross, Eligible
Interest, NBBO, and ABBO in respect of the Opening Cross and resuming
options trading after a halt. The Exchange would add to Chapter VI,
Section 1 the definition of ``On the Opening Order'' (OPG) as used in
Section 8 in respect of the Opening Cross. The proposal would also, as
discussed, make changes in Section 8 regarding: The criteria for
opening of trading or resumption of trading after a halt; BX posting on
its Web site any changes to the dissemination interval or prior Order
Imbalance Indicator; the procedure if more than one price exists; the
procedure if there are unexecuted contracts; and the ability of firms
to elect that orders be returned in symbols that were not opened on BX
Options before the conclusion of the Opening Order Cancel Timer.
The proposal is designed to remove impediments to and perfect the
mechanism of a free and open market and a national market system. In
particular, the Exchange proposes in Chapter VI, Section 8(b) to remove
the class-by-class quote or trade characteristic because for the
Opening Cross the Exchange will use a regular market hours quote or
trade (as determined by the Exchange) for all underylings [sic] on the
Exchange, without distinguishing among underlying symbols, or, in the
case of a trading halt the Opening Cross shall occur when trading
resumes pursuant to Chapter V, Section 4. The Exchange proposes to set
forth in Section 8(b) clear language describing under what
circumstances an Opening Cross will occur, and how the Opening Cross
will occur if more than one price exists under certain circumstances.
Thus, for example, proposed Section 8(b)(4) specifies that if more than
one price exists under subparagraph (A), and contracts would remain
unexecuted in the cross, then the opening price will be the highest/
lowest price, in the case of a buy/sell imbalance, at which the maximum
number of contracts can trade which is equal to or within a defined
range, as established and published by the Exchange, of the Valid Width
NBBO on the contra side of the imbalance that would not trade through
the ABBO. The Exchange proposes, in Section 8(b)(4)(C), three
alternatives for how remaining unexecuted contracts will be handled.
These include: If unexecuted contracts remain with a limit price that
is equal to the opening price, if unexecuted contracts remain with a
limit price that is through the opening price and there is a contra
side ABBO at the opening price, and if unexecuted contracts remain with
a limit price that is through the opening price and there is no contra
side ABBO at the opening price. The Exchange also proposes to clarify
what happens if an Opening Cross in a symbol is not initiated before
the conclusion of the Opening Order Cancel Timer. In that case,
proposed
[[Page 10186]]
Section 8(c)(2) [sic] indicates that a firm may elect to have orders
returned by providing written notification to the Exchange. These
orders include all non GTC orders received over the FIX protocol. The
Opening Order Cancel Timer represents a period of time since the
underlying market has opened, and shall be established and disseminated
by the Exchange on its Web site.
The proposal is designed in general to protect investors and the
public interest. The Exchange proposes to add certain criteria to
current Section 8(b), in order to describe how the opening process will
differ depending on whether a trade is possible or not on BX Options.
Assuming that ABBO is not crossed, proposed new Chapter VI, Section
8(b)(1) states that if there is a possible trade on BX, a Valid Width
NBBO must be present. Assuming that ABBO is not crossed, proposed
Section 8(b)(2) states that if no trade is possible on BX, then BX will
open dependent upon one of the following: A Valid Width NBBO is
present; a certain number of other options exchanges (as determined by
the Exchange) have disseminated a firm quote on OPRA; or a certain
period of time (as determined by the Exchange) has elapsed. The
Exchange proposes to further enhance price discovery and disclosure
regarding the Opening Cross process, by proposing in current Section
(b)(1) (renumbered to be (b)(3)) that BX may choose to establish a
dissemination interval that is shorter than every 5 seconds; and that
the Exchange will indicate the interval on its Web site in conjunction
to other information regarding the Opening Process. Moreover, the
Exchange proposes to add language in current Section 8(c)(2) regarding
the return of orders in un-opened symbols in the absence of an Opening
Cross. Thus, if an Opening Cross in a symbol is not initiated before
the conclusion of the Opening Order Cancel Timer, a firm may elect to
have orders returned by providing written notification to the Exchange.
These orders include all non GTC orders received over the FIX protocol.
The Opening Order Cancel Timer represents a period of time since the
underlying market has opened, and shall be established and disseminated
by BX on its Web site.
For the above reasons, BX believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act. The
Exchange believes that the proposed changes significantly improve the
quality of execution of BX Options' opening. The proposed changes give
participants more choice about where, and when, they can send orders
for the opening that would afford them the best experience. The
Exchange believes that this should attract new order flow. The proposed
changes should prove to be more robust and helpful to market
participants, particularly those that are involved in adding liquidity
during the Opening Cross.
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. While the Exchange does not
believe that the proposal should have any direct impact on competition,
it believes the proposal should help to further clarify the Opening
Cross process and make it more efficient, reduce order entry
complexity, enhance market liquidity, and be beneficial to market
participants. Moreover, the Exchange believes that the proposed changes
significantly improve the quality of execution of the BX Options
opening. The proposed changes give participants more choice about
where, and when, they can send orders for the opening that would afford
them the best experience. The Exchange believes that this should
attract new order flow. Absent these proposed enhancements, BX Options'
opening quality will remain less robust than on other exchanges, and
the Exchange will remain at a competitive disadvantage.
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) of the Act \27\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\
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\27\ 15 U.S.C. 78s(b)(3)(a).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and the 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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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-2015-010 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2015-010. 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 such filing also will be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from
[[Page 10187]]
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-BX-
2015-010, and should be submitted on or before March 18, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03819 Filed 2-24-15; 8:45 am]
BILLING CODE 8011-01-P
