[Federal Register Volume 76, Number 236 (Thursday, December 8, 2011)]
[Notices]
[Pages 76797-76799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31475]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65867; File No. SR-BX-2011-080]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
Its Optional Anti-Internalization Functionality
December 2, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 22, 2011, NASDAQ OMX BX, Inc. (``BX'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange has designated the
proposed rule change as constituting a rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to modify its optional anti-
internalization functionality.
The text of the proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com/, at the Exchange's principal office, 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 Exchange is proposing to provide a more granular alternative to
the voluntary anti-internalization functionality. Under the proposal,
market participants will be given the additional options of (1)
assigning a group identification modifier at the port level; and (2)
assigning different anti-internalization methodology to specific order
entry ports.
Currently, anti-internalization processing is available only on an
MPID-wide basis with only a single methodology being allowed per MPID.
Market participants direct that a particular version of anti-
internalization processing be applied to a particular MPID, which is
then applied by the system to all quotes/orders entered using that
MPID. Market participants have the option, when entering quotes/orders
using the same MPID they do not wish to have automatically interact
with each other in the System, to either direct the System to not
execute any part of the interacting quotes/orders from the same MPID
and, instead, cancel share amounts of the interacting quotes/orders
back to the entering party with an arrangement that takes into
consideration the size of the interacting quotes/orders (Decrement);
or, regardless of the size of the interacting quotes/orders, cancelling
the oldest of them in full (Cancel Oldest).\4\
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\4\ See Exchange Rule 4757(a)(4).
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Under the proposal, market participants entering quotes/orders
under a specific MPID may voluntarily assign a unique group
identification modifier that represents a group of quotes/orders from
the same market participant identifier and order entry port (``Group
ID''). The Group ID will be a two-character code composed of
alphanumerics and/or spaces, assigned to a specific order entry port
and updated by the Exchange on behalf of the market participant. This
additional option will direct the System to execute any so designated
incoming quotes/orders against all eligible resting quotes/orders
except those with the both the same MPID and same Group ID.
If the market participant selects the option of utilizing the Group
ID, the anti-internalization selection will be applied to all quotes/
orders entered using both the same MPID and the same Group ID. If the
incoming order has both the same MPID and the same Group ID, the two
orders will not execute against
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each other. If the two orders have the same MPID and different Group
IDs, then the order will be eligible to execute against each other as
designated by the anti-internalization method. For example:
1. Incoming order ``A'' has an MPID of ``ABCD'' and Group ID
``A1'', resting order ``B'' has an MPID of ``ABCD'' and Group ID
``A1'': in this scenario, these two orders would not execute against
each other.
2. Incoming order ``C'' has an MPID of ``EFGH'' and Group ID
``XY'', resting order ``D'' has an MPID of ``EFGH'' and Group ID
``ZZ'': in this scenario, these two orders would execute against
each other.
Additionally, market participants will now have the option to
assign a different anti-internalization methodology (Decrement or
Cancel Oldest) to different order entry ports. The anti-internalization
method assigned to the port sending the incoming order will determine
which methodology is applied to the orders prevented from matching. For
example:
FIRM XX (MPID ``ABCD'') utilizes three ports and has elected to
assign Group IDs to their order entry ports for the purpose of anti-
internalization. Additionally, the market participant selected
different anti-internalization methodologies per port as follows:
Port 1: Group ID A1; Anti-internalization methodology: Decrement.
Port 2: Group ID A1; Anti-internalization methodology: Cancel
Oldest.
Port 3: Group ID B1; Anti-internalization methodology: Cancel
Oldest.
If an incoming order from Port 1 tries to interact with a resting
order from Port 3, the orders will execute because they have the same
MPID but different Group IDs.
If an incoming order from Port 1 tries to interact with a resting
order from Port 2, then the anti-internalization method selected for
Port 1 will apply to the order. In this case, the Decrement method
would apply.
If an incoming order from Port 2 tries to interact with a resting
order from Port 1, then the anti-internalization method selected for
Port 2 will apply. In this case, the Cancel Oldest methodology would
apply.
Anti-internalization functionality is designed to assist market
participants in complying with certain rules and regulations of the
Employee Retirement Income Security Act (``ERISA'') that preclude and/
or limit managing broker-dealers of such accounts from trading as
principal with orders generated for those accounts. It can also assist
market participants in reducing execution fees potentially resulting
from the interaction of executable buy and sell trading interest from
the same firm. The Exchange notes that use of the functionality does
not relieve or otherwise modify the duty of best execution owed to
orders received from public customers. As such, market participants
using anti-internalization functionality will need to take appropriate
steps to ensure that public customer orders that do not execute because
of the use of anti-internalization functionality ultimately receive the
same execution price (or better) they would have originally obtained if
execution of the order was not inhibited by the functionality.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\5\ in general, and with
Sections 6(b)(5) of the Act,\6\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Specifically,
the Group ID allows firms to better manage order flow and prevent
undesirable executions against themselves. The Exchange notes that a
similar functionality was effective upon filing with the Commission for
EDGX Exchange, Inc.\7\
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(5).
\7\ See EDGX Exchange, Inc. Rule 11.9(f); Securities and
Exchange Release No. 53428 (December 3, 2010), 75 FR 76763 (December
9, 2010)(SR-EDGX-2010-18), which was based on NYSEArca Equities Rule
7.31(qq). The Exchange's current proposal differs from EDGX Rule
11.9(f) and NYSEArca Equities Rule 7.31(qq) in that there are
additional methods relating to additional modifiers that do not
apply to the Exchange. Furthermore, EDGX utilizes the additional
identity modifier at the port level as well as at the order level.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor 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 \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \10\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) \11\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay so that the
Exchange may immediately offer its market participants the ability to
better manage their order flow and prevent undesirable executions with
themselves, which in turn may decrease costs to customers of such
firms. The Commission notes that the proposal is based on similar rules
of other exchanges \12\ and believes that waiving the 30-day operative
delay \13\ is consistent with the protection of investors and the
public interest. Therefore, the Commission designates the proposal
operative upon filing.
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ See EDGX Exchange, Inc. Rule 11.9(f) and NYSEArca Equities
Rule 7.31(qq).
\13\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of
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investors, or otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2011-080 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2011-080. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\14\ all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available. All submissions should refer to File Number SR-BX-
2011-080 and should be submitted on or before December 29, 2011.
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\14\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31475 Filed 12-7-11; 8:45 am]
BILLING CODE 8011-01-P