[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Notices]
[Pages 62285-62287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67990; File No. SR-BX-2012-064]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Exchange Rule 4758(a)(1)(A) To Reflect a Change in Its Routing
Functionality To Allow Routable Orders To Simultaneously Execute
Against Exchange Available Shares and Route to Other Markets for
Execution of the Remainder of the Order
October 5, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 25, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''), a
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
BX proposes to amend Rule 4758(a)(1)(A) to reflect a change in its
routing functionality. The Exchange is proposing to implement the rule
change as soon as practicable, but in no case later than thirty
calendar days from the filing date of this proposal. The text of the
proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com, at BX'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 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.
[[Page 62286]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
BX is proposing to amend Rule 4758(a)(1)(A) to reflect a change in
BX's order routing functionality, which will allow routable orders \3\
to simultaneously execute against BX available shares and route to
other markets for execution of the remainder of the order. Currently,
when a routable order is entered into the BX system, the BX book is
first checked for available shares. If such an order is not filled or
filled only partially, then the order is routed to away markets with
the best bid or best offer pursuant to BX's System routing table.\4\
For example, if a BX member submitted an order to buy 5,000 shares of a
security, and BX had 500 shares displayed with another 500 shares
undisplayed, under the current routing process 1,000 shares would be
executed on BX. Thereafter, BX would route the remaining 4,000 shares
of the order to other markets for execution.
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\3\ For purposes of this filing, a ``routable order'' is an
order entered into the BX System, which is not of an Order Type
precluded from routing to other markets.
\4\ The ``System routing table'' is the proprietary process for
determining the specific trading venues to which the System routes
orders and the order in which it routes them. See Rule
4758(a)(1)(A).
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BX has observed that upon partial execution of a routable order at
BX, as in the example above, market participants often react to the
order by cancelling their orders on other markets and entering new
orders at inferior prices. This occurs because the current process
directs the order to BX before attempting to access available liquidity
at other markets and thereby allows market participants to react to the
execution (an effect known as ``market impact'' or ``information
leakage''). As a consequence, the available shares at the away market
are no longer available, resulting in a lower likelihood of
successfully accessing liquidity on away markets (i.e., the ``fill
rate'') and an increased likelihood of ultimately receiving an
execution at an inferior price. As such, BX is addressing this problem
by changing how the routing process will operate.
BX is proposing to execute routable orders against the BX book for
available shares and to simultaneously route any remaining shares to
additional markets. Specifically, under the proposed change a routable
order would attempt to execute against the available shares at BX and,
to the extent the order would not be filled by such available shares,
BX would simultaneously route the remainder of the order to other
venues, according to BX's System routing table, in a manner consistent
with Regulation NMS (i.e., satisfying all displayed protected quotes).
For example, using the scenario above, if a member enters a routable
order to buy 5,000 shares of a security and BX is displaying 500 shares
of that security, with 500 undisplayed, BX would execute against the
500 displayed shares and 500 undisplayed shares, while simultaneously
routing the remaining 4,000 shares to other venues for execution. In
the event that the amount of shares on other markets is insufficient to
completely fill the order, or the order fails to completely execute, BX
would then post the remaining shares on the BX book or cancel the
remaining shares per the routed order's instructions. BX believes that
this simultaneous execution against BX available shares and routing to
other venues' shares will avoid the deleterious effect of market impact
discussed above and result in overall faster and better executions of
its members' routable orders.
BX notes that it is not changing the execution and routing sequence
of all routable orders. The BTFY, BMOP, and BCRT orders are designed to
execute serially as part of their strategies, which is generally to
reduce the blended fees associated with transacting on multiple
markets. As such, simultaneous routing of such orders would not result
in a better execution in terms of the goals of these routable order
types.
The proposed change is based on the recently-approved change to the
analogous NASDAQ Stock Market LLC (``NASDAQ'') rule.\5\ Although the
Exchange does not have all of the order types that NASDAQ has, it is
making the identical changes applicable to the analogous routable order
types shared in common with NASDAQ. The Exchange will implement the
proposed change as soon as practicable and in no event later than 30
calendar days from the filing date of this proposal.
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\5\ See Securities Exchange Act Release No. 67639 (August 10,
2012), 77 FR 49034 (August 15, 2012) (SR-NASDAQ-2012-071).
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2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\6\ which requires the rules of an exchange 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
Exchange believes that the proposed rule meets these requirements in
that it promotes efficiency in the market, and increases the speed of
execution and likelihood that a routable order will be filled at the
best price possible. In this regard, the Exchange notes that
simultaneous execution minimizes the market impact a routable order has
on other markets under the current multi-step execution and routing
process, thus improving fill rates. Accordingly, the proposed rule
change will serve to improve execution quality for investors sending
their routable orders to the Exchange.
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\6\ 15 U.S.C. 78f(b)(5).
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder because
the proposal does not: (i) Significantly affect the protection of
investors or the public interest; (ii) impose any significant burden on
competition; and (iii) by its terms, become operative for 30 days from
the date on which it was filed, or such shorter time as the Commission
may designate.\9\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
\9\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of the Exchange's intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change, at least five business days prior to the
date of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange has satisfied this
requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay period. The Commission
believes
[[Page 62287]]
that waiver of the 30-day operative delay period is consistent with the
protection of investors and the public interest. Specifically, the
Commission believes that the proposal should increase the likelihood
that a routable order would receive a more complete fill and should
improve the Exchange's ability to process such orders. For these
reasons, the Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission designates the proposed rule change
to be operative upon filing with the Commission.\11\
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\10\ 17 CFR 240.19b-4(f)(6)(iii).
\11\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.\12\
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\12\ 15 U.S.C. 78s(b)(3)(C).
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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-2012-064 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2012-064. 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, 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 office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2012-064 and should be
submitted on or before November 2, 2012.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25105 Filed 10-11-12; 8:45 am]
BILLING CODE 8011-01-P