[Federal Register Volume 79, Number 130 (Tuesday, July 8, 2014)]
[Notices]
[Pages 38620-38628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15792]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72502; File No. SR-BX-2014-035]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change Relating to Market Maker Quoting
Obligations and the Introduction of a Lead Market Maker
July 1, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 19, 2014, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I 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
The Exchange proposes to: (1) Amend BX Market Maker quoting
obligations; (2) adopt new BX Rules at Chapter VII, Section 13 and 14
to allow qualified Options Participants to act as a Lead Market Maker,
or LMM, in one or more options classes; (3) revise priority rules to
entitle LMMs participation entitlement; and (4) provide for a Public
Customer priority overlay for the Price/Time Execution Algorithm.
The text of the proposed rule change is available on the Exchange's
Web site at http://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 amend the current BX
Market Maker quoting obligations and adopt rules to permit BX Market
Makers to act as Lead Market Makers, or LMMs, in one or more options
classes, provided the LMM meets certain obligations and quoting
requirements as provided for in the new proposed Exchange Rules. The
Exchange proposes to provide assigned LMMs with certain participation
entitlements. Finally, the Exchange proposes to provide Public
Customers with priority when the Price/Time execution algorithm is in
effect. The Exchange believes that these amendments, which will be
described below in greater detail, will enhance competition on the
Exchange by rewarding LMMs who meet certain obligations on BX.
BX Market Maker Quoting Obligations
Currently, Chapter VII, Section 6(d) provides that on a daily
basis, a Market Maker must during regular market hours make markets
consistent with the applicable quoting requirements specified in these
rules, on a continuous basis in at least sixty percent (60%) of the
series in options in which the Market Maker is registered. It further
provides that, to satisfy this requirement with respect to quoting a
series, a Market Maker must quote such series 90% of the trading day
(as a percentage of the total number of minutes in such trading day) or
such higher percentage as BX may announce in advance. BX Regulation may
consider exceptions to the requirement to quote 90% (or higher) of the
trading day based on demonstrated legal or regulatory requirements or
other mitigating circumstances.
BX proposes to better align its market maker quoting requirement
with that of other exchanges, such as NYSE Arca, Inc. (``NYSE Arca'')
and NYSE MKT LLC (``NYSE MKT''). Specifically, BX proposes to reduce
the quoting requirement for BX Options Market Makers as follows: A
Market Maker must quote such options 60% of the trading day (as a
percentage of the total number of minutes in such trading day) or such
higher percentage as BX may announce in advance. BX Regulation may
consider exceptions to the requirement to quote 60% (or higher) of the
trading day based on demonstrated legal or regulatory requirements or
other mitigating circumstances. This quoting
[[Page 38621]]
obligation will apply to all of a Market Maker's registered options
collectively on a daily basis, rather than on an option-by-option
basis. This quoting obligation will be reviewed on a monthly basis, and
allows the Exchange to review the Market Makers' daily compliance in
the aggregate and determine the appropriate disciplinary action for
single or multiple failures to comply with the continuous quoting
requirement during the month period. However, determining compliance
with the continuous quoting requirement on a monthly basis does not
relieve a Market Maker of the obligation to provide continuous two-
sided quotes on a daily basis, nor will it prohibit the Exchange from
taking disciplinary action against a Market Maker for failing to meet
the continuous quoting obligation each trading day. This is the same
requirement as on other options exchanges.\3\
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\3\ See NYSE Arca Rule 6.37B(c) and NYSE MKT Rule 925.1NY(c).
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BX believes that this is appropriate for two reasons. First, BX's
current Market Maker quoting requirement is much more stringent than
certain other exchanges. Quoting each series 90% of the trading day is
much more stringent than looking at all options in which a Market Maker
is registered, because it allows for some number of series not to be
quoted at all, as long as the overall standard is met. This better
accommodates the occasional issues that may arise in a particular
series, whether technical or manual. The existing requirement may at
times discourage liquidity in particular options series because a
market maker is forced to focus on a momentary lapse rather than using
the appropriate resources to focus on the options series that need and
consume additional liquidity. BX believes that it can better attract
Market Makers to the BX Options market and grow its market if its
quoting obligation is more in line with that of other exchanges.
The Exchange believes that the amendments to Section 6(d)(i)(1) of
Chapter VII, which would allow applying the quoting requirements for
Market Makers collectively across all options classes, is a fair and
more efficient way for the Exchange and market participants to evaluate
compliance with the continuous quoting requirements. Applying the
continuous quoting requirement collectively across all option classes
rather than on an issue-by-issue basis is beneficial to Market Makers
by providing some flexibility to choose which series in their appointed
classes they will continuously quote--increasing the continuous quoting
obligation in the series of one class to allow for a decrease in the
continuous quoting obligation in the series of another class. This
flexibility does not, however, diminish the Market Maker's obligation
to continuously quote a significant part of the trading day in a
significant percentage of series. Flexibility is important for classes
that have relatively few series and may prevent the Market Maker, in
particular, from breaching the continuous quoting requirement when
failing to meet the specified quote amount during the trading day (as
proposed) in more than one series in an appointed class. However, this
flexibility does not act to relieve the Market Maker of his continuous
quoting obligations and does not, for example, relieve the Market Maker
from providing liquidity in classes experiencing heightened volatility.
The Exchange provides in the proposed rule that determining compliance
with the continuous quoting requirement on a monthly basis will not
relieve a Market Maker of the obligation to provide continuous two-
sided quotes on a daily basis, nor will it prohibit the Exchange from
taking disciplinary action against a Market Maker for failing to meet
the continuous quoting obligation each trading day. The Exchange
believes that the balance between the benefits provided to Market
Makers and the obligations imposed upon Market Makers by the proposed
rule change is appropriate.
The Exchange believes that the proposal will not diminish, and in
fact may increase, market making activity on the Exchange, by
establishing quoting compliance standards that are reasonable and are
already in place on other options exchanges. By amending Section 6 of
Chapter VII to state that quoting obligations apply to a Market Maker's
appointed issues collectively, this proposal is similar to that of
other options markets and puts the Exchange on an equal competitive
footing.\4\ Moreover, as discussed the Exchange believes that the
proposal may increase market making activity on the Exchange by
establishing quoting compliance standards that are reasonable and
already in place on other options exchanges.
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\4\ The proposed rule text is, as noted, similar in all material
respects to BATS Exchange, Inc. (``BATS'') Rule 22.6(d)(3) and
NASDAQ OMX PHLX LLC (``Phlx'') Rule 1014.
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Lead Market Makers Allocations
Today on BX there are two types of Options Participants, Options
Order Entry Firms and Options Market Makers. Options Order Entry Firms,
or OEFs, are Options Participants who represent customer orders as
agent on BX Options and non-Market Maker Participants conducting
proprietary trading as principal. Options Market Makers are Options
Participants registered with the Exchange as Options Market Makers in
one or more listed options on BX.\5\ BX may suspend or terminate any
registration of an Options Market Maker when, in BX's judgment, the
interests of a fair and orderly market are best served by such action.
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\5\ See BX Options Rules at Chapter VII.
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To become an Options Market Maker, an Options Participant is
required to register by filing a written application. BX does not place
any limit on the number of entities that may become Options Market
Makers. BX Options Market Makers are required to electronically engage
in a course of dealing to enhance liquidity available on BX and to
assist in the maintenance of fair and orderly markets.\6\ Among other
things, Options Market Makers must maintain minimum net capital in
accordance with SEC and BX Options Rules. The Exchange is proposing
herein that Options Market Makers must quote 60% of the trading day (as
a percentage of the total number of minutes in such trading day) or
such higher percentage as BX may announce in advance.\7\ BX Regulation
may consider exceptions to the requirement to quote 60% (or higher) of
the trading day based on demonstrated legal or regulatory requirements
or other mitigating circumstances. Market Makers shall not be required
to make two-sided markets pursuant to Section 5(a)(i) of Chapter VII in
any Quarterly Option Series, adjusted option series, or any option
series until the time to expiration for such series is less than nine
months. Accordingly, the continuous quotation obligations set forth in
this rule shall not apply to Market Makers respecting Quarterly
[[Page 38622]]
Option Series, adjusted option series,\8\ or any series with an
expiration of nine months or greater. However, a LMM may still receive
a participation entitlement in such series if it elects to quote in
such series and otherwise satisfies the requirements of Chapter VI,
Section 10. If a technical failure or limitation of a system of BX
prevents a Market Maker from maintaining, or prevents a Market Maker
from communicating to BX Options, timely and accurate quotes, the
duration of such failure or limitation shall not be included in any of
these calculations with respect to the affected quotes.\9\ Options
Market Makers must also comply with certain bid/ask differentials
(quote spread parameters).\10\ Options on equities (including Exchange-
Traded Fund Shares), and on index options must be quoted with a
difference not to exceed $5 between the bid and offer regardless of the
price of the bid, including before and during the opening.\11\ However,
respecting in-the-money series where the market for the underlying
security is wider than $5, the bid/ask differential may be as wide as
the quotation for the underlying security on the primary market.\12\
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\6\ Options Market Makers receive certain benefits for carrying
out their duties. For example, a lender may extend credit to a
broker-dealer without regard to the restrictions in Regulation T of
the Board of governors of the Federal Reserve System if the credit
is to be used to finance the broker-dealer's activities as market
maker on a national securities exchange. Thus, an Options Market
Maker has a corresponding obligation to hold itself out as willing
to buy and sell options for its own account on a regular or
continuous basis to justify this favorable treatment.
\7\ As noted herein, today BX Options Market Makers must quote
such series 90% of the trading day (as a percentage of the total
number of minutes in such trading day) or such higher percentage as
BX may announce in advance.
\8\ An adjusted option series is an option series wherein one
option contract in the series represents the delivery of other than
100 shares of underlying stock or Exchange-Traded Fund Shares.
\9\ Substantial or continued failure by an Options Market Maker
to meet any of its obligations and duties, will subject the Options
Market Maker to disciplinary action, suspension, or revocation of
the Options Market Maker's registration in one or more options
series.
\10\ See BX Options Rules at Chapter VII, Section 6.
\11\ Id.
\12\ Id.
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At this time, the Exchange is proposing a third type of Options
Participant, an LMM. Approved BX Options Market Makers \13\ may become
an LMM in one or more listed options. Initial application(s) to become
an LMM shall be in a form and/or format prescribed by the Exchange and
shall include the following: (1) Background information on the LMM
including experience in trading options; (2) the LMM's clearing
arrangements; (3) adequacy of capital; and (4) adherence to Exchange
rules and ability to meet obligations of an LMM.\14\ Subsequent
applications shall be in a form and/or format prescribed by the
Exchange and shall include the information requested therein,
including, but not limited to, an account of the abilities and
background of the applicant as well as any other special requirements
that the Exchange may require.\15\ Once an applicant is approved by the
Exchange as an LMM, any material change in capital shall be reported in
writing to the Exchange within two business days after the change. BX
will not place any limit on the number of entities that may become
LMMs, however the Exchange notes that there will only be one LMM per
class.
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\13\ See Chapter VII, Section 2.
\14\ See proposed BX Options Rules at Chapter VII, Section
13(A)(b).
\15\ See proposed BX Options Rules at Chapter VII, Section
13(A)(c).
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When an options class is to be allocated or reallocated by the
Exchange, the Exchange will solicit applications from all eligible
LMMs. If the Exchange determines that special qualifications should be
sought in the successful applicant, it shall indicate such desired
qualifications in the notice.\16\
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\16\ See proposed BX Options Rules at Chapter VII, Section
13(B)(a).
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Further, the Exchange proposes to require an allocation application
to be submitted in writing to the Exchange's designated staff and shall
include, at a minimum, the name and background of the LMM, the LMM's
experience and capitalization demonstrating an ability to trade the
particular options class sought, and any other reasons why the LMM
believes it should be assigned or allocated the security. In addition,
the Exchange may also require that the application include other
information such as system acceptance/execution levels and guarantees.
The Exchange may re-solicit applications for any reason, including if
it determines that its initial solicitation resulted in an insufficient
number of applicants.\17\
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\17\ See proposed BX Options Rules at Chapter VII, Section
13(B)(b).
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Allocation decisions and automatic allocations shall be
communicated in writing to Exchange members. Once the LMM is allocated
an issue, such LMM shall immediately notify the Exchange in writing of
any change to the respective system acceptance/execution levels or any
other material change in the application for any assigned issue. If an
LMM seeks to withdraw from allocation in a security, it should so
notify the Exchange at least one business day prior to the desired
effective date of such withdrawal.\18\
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\18\ See proposed BX Options Rules at Chapter VII, Section
13(B)(c)(d) and (e).
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Options on Related Securities shall be automatically allocated to
the LMM that is already the LMM in Currently Allocated Securities (as
defined hereafter). Only one LMM may be allocated to an options class.
The Exchange is defining the term ``Related Securities'' for purpose of
Chapter VII, Section 13 as follows: ``Related Securities means, but is
not limited to: Securities of a partially or wholly owned subsidiary;
securities that are convertible into the securities of the issuer;
warrants on securities of the issuer; securities issued in connection
with a name change; securities issued in a reverse stock split;
contingent value rights; ``tracking'' securities designed to track the
performance of the underlying security or corporate affiliate thereof;
securities created in connection with the merger or acquisition of one
or more companies; securities created in connection with a ``spin-off''
transaction; convertible on non-convertible senior securities; and
securities into which a listed security is convertible, where such
Related Securities emanate from or are related to securities underlying
options that are currently allocated to a LMM on the Exchange
(``Currently Allocated Options''). The term Related Securities does not
include Exchange Traded Funds.\19\
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\19\ See proposed BX Options Rules at Chapter VII, Section
13(B)(f).
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The Exchange shall allocate new options classes, or reallocate
existing options classes to applicants based on the results of such
factors as the Exchange deems appropriate. Among the factors that the
Exchange may consider in making such decisions are: The number and type
of securities in which applicants are currently registered; the capital
and other resources of the applicant; recent allocation decisions
within the past eighteen months; the desirability of encouraging the
entry of new LMMs into the Exchange's market; order flow commitments;
any prior transfers of LMM privileges by the applicant and the reasons
therefore and such policies as the Board instructs the Exchange to
follow in allocating or reallocating securities. The Exchange may also
consider: Quality of markets data; observance of ethical standards and
administrative responsibilities. Solely with respect to options class
allocations or reallocations, past or contemplated voluntary delisting
of options by LMMs, done in the best interest of the Exchange, will not
be viewed negatively by the Exchange in making allocation and
reallocation decisions. The Exchange is empowered to allocate option
classes for a limited period of time or subject to such other terms and
conditions as it deems appropriate.\20\
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\20\ See proposed BX Options Rules at Chapter VII, Section
13(C).
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Requests to allocate or transfer allocation, or transfer of an
options class request must be made in writing to the
[[Page 38623]]
Exchange and such transfer may only be made to an approved LMM. The LMM
shall be assigned to an options class for a period defined by the
Exchange. The Exchange will communicate such period in solicitation
applications (notices). The Exchange may re-allocate an options class
after the defined period has expired.\21\
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\21\ See proposed BX Options Rules at Chapter VII, Section
13(D).
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The proposed rules relating to the appointment of LMMs and the
allocation of option series are similar to rules currently in place on
NASDAQ OMX PHLX LLC (``Phlx'') with respect to its appointment of
specialists.\22\
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\22\ See Phlx Rules 501, 505, 506 and 511.
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LMM Obligations and Quotations
The Exchange also requires that LMM transactions should constitute
a course of dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and no LMM should enter into
transactions or make bids or offers that are inconsistent with such a
course of dealings.\23\ Further, with respect to each class of options
in his or her appointment, an LMM is expected to engage, to a
reasonable degree under the existing circumstances, in dealings for his
own account when there exists, or it is reasonably anticipated that
there will exist, a lack of price continuity, a temporary disparity
between the supply of and demand for a particular option contract, or a
temporary distortion of the price relationships between option
contracts of the same class. Without limiting the foregoing, an LMM is
expected to perform the following activities in the course of
maintaining a fair and orderly market pursuant to proposed Chapter VII,
Section 14(b): (i) To compete with other Market Makers to improve the
market in all series of options classes to which the LMM is appointed;
(ii) to make markets that will be honored for the number of contracts
entered into the Trading System \24\ in all series of options classes
within the LMM's appointment; (iii) to update market quotations in
response to changed market conditions in all series of options classes
within the LMM's appointment; (iv) options traded on the Trading System
may be quoted with a difference not to exceed $5 between the bid and
offer regardless of the price of the bid; and (v) BX Regulation may
establish quote width differences other than as provided in
subparagraph (iv) for one or more options series. In the event the bid/
ask differential in the underlying security is greater than the bid/ask
differential set forth in subsection (b)(iv)-(v) of Section 14 the
permissible price differential for any in-the-money option series may
be identical to those in the underlying security market. In the case of
the at-the-money and out-of-the-money series, BX Regulation may waive
the requirements of subsections (b)(iv)-(v) of Section 14 on a case-by-
case basis when the bid/ask differential for the underlying security is
greater than .50. In such instances, the bid/ask differentials for the
at-the-money series and the out-of-the-money series may be half as wide
as the bid/ask differential in the underlying security in the primary
market. Exemptions from subsections (b)(iv)-(v) are subject to Exchange
review. BX Regulation must file a report with BX operations setting
forth the time and duration of such exemptive relief and the reasons
therefore.\25\
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\23\ See proposed BX Options Rules at Chapter VII, Section
14(a).
\24\ See Chapter I, Section 1(62). The term ``Trading System''
or ``System'' means the automated trading system used by BX Options
for the trading of options contracts.
\25\ See proposed BX Options Rules at Chapter VII, Section
14(b).
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With respect to unusual conditions, if the interest of maintaining
a fair and orderly market so requires, BX Regulation may declare that
unusual market conditions exist in a particular issue and allow LMMs in
that issue to make auction bids and offers with spread differentials of
up to two times, or in exceptional circumstances, typically up to three
times, the legal limits permitted under this Rule. In making such
determinations to allow wider markets, BX Regulation should consider
the following factors: (A) Whether there is pending news, a news
announcement or other special events; (B) whether the underlying
security is trading outside of the bid or offer in such security then
being disseminated; (C) whether Options Participants receive no
response to orders placed to buy or sell the underlying security; and
(D) whether a vendor quote feed is clearly stale or unreliable.\26\ In
the event that BX Regulation determines that unusual market conditions
exist in any option, it will be the responsibility of BX Regulation to
file a report with BX operations setting forth the relief granted for
the unusual market conditions, the time and duration of such relief and
the reasons therefore.
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\26\ See proposed BX Options Rules at Chapter VII, Section
14(c).
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In classes of options other than those to which the LMM is
appointed, LMMs should not engage in transactions for an account in
which they have an interest that are disproportionate in relation to,
or in derogation of, the performance of their obligations as specified
in this Rule with respect to the classes in their appointment.
Furthermore, LMMs should not: (1) Individually or as a group,
intentionally or unintentionally, dominate the market in option
contracts of a particular class; and (2) effect purchases or sales on
the Exchange except in a reasonable and orderly manner.\27\
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\27\ See proposed BX Options Rules at Chapter VII, Section
14(d).
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LMMs are prohibited from the following: (1) Any practice or
procedure whereby LMMs trading any particular option issue determine by
agreement the spreads or option prices at which they will trade that
issue; and (2) any practice or procedure whereby LMMs trading any
particular option issue determine by agreement the allocation of orders
that may be executed in that issue.\28\
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\28\ See proposed BX Options Rules at Chapter VII, Section
14(e).
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An LMM may enter quotations only in the issues included in its
appointment. An LMM must provide continuous two-sided quotations
throughout the trading day in its appointed issues for 90% of the time
the Exchange is open for trading in each issue. Such quotations must
meet the legal quote width requirements herein. These obligations will
apply to all of the LMMs appointed issues collectively, rather than on
an option-by-option basis. Compliance with this obligation will be
determined on a monthly basis.\29\ BX Regulation may consider
exceptions to the requirement to quote 90% (or higher) of the trading
day based on demonstrated legal or regulatory requirements or other
mitigating circumstances. However, determining compliance with the
continuous quoting requirement on a monthly basis does not relieve an
LMM of the obligation to provide continuous two-sided quotes on a daily
basis, nor will it prohibit the Exchange from taking disciplinary
action against an LMM for failing to meet the continuous quoting
obligation each trading day.
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\29\ See proposed BX Options Rules at Chapter VII, Section
14(f).
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If a technical failure or limitation of a system of the Exchange
prevents an LMM from maintaining, or prevents a LMM from communicating
to the Exchange, timely and accurate electronic quotes in an issue, the
duration of such failure shall not be considered in determining whether
the LMM has satisfied the 90% quoting standard with respect to that
option issue. The Exchange may consider other exceptions to this
continuous electronic quote obligation based on demonstrated
[[Page 38624]]
legal or regulatory requirements or other mitigating circumstances.\30\
An LMM may be called upon by BX Regulation to submit a single quote or
maintain continuous quotes in one or more series of an option issue
within its appointment whenever, in the judgment of BX Regulation, it
is necessary to do so in the interest of maintaining fair and orderly
markets.\31\
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\30\ See proposed BX Options Rules at Chapter VII, Section
14(f)(1).
\31\ See proposed BX Options Rules at Chapter VII, Section
14(f)(2).
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An LMM shall be compelled to buy/sell a specified quantity of
option contracts at the disseminated bid/offer pursuant to his
obligations with respect to firm quotes. All quotes and orders entered
into the System by Options Participants are firm under this Rule and
Rule 602 of Regulation NMS under the Exchange Act (``SEC Rule 602'')
for the number of contracts specified and according to the size
requirements set forth herein. Market Maker bids and offers are not
firm under this Rule and SEC Rule 602: (1) For the period prior to the
Opening Cross; or (2) if any of the circumstances provided in paragraph
(b)(3) or (c)(4) of SEC Rule 602 exist.\32\ These obligations of this
Rule shall not apply to LMMs with respect to adjusted option series,
quarterly options series, or any series with a time to expiration of
nine months or greater. For purposes of this Rule, an adjusted option
series is an option series wherein, as a result of a corporate action
by the issuer of the underlying security, one option contract in the
series represents the delivery of other than 100 shares of underlying
security.\33\
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\32\ See proposed BX Options Rules at Chapter VII, Section
14(f)(3).
\33\ See proposed BX Options Rules at Chapter VII, Section
14(f)(4).
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These LMM obligations are based on rules of NYSE Arca.\34\
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\34\ See 6.37A and 6.37B of NYSE Arca, Inc.'s Rulebook.
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Lead Market Maker Priority
The Exchange proposes to provide LMM participation entitlements in
Chapter VI (Trading Systems) at Section 10, entitled ``Book
Processing.'' Specifically, with respect to Size Pro-Rata executions,
the Exchange would afford an LMM a participation entitlement if the
LMM's bid/offer is at the Exchange's disseminated price and all Public
Customer \35\ orders have been fully executed.\36\ The LMM shall not be
entitled to receive a number of contracts that is greater than the
displayed size associated with such LMM. LMM participation entitlements
will be considered after the opening process. The LMM participation
entitlement is as follows: (1) A BX Options LMM shall receive the
greater of: the LMM's Size Pro-Rata share; 50% of remaining interest if
there is one or no other Market Maker at that price; 40% of remaining
interest if there are two other Market Makers at that price; or 30% of
remaining interest if there are more than two other Market Makers at
that price; or if rounding would result in an allocation of less than
one contract, a BX Options LMM shall receive one contract. Rounding
will be up or down to the nearest integer.
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\35\ See Chapter I, Section 1(50). The term ``Public Customer''
means a person that is not a broker or dealer in securities.
\36\ Price Improving Orders will retain price priority before an
LMM participation entitlement is provided at the Exchange's
disseminated price. See Chapter VI, Sections 1(a)(6) and 7(b)(3)(B).
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Orders for 5 contracts or fewer shall be allocated to the LMM. The
Exchange will review this provision quarterly and will maintain the
small order size at a level that will not allow orders of 5 contracts
or less executed by the LMM to account for more than 40% of the volume
executed on the Exchange. After all Public Customer orders have been
fully executed and LMM participation entitlements applied, if
applicable, BX Options Market Makers shall have priority over all other
Participant orders at the same price.
Several examples of the manner in which an LMM will be allocated
pursuant to the Size Pro-Rata model follow below.
Example Number 1:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Firm 5 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (20 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B 1 contract offered at 1.10
Incoming Order to pay 1.10 for 5 contracts
Allocated as follows:
Customer B trades 1 contract at 1.10
LMM trades 4 contracts at 1.10
Example Number 2:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Firm 5 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (3 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (30
contracts)
Incoming Order to pay 1.10 for 5 contracts
Allocated as follows:
LMM trades 3 contracts at 1.10
MM1 trades 0 contracts at 1.10 ((10/40)*2) [rounded down based
on normal pro-rata]
MM2 trades 1 contracts at 1.10 ((30/40)*2) [rounded down based
on normal pro-rata]
MM1 then trades the 1 residual contract based on time
Example Number 3:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
LMM: 1.00 bid (10 contracts)--1.10 offer (15 contracts)
Customer A 5 contracts offered at 1.10
Firm 5 contracts offered at 1.10
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (20
contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B 2 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Size Pro-Rata results in Customer A trading 5 contracts,
Customer B trading 2 contracts, LMM trading 11 contracts (15/45*33
remaining), MM1 trading 14 contracts (20/45*33), MM2 trading 7
contracts (10/45*33), and then LMM based on time receiving an
additional 1 lot.
LMM allocation would result in Customer A trading 5 contracts,
Customer B trading 2 contracts, and LMM trading 40% of remaining 33
contracts= 13 (13.2 rounded down); then Size Pro-Rata for remaining
with MM1 trading 13 contracts (20/30*20) and MM2 trading 6 contracts
(10/30*20) and LMM trading an additional 1 lot based on time.
Pursuant to proposed Chapter VI, Section 10(1)(C)(2)(ii)(1), LMM
allocation would prevail in this example because the LMM receives
greater allocation.
Example Number 4:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10 comprised of the following in order of
receipt
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer A 10 contracts offered at 1.10
Firm 15 offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (10 contracts)
Market Maker 2: 1.00 bid (10contracts)--1.10 offer (10
contracts)
Customer B: 10 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Size Pro-Rata results in Customer A trading 10 contracts,
Customer B trading 10 contracts, LMM trading 6 contracts (10/30*20
remaining rounded down), MM1 trading 6 contracts (10/30*20), MM2
trading 6 contracts (10/30*20), and then MM1 and LMM based on time
each receiving an additional 1 lot.
LMM allocation would result in Customer A trading 10 contracts,
Customer B trading 10 contracts, and LMM trading 40% of remaining 20
contracts = 8; then normal pro rata resumes with MM1 and MM2 each
being allocated 6 contracts.
[[Page 38625]]
Pursuant to proposed Chapter VI, Section 10(1)(C)(2)(ii)(1), LMM
allocation would prevail in this example because the LMM receives
greater allocation.
Example Number 5:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Firm 25 offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (20 contracts)
Market Maker 2: 1.00 bid (5 contracts)--1.10 offer (10
contracts)
Market Maker 3 1.00 bid (10 contracts)--1.10 offer (20
contracts)
Customer B: 2 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Size Pro-Rata results in Customer B trading 2 contracts, MM1
trading 6 contracts (10/60*38), LMM trading 12 (20/60*38), MM2
trading 6 contracts (10/60*38), and MM3 trading 12 contracts (20/
60*38) and then MM1 and LMM each trading an additional 1 contract
based on time.
LMM allocation would result in Customer B trading 2 contracts
and LMM trading 30% of remaining 38 contracts = 11 (11.4 rounded
down); then normal pro rata resumes and MM1 trades 6 contracts (10/
40*27), MM2 trades 6 (10/40*27), and MM3 trades 13 contracts (20/
40*27) and MM1 and LMM each trade an additional 1 lot based on time.
Size Pro-Rata allocation would prevail because the LMM receives
greater allocation that way pursuant to proposed Chapter VI, Section
10(1)(C)(2)(ii)(1).
With respect to Price/Time executions, the Exchange proposes to
provide that the highest bid and lowest offer shall have priority
except that Public Customer orders shall have priority over non-Public
Customer orders at the same price. Today, Public Customer orders do not
have priority over non-Public Customer orders at the same price. If
there are two or more Public Customer orders for the same options
series at the same price, priority shall be afforded to such Public
Customer orders in the sequence in which they are received by the
System. For purposes of this Rule, a Public Customer order does not
include a Professional Order. Public Customer Priority is always in
effect when Price/Time execution algorithm is in effect.\37\ The
Exchange is proposing to add a sentence to the rule text at Chapter VI,
Section 10(1)(C)(1)(a) to state that Public Customer Priority is always
in effect when the Price/Time execution algorithm is in effect. This is
a substantive change which will provide Public Customer orders with
priority over non-Public Customer orders at the same price for
executions under the Price/Time execution algorithm. Similar language
is also being added to Chapter VI, Section 10(1)(C)(2)(i) to conform
the Size Pro-Rata language for clarity. Public Customer priority has
been in effect when the Size Pro-Rata execution algorithm has been in
effect. This amendment to the Size Pro-Rata language seeks to clarify
Public Customer priority with respect to that algorithm. The Public
Customer priority overlay recognizes the unique status of customers in
the marketplace and the role their orders play in price competition and
adding depth to the marketplace.
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\37\ See proposed Chapter VI, Section 10(1)(C)(1)(a).
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The Exchange proposes that LMM participant entitlements may be in
effect when the Public Customer Priority Overlay is also in effect.
After all Public Customer orders have been fully executed, upon receipt
of an order, provided the LMM's bid/offer is at the Exchange's
disseminated price, the LMM will be afforded a participation
entitlement.\38\ The LMM shall not be entitled to receive a number of
contracts that is greater than the displayed size associated with such
LMM. A BX Options LMM shall receive the greater of: (a) Contracts the
LMM would receive if the allocation was based on time priority with
Public Customer priority; (b) 50% of remaining interest if there is one
or no other Market Maker at that price; (c) 40% of remaining interest
if there are two other Market Makers at that price; or (d) 30% of
remaining interest if there are more than two other Market Makers at
that price or if rounding would result in an allocation of less than
one contract, a BX Options LMM shall receive one contract. Rounding
will be up or down to the nearest integer.
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\38\ Price Improving Orders will retain price priority before an
LMM participation entitlement is provided at the Exchange's
disseminated price. See Chapter VI, Sections 1(a)(6) and 7(b)(3)(B).
---------------------------------------------------------------------------
Orders for 5 contracts or fewer shall be allocated to the LMM. The
Exchange will review this provision quarterly and will maintain the
small order size at a level that will not allow orders of 5 contracts
or less executed by the LMM to account for more than 40% of the volume
executed on the Exchange.
Several examples of the manner in which an LMM will be allocated
pursuant to the Price/Time model follow below.
Example Number 1:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer A: 5 contracts offered at 1.10
Firm 5 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (20 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B: 2 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Price/Time with Customer priority results in Customer A trading
5 contracts, Customer B trading 2 contracts, Market Maker 1 trading
10 contracts, LMM trading 20 contracts, and Firm trading 3 contracts
LMM allocation would result in Customer A trading 5 contracts,
Customer B trading 2 contracts, and LMM trading 40% of remaining 33
contracts = 13 (13.2 rounded down); then normal price time resumes
and Market Maker1 trades 10 contracts, Firm trades 5 contracts, and
LMM trades an additional 5 contracts
Price/Time with Customer priority would prevail because LMM
allocation results in a greater allocation pursuant to proposed
Chapter VI, Section 10(1)(a).
Example Number 2:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer A 10 contracts offered at 1.10
Firm 15 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (10 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B 10 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Price/Time with Customer priority results in Customer A trading
10 contracts, Customer B trading 10 contracts, Market Maker 1
trading 10 contracts, Firm trading 10 contracts
LMM allocation would results in Customer A trading 10 contracts,
Customer B trading 10 contracts, and LMM trading 40% of remaining 20
contracts = 8; then Price/Time resumes and Market Maker 1 trades 10
contracts and Firm trades 2 contracts
LMM allocation would prevail because the LMM receives a greater
allocation with this calculation pursuant to proposed Chapter VI,
Section 10(1)(C)(1)(b)(1).
Example Number 3:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Firm 25 contracts offered at 1.10
LMM 1.00 bid (10 contracts)--1.10 offer (20 contracts)
Customer B 2 contracts offered at 1.10
Incoming Order to pay 1.10 for 40 contracts
Allocated as follows:
Price/Time with Customer priority results in Customer B trading
2 contracts, Market Maker 1 trading 10 contracts, Firm trading 25
contracts, and LMM trading 3 contracts
[[Page 38626]]
LMM allocation would result in Customer B trading 2 contracts
and LMM trading 50% of remaining 38 contracts = 19; then normal
price time resumes and MM1 trades 10 contracts and Firm trades 9
contracts
LMM allocation would prevail because the LMM receives a greater
allocation with this calculation pursuant to proposed Chapter VI,
Section 10(1)(C)(1)(b)(1).
Example Number 4:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Firm 5 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (20 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B 1 contract offered at 1.10
Incoming Order to pay 1.10 for 5 contracts
Allocated as follows:
Customer B trades 1 contract at 1.10
LMM trades 4 contracts at 1.10
Example Number 5:
ABBO = 1.00-1.10
BX BBO = 1.00-1.10
Orders/Quotes entered into Trading System in the following order of
receipt:
Market Maker 1: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer A: 1 contract offered at 1.10
Firm 5 contracts offered at 1.10
LMM: 1.00 bid (10 contracts)--1.10 offer (3 contracts)
Market Maker 2: 1.00 bid (10 contracts)--1.10 offer (10
contracts)
Customer B 2 contracts offered at 1.10
Incoming Order to pay 1.10 for 5 contracts
Allocated as follows:
Customer A trades 1 contract at 1.10
Customer B trades 2 contracts at 1.10
LMM trades 2 contracts at 1.10
The Exchange desires to implement this rule change by rolling out
the rule amendments on an option-by-option basis over a period of time.
The Exchange would issue Options Trader Alerts in advance to inform
market participants which symbols will be implemented on which dates.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \39\ in general, and furthers the objectives of Section
6(b)(5) of the Act \40\ in particular, in that it 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 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. BX Options operates in an
intensely competitive environment and seeks to offer the same services
that its competitors offer and in which its customers find value.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78f(b).
\40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that requiring Market Makers to provide
continuous two-sided quotations 60% of the trading day (as a percentage
of the total number of minutes in such trading day) or such higher
percentage as BX may announce in advance continues to promote just and
equitable principles of trade, and to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities. Further, the Exchange would apply the quoting requirement
to all of a Market Maker's registered options collectively to all
appointed issues, rather than on an option-by-option basis and
compliance with this obligation will be determined on a monthly basis.
The proposal supports the quality of the Exchange's market by
helping to ensure that Market Makers will continue to be obligated to
quote in series when necessary. Ultimately, the benefit the proposed
rule change confers upon Market Makers is offset by the continued
responsibilities to provide significant liquidity to the market to the
benefit of market participants. While under the proposal there are
quoting requirements changes, the Exchange does not believe that these
changes reduce the overall obligations applicable to Market Makers.\41\
Moreover, the Exchange believes that the proposal may increase market
making activity on the Exchange and the quality of the Exchange's
market by establishing quoting compliance standards that are reasonable
and already in place on other options exchanges.\42\
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\41\ In this respect, the Exchange notes that such Market Makers
are subject to many obligations aside from quoting, including, for
example, the obligation to maintain a fair and orderly market in
their appointed classes, and the obligation to conduct the opening
and enter continuous quotations in all of the series of their
appointed options classes within maximum spread requirements.
\42\ See supra note 4.
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The proposed rule change also protects investors and the public
interest by creating more uniformity and consistency among the
Exchange's rules related to Market Maker quoting obligations. Providing
Market Makers with flexibility by providing the continuous quoting
obligation collectively across all option classes will not diminish the
Market Makers' obligation to continuously quote a significant part of
the trading day in a significant percentage of series. Additionally,
with respect to compliance standards, the Exchange believes that
adopting the proposed standards will enhance compliance efforts by
Market Makers and the Exchange, and are consistent with requirements
currently in place on other options exchanges (e.g. BATS Rule
22.6(d)(3) and Phlx Rule 1014). The proposal ensures that compliance
standards for continuous quoting, in particular regarding quoting
obligations applying to all of a Market Maker's appointed issues
collectively, will be the same on the Exchange as on other options
exchanges. The Exchange believes that the proposal will not diminish
and in fact may increase, market making activity on the Exchange by
establishing quoting compliance standards that are reasonable and
already in place on other options exchanges.
The proposed rules relating to LMM allocations seek to establish
and promote just and equitable principles of trade by requiring each
market maker who desires to be an LMM to submit an application to the
Exchange providing certain basic information and other information as
necessary. The solicitation process is intended to provide all LMMs an
opportunity to seek allocations by requiring allocation applications to
be submitted in writing to the Exchange with certain information. The
Exchange intends to foster cooperation and coordination with LMMs by
requiring information concerning the LMM's experience and
capitalization and other information to ensure that an LMM is qualified
when allocated option series. LMMs would be required to update
information accordingly once they are assigned in an option series.
Exchange staff seeks to allocate option series by considering a
number of factors including but not limited to, the number and type of
securities in which applicants are currently registered; the capital
and other resources of the applicant; recent allocation decisions
within the past eighteen months; the desirability of encouraging the
entry of new LMMs into the Exchange's market; order flow commitments;
any prior transfers of LMM privileges by the applicant and the reasons
therefore; quality of markets data; and observance of ethical standards
and administrative responsibilities and such policies as the Board
instructs the Exchange to follow in allocating or reallocating
securities. These factors are intended to assist the Exchange in
determining which LMMs qualify for allocations and the LMM's ability to
meet its obligations. The process of allocating securities
[[Page 38627]]
considers such factors to protect investors and the public interest by
allocating to qualified and responsible Options Participants. Further,
an LMM may be called upon by BX Regulation to submit a single quote or
maintain continuous quotes in one or more series of an option issue
within its appointment whenever, in the judgment of BX Regulation, it
is necessary to do so in the interest of maintaining fair and orderly
markets. An LMM will be compelled to buy/sell a specified quantity of
option contracts at the disseminated bid/offer pursuant to his
obligations with respect to firm quotes.
With respect to an LMM's obligations, the Exchange would require
LMMs be subject to heightened standards as compared to other market
makers. An LMM must provide continuous two-sided quotations throughout
the trading day in its appointed issues for 90% of the time the
Exchange is open for trading in each issue. Such quotations must meet
the legal quote width requirements herein. These obligations will apply
to all of the LMMs appointed issues collectively, rather than on an
option-by-option basis. Compliance with this obligation will be
determined on a monthly basis. BX Regulation may consider exceptions to
the requirement to quote 90% (or higher) of the trading day based on
demonstrated legal or regulatory requirements or other mitigating
circumstances. However, determining compliance with the continuous
quoting requirement on a monthly basis does not relieve an LMM of the
obligation to provide continuous two-sided quotes on a daily basis, nor
will it prohibit the Exchange from taking disciplinary action against
an LMM for failing to meet the continuous quoting obligation each
trading day.
LMM's transactions should constitute a course of dealings
reasonably calculated to contribute to the maintenance of a fair and
orderly market, and no LMM should enter into transactions or make bids
or offers that are inconsistent with such a course of dealings. An LMM
is expected to engage, to a reasonable degree under the existing
circumstances, in dealings for his own account when there exists, or it
is reasonably anticipated that there will exist, a lack of price
continuity, a temporary disparity between the supply of and demand for
a particular option contract, or a temporary distortion of the price
relationships between option contracts of the same class. The Exchange
will obligate an LMM to certain conduct including: (1) To compete with
other LMMs to improve the market in all series of options classes to
which the LMM is appointed; (2) to make markets that will be honored
for the number of contracts entered into the Trading System in all
series of options classes within the LMM's appointment; (3) to update
market quotations in response to changed market conditions in all
series of options classes within the LMM's appointment; (4) to quote
with a difference not to exceed $5 between the bid and offer regardless
of the price of the bid; (5) to establish quote width differences other
than as provided in subparagraph (4) for one or more options series;
and (6) certain permissible price differentials.
With respect to classes of option contracts outside of their
appointment, LMMs will not be permitted to engage in transactions for
an account in which they have an interest that are disproportionate in
relation to, or in derogation of, the performance of their obligations
as specified in this Rule with respect to the classes in their
appointment. LMMs are also prohibited from entering into certain
agreements that may undermine the LMMs obligations.
The Exchange believes that the obligations set forth for LMMs in
its proposed rules will promote just and equitable principles of trade,
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and, in general, to protect
investors and the public interest.
The Exchange believes that offering LMMs participation entitlements
promotes just and equitable principles of trade because LMMs will be
held to a higher standard as compared to other market participants
including Market Makers. A Market Maker would be required, pursuant to
this proposal, to quote 60% of the trading day. LMMs are being held to
a higher obligation and therefore are being rewarded with participation
entitlements. Similar to Market Makers, LMMs add value through
continuous quoting \43\ and the commitment of capital.
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\43\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a market maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. See Chapter VII, Section
5. Further, all Market Makers are designated as specialists on BX
for all purposes under the Act or rules thereunder. See Chapter VII,
Section 2.
---------------------------------------------------------------------------
In addition, the LMM quoting requirements promote liquidity and
continuity in the marketplace in requiring LMMs to be held to a higher
standard of quoting. The Exchange also believes that the proposed rule
change supports the quality of the Exchange's markets because it
maintains the quoting obligations of Market Makers as LMMs at 90%. LMM
transactions must constitute a course of dealings reasonably calculated
to contribute to the maintenance of a fair and orderly market.
Accordingly, the proposed rule change supports the quality of the
Exchange's trading markets by helping to ensure that LMMs will be
required to meet a higher quoting standard in order to reap the
benefits of the participation entitlements. The Exchange believes this
proposed change to offer participation entitlements to LMMs is offset
by LMMs' continued responsibilities to provide significant liquidity to
the market to the benefit of market participants.
The Exchange's proposal to add a sentence to the rule text at
Chapter VI, Section 10(1)(C)(1)(a) to state that Public Customer
Priority is always in effect when the Price/Time execution algorithm is
in effect and also add language to Chapter VI, Section 10(1)(C)(2)(i)
to conform the Size Pro-Rata language for clarity recognizes the unique
status of customers in the marketplace and the role their orders play
in price competition and adding depth to the marketplace. The Exchange
believes that the Public Customer priority overlay is designed to
promote just and equitable principles of trade and to protect investors
and the public interest.
The proposed rule change also removes impediments to and allows for
a free and open market, while protecting investors, by promoting
transparency regarding LMMs' obligations and benefits in the Exchange
Rules. In addition, the Exchange believes that the proposed rule change
is designed to not permit unfair discrimination among LMMs.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. Market Makers will be subject to quoting obligations which are
similar to those at other options exchanges.\44\ The obligations would
apply to all of a Market Maker's registered options collectively to all
appointed issues, rather than on an option-by-option basis and
compliance with this obligation will be determined on a monthly basis.
[[Page 38628]]
Further, Exchange believes that because this proposal establishes
quoting compliance standards that are already in place on other options
exchanges, the proposal will not diminish, and in fact may increase,
market making activity on the Exchange and thereby enhance intermarket
competition. Moreover, the proposed rule change will not impose any
burden on intra-market competition because it will affect all Market
Makers the same. LMMs will be subject to heightened quoting obligations
as compared to other BX Market Makers. All market makers that desire to
apply to become LMMs will be subject to the same review and scrutiny
with respect to their LMM application and the ultimate assignment of
options series.
---------------------------------------------------------------------------
\44\ See supra note 3.
---------------------------------------------------------------------------
The Exchange does not believe the proposed rule change will cause
any unnecessary burden on intra-market competition because it provides
all market participants that qualify as LMMs and meet the required
criteria and fulfill the required obligations the opportunity to
benefit from participation entitlements. The Exchange believes that the
proposed rule change will promote competition among LMMs who desire to
be assigned in options series and in turn promote trading activity on
the Exchange to the benefit of the Exchange, its Members, and market
participants.
The Exchange does not believe the proposed change will cause any
unnecessary burden on inter-market competition because any qualifying
LMM will be entitled to receive participation entitlements on options
series they are obligated to quote in under the Rules. In addition, the
Exchange believes that the proposed rule change will in fact promote
competition. The Exchange believes allowing LMMs to receive
participation entitlements will promote trading activity on the
Exchange because it will provide incentives to LMMs to quote in series
which they are not obligated to do so, to the benefit of the Exchange,
its Members, and market participants.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve or disapprove such proposed rule change; or
(B) institute proceedings to determine whether the proposed rule
change should be 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2014-035 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2014-035. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
All submissions should refer to File Number SR-BX-2014-035 and
should be submitted on or before July 29, 2014.
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\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-15792 Filed 7-7-14; 8:45 am]
BILLING CODE 8011-01-P