This PDF is the current document as it appeared on Public Inspection on 03/08/2012 at 08:45 am.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)  and Rule 19b-4 thereunder, notice is hereby given that on February 22, 2012, NASDAQ OMX BX, Inc. (“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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Chapter V, Section 26 (Limitation of Liability) of the Rules of the Boston Options Exchange Group, LLC (“BOX”). The text of the proposed rule change is available from the principal office of the Exchange, at the Commission's Public Reference Room and also on the Exchange's Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.
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
Chapter V, Section 26 of the BOX Trading Rules provides, in general, that neither the Exchange, BOXR, BOX, nor any of their respective affiliates with regard to BOX will be liable to BOX Options Participants for any losses arising from the use of BOX or the BOX Trading Host. The Exchange is proposing to codify provisions within the BOX Trading Rules that permit BOX, for customer service reasons, to compensate an Options Participant, within specified limits as proposed, for certain identified losses. Additionally, the Exchange is proposing to clarify certain provisions within Section 26 regarding to whom it is applicable.
Accordingly, the Exchange proposes to amend Chapter V, Section 26 of the BOX Trading Rules to (1) clarify certain provisions within Section 26 regarding to whom the liability limitation applies; (2) codify provisions within the BOX Rules to permit BOX to compensate Participants for losses under certain circumstances; and (3) establish the maximum amount of such compensation that BOX may provide during a calendar month pursuant to Section 26.
The Exchange proposes to clarify Section 26(a) by adding the respective directors, officers, committee members, employees, contractors, agents, and other persons acting on the behalf of the Exchange, BOXR, BOX and any of their respective affiliates to the paragraph that identifies the persons to which the limitation of liability is applicable. The Exchange proposes that “Exchange Related Persons and/or Entities” be defined to include the Exchange, BOXR, BOX, and any of their respective affiliates, and their respective directors, officers, committee members, employees, contractors, and agents or other persons acting on their behalf. The Exchange proposes corresponding changes in Sections 26(a)(ii), 26(a)(iii), and in Sections 26(b), 26(c) and 26(d) to add references to the defined term Exchange Related Persons and/or Entities. Additionally, the Exchange proposes to add terrorism to the list of items beyond the control of Exchange Related Persons and/or Entities for which liability is limited.
The Exchange proposes adding new Section 26(e) to establish, subject to the express limits set forth in Section 26(e)(1) through 26(e)(3), that BOX may compensate Options Participants for losses resulting directly from the malfunction of the physical equipment, devices, or programming of Exchange Related Persons and/or Entities, or from the negligent acts or omissions of employees of the Exchange, BOXR or BOX.
Under the proposal, BOX's payments for the aggregate of all claims made by all Options Participants during a single calendar month would not exceed the larger of $500,000, or the amount of any recovery obtained by BOX under any applicable insurance maintained by BOX. Additionally, in the event that all of the claims made during a single calendar month cannot be fully satisfied because they exceed the applicable maximum limitation, then the maximum permitted amount will be proportionally allocated among all such claims. Finally, the Exchange proposes that all claims for compensation under the new proposed provisions must be submitted in writing no later than 12 p.m. ET on the next business day following the day on which the use of BOX gave rise to such claims. Once in receipt of a claim, BOX will verify that: (i) a valid order was accepted into BOX; and (ii) any loss claimed resulted directly from the malfunction of the physical equipment, devices, or programming of Exchange Related Persons and/or Entities, or from the negligent acts or omissions of employees of the Exchange, BOXR or BOX during the execution or handling of that order. BOX will only compensate Participants for valid claims, and will compensate such Participants at the end of the month.
BOX represents that the determination to compensate a BOX Options Participant will be made on an equitable and non-discriminatory basis without regard to whether the Participant is a Market Maker or Order Flow Provider on BOX, and that such determinations will be made pursuant to procedures of BOX Market Operations Center (“MOC”) with regulatory oversight established by BOXR. Additionally, BOX represents that BOX will maintain a record of Participant claims including documentation detailing its findings and details for approving or denying claims in accordance with its obligations under Section 17 of the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act, in general, and Section 6(b)(5) of the Act, in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. In particular, the proposal will amend Chapter V, Section 26 of the BOX Trading Rules to codify provisions within the BOX Rules to permit BOX to compensate Participants for losses resulting directly from the malfunction of the physical equipment, devices, and/or programming of Exchange Related Persons and/or Entities, or from the negligent acts or omissions of employees of the Exchange, BOXR or BOX, and to establish the maximum amount of such compensation that BOX may provide during a calendar month.
Additionally, the Exchange believes that the codification of these policies should add transparency to the BOX Rules and that its proposal to amend Chapter V, Section 26 will promote fairness in the national market system. The proposed change will allow BOX to address Participant claims under various circumstances, and allow BOX to act in a similar fashion as many of its competitors. Several exchanges have substantially similar rules and the Exchange believes that the proposed rule change would place BOX in a similar position to address Participant claims.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms, does not become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act  and Rule 19b-4(f)(6) thereunder.
The Exchange requested that the Commission waive the 30-day operative delay so that the proposed rule change would become effective and operative upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that the waiver will allow the Exchange to immediately implement the proposed rule change, which should promote fairness in the market by allowing BOX to compensate Options Participants for losses resulting directly from the malfunctions of the physical equipment, devices, or programming of Exchange Related Persons and/or Entities, or from the negligent acts or omissions of employees of the Exchange, BOXR, or BOX. The Commission also notes that the proposal is substantially similar to rules of other registered national securities exchanges and does not raise any new regulatory issues. For these reasons, the Commission designates the proposed rule change as operative upon filing.
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.
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:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an email to firstname.lastname@example.org. Please include File Number SR-BX-2012-011 on the subject line.
- 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-2012-011. 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/vsro.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 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 available publicly. All submissions should refer to File Number SR-BX-2012-011 and should be submitted on or before March 30, 2012.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Kevin M. O'Neill,
3. See proposed Section 26(a) of Chapter V of the BOX Rules.Back to Citation
6. See EDGA Exchange, Inc. (“EDGA”) Rule 11.12, NASDAQ Stock Market LLC (“NASDAQ”) Rule 4626, Chicago Board Options Exchange, Incorporated (“CBOE”), Rule 6.7, NYSE Arca, Inc. (“NYSE Arca”). Options Rule 14.2, International Securities Exchange, LLC (“ISE”), Rule 705, and BATS Exchange, Inc. (“BATS”) Rule 11.16.Back to Citation
8. 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its 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 fulfilled this requirement.Back to Citation
9. For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).Back to Citation
10. See supra note 6.Back to Citation
[FR Doc. 2012-5731 Filed 3-8-12; 8:45 am]
BILLING CODE 8011-01-P