[Federal Register: July 18, 2008 (Volume 73, Number 139)]
[Notices]
[Page 41384-41386]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jy08-122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58140; File No. SR-BSE-2008-40]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to a New Quote Removal Mechanism Upon Technical Disconnect
July 10, 2008.
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 July 8, 2008, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Exchange filed the proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act,\3\ and Rule 19b-4(f)(5)
thereunder,\4\ which renders the proposal effective upon filing with
the Commission. The Commission is publishing this notice to solicit
comments on the proposed rule from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(5).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend Chapter VI of the Boston Options
Exchange Group LLC (``BOX'') Rules to add Section 16, Quote Removal
Mechanism Upon Technical Disconnect (``Quote Removal Mechanism''). The
text of the proposed rule change is available at http://
www.bostonstock.com, the principal office of the Exchange, and the
Commission's Public Reference Room.
[[Page 41385]]
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend the BOX Rules to add a new Quote
Removal Mechanism in order to protect BOX Market Makers in the event
that they lose communication with the BOX Trading Host \5\ due to a
loss of connectivity between their designated BOX Gateway \6\ and the
BOX Trading Host.
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\5\ References herein to the term Trading Host will have the
meaning as set forth in Section 1(a)(65) of Chapter I of the BOX
Rules.
\6\ A ``Gateway'' is the system component through which Market
Makers communicate their quotes to the Trading Host. See Proposed
Chapter VI, Section 16, Supplementary Material .01, BOX Rules.
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BOX Market Makers currently enter quotes into the Trading Host via
Gateways. BOX currently has several Gateways, and multiple Market
Makers may connect to the Trading Host through a single Gateway. All
the quotes for each class to which a Market Maker is assigned may be
sent through a particular Gateway or, alternatively, a single Market
Maker may have the quotes for separate classes to which it is assigned
sent through different Gateways. Under the proposed rule, if the
Trading Host does not receive any Heartbeat messages (``Heartbeat'')
\7\ from a Gateway for a specified period of time, the Quote Removal
Mechanism will automatically cancel all Market Maker quotes that were
posted through the affected Gateway.
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\7\ A Heartbeat message is a communication which acts as a
virtual pulse between a Gateway and the Trading Host. The Heartbeat
message sent by the Gateway and subsequently received by the Trading
Host allows the Trading Host to continually monitor its connection
with the Gateways.
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As proposed, the Quote Removal Mechanism will monitor the
connections between the Trading Host and the Gateways. The Trading Host
will continuously count the number of seconds (``n'') (the ``Counter'')
since the last Heartbeat message was received from a particular
Gateway. Each Heartbeat message received by the Trading Host from a
particular Gateway will restart the Counter for that particular
Gateway. The Quote Removal Mechanism will be triggered, and a Market
Maker's quotes will automatically be removed from the Trading Host, if
the Counter reaches ``n'' seconds.
Any non-connectivity is Gateway-specific. Therefore, the
cancellation of the Market Makers' quotes entered into the Trading Host
via a particular Gateway will neither impact nor determine the
treatment of the quotes of the same or other Market Makers entered into
the Trading Host via a separate and distinct Gateway. After the Quote
Removal Mechanism is employed, and upon a reconnection between the
Gateway and the Trading Host, the Trading Host will send a message to
the affected Market Makers informing them that their quotes through the
specific affected Gateway have been automatically cancelled.
The period of non-connectivity that will trigger the removal of the
Market Makers' quotes via the Quote Removal Mechanism will be standard
for all Market Makers.\8\ The Quote Removal Mechanism will be enabled
for all Market Makers on their appointed options classes during the
trading day and may not be disabled by the Market Makers.
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\8\ The Exchange will notify Market Makers via Regulatory
Circular as to the setting of ``n'' seconds. This value will be
configurable by the Exchange and any subsequent re-configurations
will be announced to Market Makers via Regulatory Circular. In no
event shall ``n'' seconds be set for less than one (1) second or
greater than nine (9) seconds.
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The following examples illustrate the manner in which the Quote
Removal Mechanism will function: \9\
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\9\ For the purposes of this example only, ``n'' will be set at
5 seconds.
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(1) 11:30:00--Counter starts
11:30:02--Trading Host receives a Heartbeat message from Gateway 1.
Counter re-starts
(2) 3:30:00--Counter starts
3:30:02:--Trading Host receives a Heartbeat message from Gateway 1.
Counter re-starts
3:30:07--No Heartbeat messages received from Gateway 1 after 5
seconds. Pursuant to the proposed Quote Removal Mechanism, all Market
Maker quotes entered through Gateway 1 are removed from the Trading
Host.
As demonstrated above, the Counter will restart for a Gateway each
time the Trading Host receives a Heartbeat message from that particular
Gateway. Once connectivity to the Gateway is reestablished, the Market
Makers affected by the mechanism will be able to send messages to the
Trading Host in order to reestablish their quotes. Any quotes affected
by the Quote Removal Mechanism, including quotes that are removed from
the Trading Host and/or quotes sent to BOX during the period of non-
connectivity, will not be taken into account when determining whether a
Market Maker has fulfilled its continuous quoting obligations on
BOX.\10\ Only after connectivity to the Gateway has been reestablished
will quotes once again be taken into account for this purpose.
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\10\ See Section 6(d) of Chapter VI of the BOX Rules.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\11\ in general, and Section
6(b)(5) of the Act,\12\ in particular, in that the proposal is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to 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 this proposed rule change will benefit the
marketplace because it will reduce the risk of erroneous or stale
quotes on the BOX Book in the event that the Trading Host loses
connectivity with a Gateway. Furthermore, the proposed Quote Removal
Mechanism will provide for the protection of Market Makers, who must
bear the burden of market risk for stale quotes caused by circumstances
outside of their control, as well as for the protection of investors
and the efficiency and fairness of the markets as a whole.
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\11\ 15 U.S.C. 78f(b).
\12\ 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
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 41386]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
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)(iii) of the Act \13\ and Rule 19b-4(f)(5) \14\ thereunder
because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) have the effect of
limiting the access to or availability of an existing order entry or
trading system of the Exchange.
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 19b-4(f)(5).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate the rule change if it
appears to the Commission that the action is necessary or appropriate
in the public interest, for the protection of investors, or would
otherwise further the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-BSE-2008-40 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, Station Place, 100 F Street, NE., Washington,
DC 20549-1090.
All submissions should refer to File Number SR-BSE-2008-40. This
file number should be included on the subject line if e-mail 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 inspection
and copying 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 such filings also will be available for
inspection and copying at the principal office of BSE. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-BSE-2008-40 and should be
submitted on or before August 8, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16401 Filed 7-17-08; 8:45 am]
BILLING CODE 8010-01-P