NASDAQ OMX BX, Inc. (Exchange) filed a proposed rule change to eliminate and modify certain rules of the Boston Options Exchange Group, LLC (BOX) which deal with so-called “fast markets.” The Exchange believes that “fast market” conditions do not occur on the electronic and automated BOX market. Generally, a fast market is characterized by heavy trading and high price volatility in which orders may be submitted to market makers at such a rapid pace that a backlog of orders builds, causing delays in execution. If such a fast market occurred, delays could in turn cause significant price differentials between the quoted price and executed price.
Under BOX’s current rules, if BOX determined the market in the option to be “fast,” it could take various steps including suspending minimum size requirements for quotations, turning off the Price Improvement Period process or taking other actions in order to promote a fair and orderly market. Because BOX does not have a trading floor and all orders are received and managed electronically, all orders on BOX are executed with matching contra orders within a fraction of a second after the matching quote is received. As a result, BOX has stated that any backlog in processing orders would be a result of a systems malfunction rather than from fast market conditions. Accordingly, the Exchange believes that its fast market rules should be modified. Read more.