[Federal Register Volume 77, Number 97 (Friday, May 18, 2012)]
[Notices]
[Pages 29730-29740]
[FR Doc No: 2012-12034]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66983; File No. SR-BX-2012-030]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change, as Modified by Amendment No. 1,
Relating to the Establishment of a New Options Market, NASDAQ OMX BX
Options

May 14, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on May 1, 2012, NASDAQ OMX BX, Inc. (``Exchange'' or ``BX'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II and III, below,
which Items have been prepared by the Exchange. On May 8, 2012, the
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made several technical and clarifying
changes to the proposal, as well as minor changes to the definitions
of the terms ``primary market'' and ``Intermarket Sweep Order.'' See
Amendment No. 1.

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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    BX is filing with the Commission a proposal for a new options
market. Specifically, BX proposes to adopt new trading rules, as
explained further below, to operate a fully automated, price/time
priority execution system built on the core functionality of the NASDAQ
Options Market (``NOM'').
    The text of the proposed rule change is available at the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com/, at BX's principal
office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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 operate a new options
market, identical to (but separate from) the NASDAQ Options Market
(``NOM'').\4\ The new market, called NASDAQ OMX BX Options, or BX
Options, will be all-electronic with no physical trading floor and is
described more fully below.
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    \4\ There are several differences between the rules of NOM today
and the proposed new options market, which NASDAQ intends to amend
by submitting a proposed rule change shortly. Once these changes are
in place, the rules of NOM and the rules of the new market will be
the same. See Amendment No. 1.
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    BX is a registered national securities exchange and a self-
regulatory organization (``SRO''). BX is a wholly-owned subsidiary of
The NASDAQ OMX Group, Inc. BX will operate the BX Options market.
    BX's history dates back to the 1830s. For many years, the Boston
Stock Exchange (``BSE'') listed the securities of companies in the
Boston area, but then, in more recent years, BSE traded securities
mainly on an unlisted trading privileges (``UTP'') basis with a trading
floor and an automated order delivery and execution system. As such,
the BSE was an active competitor among the equities markets, pioneering
a system of competing specialists and remote competing specialists. BSE
partnered with various investors to form Boston Options Exchange
(``BOX'') to trade options, which launched in 2004.\5\ In 2008, BSE
merged into a subsidiary of The NASDAQ OMX Group, Inc. creating NASDAQ
OMX BX. BX re-launched an equities marketplace utilizing state of the
art NASDAQ technology, having closed its floor-based market, and today
competes with many other markets in trading NMS stocks.
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    \5\ The NASDAQ OMX Group, Inc. does not own BOX, which has
operated as a facility of BX and is currently pursuing its own
status as a national securities exchange and SRO. Going forward,
once BOX becomes an exchange, BX will no longer provide regulatory
services to BOX. See Securities Exchange Act Release No. 66242
(January 26, 2012), 77 FR 4841 (January 31, 2012) (BOX Options
Exchange LLC; Notice of Filing of Application, as amended, for
Registration as a National Securities Exchange under Section 6 of
the Act).
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    Consistent with that storied history as a long-time competitor in
the U.S. markets, BX now proposes to launch an options market. BX
Options will leverage the technology and infrastructure that have
helped spawn the success of both NOM and NASDAQ OMX PHLX LLC
(``PHLX''). Accordingly, BX believes that it can compete effectively as
an options market, recognizing that there are nine options exchanges
today competing vigorously. Initially, BX Options will have the same
market structure and rules as NOM, focusing on a price/time priority
market. Over time, as the BX Options market secures more participants,
it will introduce additional, innovative technology.
    In connection with its BX Options market, BX is proposing to adopt
a series of rules based on the existing rules of NOM. BX will operate
an electronic trading system developed to trade options (``System'' or
``Trading System'') that will provide for the electronic display and
execution of orders in price/time priority without regard to the status
of the entities that are entering orders.
Trading System
    BX's options trading system will leverage current state of the art
technology, including customer connectivity, messaging protocols,
quotation and execution engine, order router, data feeds, and network
infrastructure of the various markets owned by The NASDAQ OMX Group,
Inc. This approach minimizes the technical effort required for existing
BX members to begin trading options on the BX Options market. As a
result, the BX Options market will closely resemble NOM, including,
most prominently, by offering true price/time priority across all
orders and participants rather than differentiating between
participant/trading interest.
    Like on NOM, all trading interest entered into the System will be
automatically executable. Orders entered into the System will be
displayed anonymously and, as such, will trade anonymously.\6\ The BX
Options market will be a participant exchange of OCC. The System will
be linked to OCC for BX to transmit locked-in trades for clearance and
settlement. The System will operate between the hours of 8:00 a.m. ET
and market close, with all orders being available for execution from
9:30 a.m. to market close.
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    \6\ However, options trades are not completely anonymous through
settlement. See proposed BX Options Rules Chapter VI, Section 12.
Options trades are submitted to The Options Clearing Corporation
(``OCC'') with contra-side OCC member information.
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    Minimum Quotation and Trading Increments. BX is proposing to apply
the following quotation increments: (1) If the options series is
trading at less than $3.00, five cents; (2) if the options series is
trading at $3.00 or higher, ten cents; and (3) if the options series is
trading pursuant to the Penny Pilot Program,\7\ one cent if the options
series is trading at less than $3.00, and five cents if the options
series is trading at $3.00 or higher, except for QQQQ, SPY and IWM,
where the minimum quoting increment will be one cent for all series.\8\
In addition, BX is proposing that the minimum trading increment for
options contracts traded on BX will be one cent for all series.
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    \7\ BX will participate in the Penny Pilot Program.
    \8\ See proposed BX Options Rules, Chapter VI, Section 5.
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    BX notes that allowing market participants to quote in smaller
increments has been shown to reduce spreads, thereby lowering costs to
investors. In addition, permitting options to be quoted in smaller
increments pursuant to the Penny Pilot Program provides the opportunity
for reduced spreads for a significant amount of trading volume.
Although the Penny Pilot Program has contributed to the increase in
quote message traffic, BX believes that its proposal is sufficiently
limited such that it is unlikely to increase quotation message traffic
beyond the capacity of market participants' systems and disrupt the
timely receipt of information.

    Opening and Halt Crosses. The BX Options System will support a
single price opening or re-opening via an electronic cross.\9\ The
auctions at the opening and at the resumption of trading following a
halt are identical to those that exist on NOM. Since NOM commenced
trading in March of 2008, several enhancements have been made to the
opening and re-opening cross process. The incremental changes that have
been made to NOM's opening and re-opening cross have culminated in an
efficient and stable process that BX plans to replicate for BX Options.
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    \9\ See proposed BX Options Rules, Chapter VI, Section 8.
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    BX Options will operate a pre-opening phase that will begin prior
to the opening of the market at a time to be determined by the
Exchange. Orders may be submitted, modified, and cancelled throughout
the pre-opening phase. Prior to opening the market (or resuming trading
in the case of a halt), BX will calculate and disseminate certain
indicative information: opening price, order imbalance, and the size
and direction of any imbalance.\10\ Thereafter, BX will determine via
algorithm a single price at which a particular options series will open
and will match via algorithm the maximum number of available orders.
After the cross concludes, orders will be cancelled, routed, or posted
depending on the instructions on the orders and open trading will
commence.
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    \10\ See proposed BX Options Rules, Chapter VI, Section 8.
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    Order Types. The System will make available to Participants various
order types, including Limit Orders, Minimum Quantity Orders, Market
Orders, Price Improving Orders, Intermarket Sweep Orders, One-cancels-
the-other Orders, All-or-none Orders and Post-Only Orders, with
characteristics and functionality similar to what is currently approved
for use on NOM.\11\
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    \11\ See proposed BX Options Rules, Chapter VI, Section 1(d)
[sic].
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    ``Limit Orders'' are orders to buy or sell options at a specified
price or better. A limit order is marketable when, for a limit order to
buy, at the time it is entered into the System, the order is priced at
the current inside offer or higher, or for a limit order to sell, at
the time it is entered into the System, the order is priced at the
inside bid or lower.
    ``Minimum Quantity Orders'' are orders that require that a
specified minimum quantity of contracts be obtained, or the order is
cancelled. Minimum Quantity Orders are treated as having a time-in-
force designation of Immediate or Cancel (``IOC'').
    ``Market Orders'' are orders to buy or sell at the best price
available at the time of execution.
    ``Price Improving Orders'' are orders to buy or sell an option at a
specified price at an increment smaller than the minimum price
variation in the security. Price Improving Orders may be entered in
increments as small as one cent. Price Improving Orders that are
available for display will be displayed at the appropriate minimum
price variation in that security (rounding down to the proper increment
for buys, up to the proper increment for sells). The non-displayed
price of a Price Improving Order is therefore not included in the
National Best Bid and Offer (``NBBO'') and not subject to trade-through
protection, although it is available to trade against eligible incoming
orders.
    ``Intermarket Sweep Orders'' or ``ISOs'' are limit orders that are
designated as ISOs in the manner prescribed by BX and are executed
within the System at multiple price levels without respect to Protected
Quotations of other Eligible Exchanges as defined in Chapter XII,
Section 1. ISOs are not eligible for routing as set out in Chapter VI,
Section 11.\12\ Simultaneously with the routing of an ISO to the
System, one or more additional limit orders, as necessary, are routed
by the entering Participant to execute against the full displayed size
of any protected bid or offer (as defined in Chapter XII, Section 1) in
the case of a limit order to sell or buy with a price that is superior
to the limit price of the limit order identified as an ISO (as defined
in Chapter XII, Section 1). These additional routed orders must be
identified as ISOs.
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    \12\ Intermarket Sweep Orders or ISOs can have any time-in-force
designation except WAIT; GTC ISOs are treated as having a time-in-
force designation of Day. ISOs that are marked as Day or GTC lose
the ISO designation once posted on the BX Options book. If an
entering firm cancel/replaces that resting Day or GTC ISO order, the
replacement order cannot be marked as ISO; if the replacement is
marked as ISO, it will be rejected. See Amendment No. 1.
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    ``One-cancels-the-other'' shall mean an order entered by a Market
Maker that consists of a buy order and a sell order treated as a unit;
the full execution of one of the orders causes the other to be
canceled.
    ``All-or-none'' shall mean a market or limit order which is to be
executed in its entirety or not at all. All-or-none Orders are treated
as having a time-in-force designation of Immediate or Cancel. All-or-
none Orders received prior to the opening cross or after market close
will be rejected.
    ``Post-Only Orders'' are orders that will not remove liquidity from
the System. Post-Only Orders are to be ranked and executed on the
Exchange or cancelled, as appropriate, without routing away to another
market. Post-Only Orders are evaluated at the time of entry with
respect to locking or crossing other orders as follows: (i) If a Post-
Only Order would lock or cross an order on the System, the order will
be re-priced to $.01 below the current low offer (for bids) or above
the current best bid (for offers) and displayed by the System at one
minimum price increment below the current low offer (for bids) or above
the current best bid (for offers); and (ii) if a Post-Only Order would
not lock or cross an order on the System but would lock or cross the
NBBO as reflected in the protected quotation of another market center,
the order will be handled pursuant to Chapter VI, Section 7(b)(3)(C).
Post-Only Orders received prior to the opening cross or after market
close will be rejected. Post-Only Orders may not have a time-in-force
designation of Good Til Cancelled or Immediate or Cancel.
    Time-in-Force Designations. Participants entering orders into the
System may designate such orders to remain in force and available for
display and/or potential execution for varying periods of time.\13\
Unless cancelled earlier, once these time periods expire, the order (or
the unexecuted portion thereof) is returned to the entering
Participant.
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    \13\ See proposed BX Options Rules, Chapter VI, Section 1(g).
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    ``Immediate Or Cancel'' or ``IOC'' orders are orders that if after
entry into the System a marketable order (or unexecuted portion
thereof) becomes non-marketable, the order (or unexecuted portion
thereof) will be canceled and returned to the entering Participant. IOC
Orders will be available for entry from 8:00 a.m. until market close
and for potential execution from 9:30 a.m. until market close. IOC
Orders entered between 8:00 a.m. and 9:30 a.m. ET will be held within
the System until 9:30 a.m. at which time the System shall determine
whether such orders are marketable. IOC orders can be routed if
designated as routable.
    ``DAY'' orders are orders that if after entry into the System, the
order is not fully executed, the order (or unexecuted portion thereof)
will remain available for potential display and/or execution until
market close, unless canceled by the entering party, after which it
shall be returned to the entering party. DAY

Orders will be available for entry from 8:00 a.m. until market close
and for potential execution from 9:30 a.m. until market close.
    ``Good Til Cancelled'' or ``GTC'' orders are orders that if after
entry into the System, the order is not fully executed, the order (or
unexecuted portion thereof) will remain available for potential display
and/or execution unless cancelled by the entering Participant, or until
the option expires, whichever comes first. GTC Orders will be available
for entry from 8:00 a.m. until market close and for potential execution
from 9:30 a.m. until market close.
    ``WAIT'' shall mean for orders so designated, that upon entry into
the System, the order is held for one second without processing for
potential display and/or execution. After one second, the order is
processed for potential display and/or execution in accordance with all
order entry instructions as determined by the entering Participant.
    Order Display/Matching System The System will be based upon the
order display and execution functionality currently approved for use on
NOM. Specifically, the System will allow Participants to enter priced
limit orders to buy and sell BX Options-listed options. Orders entered
by a Participant will be displayed (price and size) on an anonymous
basis in the order display service of the System. Options Participants
will be permitted to enter multiple orders at single or multiple price
levels.
    Routing. BX Options will provide routing services to its
Participants. The BX Options market will support orders that are
designated to be routed to the NBBO as well as orders that will execute
only within the System. Orders that are designated as routable will be
routed to other options markets to be executed when BX Options is not
at the NBBO, consistent with the Options Order Protection and Locked/
Crossed Market Plan. The System will ensure that orders designated to
only execute within the System will not create a trade through or
locked or crossed market violation.\14\
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    \14\ See proposed BX Options Rules, Chapter VI, Section 11.
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    Orders sent by the System to other markets generally do not retain
time priority with respect to other orders in the System and the System
shall continue to execute other orders while routed orders are away at
another market center. Once routed by the System, an order becomes
subject to the rules and procedures of the destination market
including, but not limited to, order cancellation. A routed order can
be for less than the original incoming order's size. If a routed order
is subsequently returned, in whole or in part, that routed order, or
its remainder, shall receive a new time stamp reflecting the time of
its return to the System, unless any portion of the original order
remains on the System, in which case the routed order shall retain its
original timestamp and its priority.
    The order routing process shall be available to Participants from
9:30 a.m. ET until market close and shall route orders as described
below. Participants can designate orders as either available for
routing or not available for routing. All routing of orders shall
comply with Chapter XII, Options Order Protection and Locked and
Crossed Market Rules. The System provides a number of routing options
pursuant to which orders are sent to other available market centers for
potential execution, per the entering firm's instructions. Routing
options may be combined with all available order types and time-in-
force designations, with the exception of order types and time-in-force
designations whose terms are inconsistent with the terms of a
particular routing option. The term ``System routing table'' refers to
the proprietary process for determining the specific trading venues to
which the System routes orders and the order in which it routes them.
The Exchange reserves the right to maintain a different System routing
table for different routing options and to modify the System routing
table at any time without notice. The System routing options are SEEK
\15\ and SRCH.\16\ BX is not proposing, at this time, to route Non-
System Securities, which are securities not listed on the BX Options
market; the routing functionality will be limited to options listed on
BX.
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    \15\ SEEK is a routing option pursuant to which an order will
first check the System for available contracts for execution. After
checking the System for available contracts, orders are sent to
other available market centers for potential execution, per the
entering firm's instructions. When checking the book, the System
will seek to execute at the price at which it would send the order
to a destination market center. If contracts remain un-executed
after routing, they are posted on the book. Once on the book, should
the order subsequently be locked or crossed by another market
center, the System will not route the order to the locking or
crossing market center.
    \16\ SRCH is a routing option pursuant to which an order will
first check the System for available contracts for execution. After
checking the System for available contracts, orders are sent to
other available market centers for potential execution, per the
entering firm's instructions. When checking the book, the System
will seek to execute at the price at which it would send the order
to a destination market center. If contracts remain un-executed
after routing, they are posted on the book. Once on the book, should
the order subsequently be locked or crossed by another market
center, it will re-route.
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    BX Options intends to route orders in options using NASDAQ Options
Services LLC (``NOS''), a broker-dealer that is a member of BX. NOS is
also a member of PHLX and NASDAQ, and NOS provides routing functions
for PHLX and NOM as well. BX, PHLX, NASDAQ, NOM and NOS are
affiliates.\17\ Accordingly, the affiliate relationship between BX and
NOS, its member, raises the issue of an exchange's affiliation with a
member of such exchange. Specifically, in connection with prior
filings, the Commission has expressed concern that the affiliation of
an exchange with one of its members raises the potential for unfair
competitive advantage and potential conflicts of interest between an
exchange's self-regulatory obligations and its commercial
interests.\18\
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    \17\ In order for BX to provide outbound options routing
services, its affiliates, PHLX and NASDAQ/NOM, must each file a
proposed rule change to receive inbound orders from their affiliate
exchange, BX.
    \18\ See, e.g., Securities Exchange Act Release No. 58135 (July
10, 2008), 73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061)
(Permitting NOS to be affiliated with PHLX).
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    Because BX proposes to use NOS as its outbound routing facility,
providing outbound options routing from BX to other market centers,
including affiliates PHLX and NOM, BX proposes to do so under the
following conditions, which are the same as those found in NOM rules:
    (1) NOS shall route orders to other market centers as directed by
BX. NOS will be programmed to follow the algorithm and order type
instructions established in the BX Options Rules and will not have
discretion to change the terms of an order or the order routing
instructions.
    (2) NOS will not engage in any business other than: (a) As an
outbound router for BX and (b) any other activities it may engage in as
approved by the Commission; \19\ provided, however, that immediately
prior to the commencement of operations of NOS as an outbound router
for the Exchange, the Exchange may use NOS to conduct a test of its
routing functionality. In order to ensure that the routing
functionality is operating properly prior to making it available to
Participants, the Exchange proposes to use NOS to perform test trades
in an actual security, prior to launch, so as to track the

performance of the systems to be used by the Exchange from order entry
to clearance and settlement. The test will be performed by entering buy
or sell orders and then, upon execution of each, entering an offsetting
sell order in the same security for the same quantity, in order to
close out the test position and minimize financial impact on the
Exchange. The Exchange will deliver the test orders to NOS, as the
routing broker, which will route to the designated away market and
receive an execution back. BX believes that this will allow it to
perform adequate testing of its systems for routing member orders
before such systems become operational. To the extent that the
offsetting trades require the Exchange to pay out funds, the funds will
be provided out of the cash accounts of the Exchange; to the extent
that the trades result in a profit, the funds will be deposited in the
cash accounts of the Exchange.
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    \19\ NOS has been approved to provide routing services for NOM
and PHLX. See Securities Exchange Act Release Nos. 59995 (May 28,
2009), 74 FR 26750 (June 3, 2009)(SR-Phlx-2009-32); and 57478 (March
12, 2008), 73 FR 14521 (March 18, 2008) (order approving File Nos.
SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080).
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    (3) NOS shall operate as a facility, as defined in Section 3(a)(2)
of the Act, of BX.
    (4) For purposes of SEC Rule 17d-1, the designated examining
authority of NOS shall be a self-regulatory organization unaffiliated
with BX or any of its affiliates.
    (5) BX shall be responsible for filing with the Commission proposed
rule changes related to the operation of, and fees for services
provided by, NOS and NOS shall be subject to exchange nondiscrimination
requirements.
    (6) The books, records, premises, officers, agents, directors and
employees of NOS as a facility of BX shall be deemed to be the books,
records, premises, officers, agents, directors and employees of BX for
purposes of, and subject to oversight pursuant to, the Act. The books
and records of NOS as a facility of BX shall be subject at all times to
inspection and copying by the Commission.
    (7) Use of NOS to route orders to other market centers will be
optional. Parties who do not desire to use NOS must enter orders into
the System as ineligible for routing.
    (8) NOS shall establish and maintain procedures and internal
controls reasonably designed to adequately restrict the flow of
confidential and proprietary information between BX and its facilities
(including NOS as its routing facility) and any other entity.
    These conditions are intended to address the Commission's concerns
regarding potential conflicts of interest in instances where a member
firm is affiliated with an exchange.
    Furthermore, BX Rule 2140(a)(1) currently provides that BX or any
entity with which it is affiliated shall not, directly or indirectly,
acquire or maintain an ownership interest in, or engage in a business
venture with, an Exchange member or an affiliate of an Exchange member
in the absence of an effective filing under Section 19(b) of the Act.
Because NOS is an Exchange member and BX now proposes to engage in the
business venture of outbound routing using NOS as its routing broker,
as well as receiving inbound orders from its affiliates, NOM and PHLX
through NOS, the Exchange has filed this proposed rule change under
Section 19(b) of the Act.
    In addition, pursuant to Rule 15c3-5 under the Act, NOS will
implement certain tests designed to mitigate risks associated with
providing the Exchange's members with access to such away trading
centers. Pursuant to the policies and procedures developed by NOS to
comply with Rule 15c3-5, if an order or series of orders are deemed to
be violative of applicable pre-trade requirements under Rule 15c3-5,
the order will be rejected prior to routing and/or NOS will seek to
cancel the order if it has been routed.\20\
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    \20\ See proposed BX Options Rules, Chapter VI, Section 10(5).
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    BX also proposes to accept inbound orders routed by NOS from PHLX
and from NOM. As stated above respecting outbound routing to
affiliates, the affiliate relationship between BX and NOS, its member,
raises the issue of an exchange's affiliation with a member of such
exchange, and the Commission has expressed concern that the affiliation
of an exchange with one of its members raises the potential for unfair
competitive advantage and potential conflicts of interest between an
exchange's self-regulatory obligations and its commercial
interests.\21\ Accordingly, BX now proposes to permit BX to accept
inbound orders that NOS routes in its capacity as a facility of PHLX
and NOM, subject to certain limitations and conditions:
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    \21\ See Securities Exchange Act Release No. 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (Permitting NOS to be an
affiliate). See also Securities Exchange Act Release Nos. 59153
(December 23, 2008), 73 FR 80485 (December 31, 2008)(SR-NASDAQ-2008-
098); and 62736 (August 17, 2010), 75 FR 51861 (August 23, 2010)
(SR-NASDAQ-2010-100).
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    First, BX and the Financial Industry Regulatory Authority
(``FINRA'') will maintain a regulatory contract, as well as an
agreement pursuant to Rule 17d-2 under the Act (``17d-2
Agreement'').\22\ Pursuant to the regulatory contract and the 17d-2
Agreement, FINRA will be allocated regulatory responsibilities to
review NOS's compliance with certain BX rules.\23\ Pursuant to the
regulatory contract, however, BX retains ultimate responsibility for
enforcing its rules with respect to NOS. Second, FINRA will monitor NOS
for compliance with the Exchange's trading rules, and will collect and
maintain certain related information.\24\ Third, FINRA will provide a
report to BX's chief regulatory officer (``CRO''), on a quarterly
basis, that: (i) Quantifies all alerts (of which FINRA is aware) that
identify NOS as a participant that has potentially violated Commission
or BX rules, and (ii) lists all investigations that identify NOS as a
participant that has potentially violated Commission or BX rules.
Fourth, the Exchange has in place BX Rule 2140(c), which requires
NASDAQ OMX, as the holding company owning both the BX and NOS, to
establish and maintain procedures and internal controls reasonably
designed to ensure that NOS does not develop or implement changes to
its system, based on nonpublic information obtained regarding planned
changes to BX's systems as a result of its affiliation with BX, until
such information is available generally to similarly situated BX
members, in connection with the provision of inbound order routing to
the BX. Fifth, BX proposes that the routing of orders from NOS to BX,
in NOS's capacity as a facility of PHLX and NOM, be authorized for a
pilot period of one year. BX believes that the above-listed conditions
protect the independence of the Exchange's regulatory responsibility
with respect to NOS, and that these mitigate the aforementioned
concerns about potential conflicts of interest and unfair competitive
advantage.
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    \22\ 17 CFR 240.17d-2.
    \23\ NOS is also subject to independent oversight by FINRA, its
designated examining authority, for compliance with financial
responsibility requirements.
    \24\ Pursuant to the regulatory contract, both FINRA and BX will
collect and maintain all alerts, complaints, investigations and
enforcement actions in which NOS (in its capacity as a facility of
PHLX and NOM routing orders to BX) is identified as a participant
that has potentially violated applicable Commission or BX rules. BX
and FINRA will retain these records in an easily accessible manner
in order to facilitate any potential review conducted by the
Commission's Office of Compliance Inspections and Examinations.
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    Book Processing. All trading interest on the System will be
automatically executable. The System, like NOM, will have a single
execution algorithm based on price/time priority. The System and rules
provide for the ranking, display, and execution of all orders in price/
time priority without regard to the status of the entity entering an
order. For each order, among equally-priced or better-priced trading
interest, the System executes against available contra-side

displayed contract amounts in full, in price/time priority.\25\ Any
price improvement resulting from an execution in the System will accrue
to the party taking liquidity.\26\
---------------------------------------------------------------------------

    \25\ See proposed BX Options Rules, Chapter VI, Section 10.
    \26\ See proposed BX Options Rules, Chapter VI, Section 10.
---------------------------------------------------------------------------

    Acceptable Trade Range. The System will employ an Acceptable Trade
Range (``ATR'') feature to limit the range of prices at which an order
will be allowed to execute. The ATR is calculated by taking the
reference price, plus or minus a value to be determined by the
Exchange. (i.e., the reference price--(x) for sell orders and the
reference price + (x) for buy orders). Upon receipt of a new order, the
reference price is National Best Bid (``NBB'') for sell orders and the
National Best Offer (``NBO'') for buy orders or the last price at which
the order is posted whichever is higher for a buy order or lower for a
sell order. If an order reaches the outer limit of the ATR (the
``Threshold Price'') without being fully executed, it will be posted at
the Threshold Price for a brief period, not to exceed one second
(``Posting Period''), to allow more liquidity to be collected. Upon
posting, either the current Threshold Price of the order or an updated
NBB for buy orders or the NBO for sell orders (whichever is higher for
a buy order/lower for a sell order) then becomes the reference price
for calculating a new ATR. If the order remains unexecuted, a New ATR
will be calculated and the order will execute, route, or post up to the
new ATR Threshold Price. This process will repeat until the order is
executed, cancelled, or posted at its limit price.\27\
---------------------------------------------------------------------------

    \27\ See proposed BX Options Rules, Chapter VI, Section 10(7).
---------------------------------------------------------------------------

    Data Feed. Like NOM, BX Options will offer two proprietary data
feeds. BX Depth of Market (``BX Depth'') will be a data feed that
provides quotation information for individual orders on the BX Options
book, last sale information for trades executed on BX Options, and
order imbalance information as set forth in BX Options Rules Chapter
VI, Section 8. In addition, BX Top of Market (``BX Top'') will be a
data feed that provides the BX Options best bid and offer and last sale
information for trades executed on BX Options.\28\
---------------------------------------------------------------------------

    \28\ BX offers other data feeds with respect to its equities
market data. See BX Rule 7023.
---------------------------------------------------------------------------

BX Options Participants
    Like NOM, BX will have only one category of members, known as
``Options Participants'' or ``Participants.'' All BX members will be
eligible to participate in BX Options provided that BX specifically
authorizes them to trade in the System and they become Participants; in
other words, existing BX members will be required to comply with the
incremental requirements of the proposed options rules. New BX members
will be required to fulfill the requirements of the BX Rule 1000 Series
to become a BX member as well as the incremental requirements set forth
in the proposed options rules to become a BX Participant. The proposed
rules avoid, to the greatest extent possible, proposing requirements
that overlap with the rules already set forth in the Rule 1000 Series
of the BX Rule Manual.
    Only Options Participants will be permitted to transact business on
BX Options via the System.\29\ BX will authorize any Options
Participant who meets certain enumerated qualification requirements to
obtain access to BX Options. Among other things, Options Participants
must be registered as broker-dealers pursuant to the Act and have as
the principal purpose of being an Options Participant the conduct of a
securities business. Every Options Participant shall at all times
maintain membership in another registered options exchange that is not
registered solely under Section 6(g) of the Act or FINRA.\30\ There
will be two types of Options Participants, Options Order Entry Firms
and Options Market Makers. Options Order Entry Firms (``OEFs'') will be
those Options Participants representing customer orders as agent on BX
Options and non-Market Maker Participants conducting proprietary
trading as principal.
---------------------------------------------------------------------------

    \29\ See proposed BX Options Rules, Chapter II.
    \30\ Pursuant to BX Rule 1002(e), members that transact business
with customers shall at all times be members of FINRA.
---------------------------------------------------------------------------

    Options Market Makers are Options Participants registered with the
Exchange as Options Market Makers and registered with BX in one or more
options listed on BX.\31\ 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.
---------------------------------------------------------------------------

    \31\ See proposed BX Options Rules, Chapter VII.
---------------------------------------------------------------------------

    To become an Options Market Maker, an Options Participant is
required to register by filing a written application. BX will not place
any limit on the number of entities that may become Options Market
Makers. BX Options Market Makers will be 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.\32\ Among
other things, Options Market Makers would have to participate in the
opening and maintain minimum net capital in accordance with SEC and BX
Options Rules. Furthermore, Options Market Makers must maintain a two-
sided market for at least one contract in at least 60% of the series in
options in which the Options Market Maker is registered. 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. 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, any adjusted option series, and 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 Option
Series, adjusted option series,\33\ and series with an expiration of
nine months or greater. 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.\34\
---------------------------------------------------------------------------

    \32\ 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.
    \33\ 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.
    \34\ 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.
---------------------------------------------------------------------------

    Options Market Makers must also comply with certain bid/ask
differentials (quote spread

parameters).\35\ 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. 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.
---------------------------------------------------------------------------

    \35\ See proposed BX Options Rules, Chapter VI, Section 6(d)(ii)
[sic].
---------------------------------------------------------------------------

    BX is also proposing an order exposure requirement comparable to
that which currently applies on other registered options exchanges.
Specifically, as set forth in Chapter VII, Section 12, with respect to
orders routed to BX, Options Participants may not execute as principal
orders they represent as agent unless (i) agency orders are first
exposed on the Exchange for at least one second or (ii) the Options
Participant has been bidding or offering on the Exchange for at least
one second prior to receiving an agency order that is executable
against such bid or offer.
    Quotes and orders entered by Options Market Makers using the same
market participant identifier will not be executed against quotes and
orders entered on the opposite side of the market by the same market
maker using the same identifier. In such a case, the System will cancel
the oldest of the quotes or orders back to the entering party prior to
execution.\36\
---------------------------------------------------------------------------

    \36\ See proposed BX Options Rules, Chapter VI, Section 10(6).
---------------------------------------------------------------------------

Regulation
    The BX Options market will leverage many of the structures that BX
has in place to operate a national securities exchange in compliance
with Section 6 of the Act. As described in more detail below, like for
NOM, there will be three elements of that regulation: (1) BX will join
the existing options industry agreements pursuant to Section 17(d) of
the Act; (2) BX's Regulatory Services Agreement with FINRA will govern
many aspects of the regulation and discipline members that participate
in options trading; and (3) BX will perform options listing regulation
as well as real-time and post-trade regulation of options trading. The
principle here, again, is that BX will regulate its options market much
the way NOM is regulated today.
    Section 17(d) of the Act and the related rules thereunder permit
SROs to allocate certain regulatory responsibilities to avoid
duplicative oversight and regulation. Under Rule 17d-1 thereunder, the
SEC designates one SRO to be the Designated Examining Authority, or
DEA, for each broker-dealer that is a member of more than one SRO. The
DEA is responsible for the financial aspects of that broker-dealer's
regulatory oversight. Because BX members also must be members of at
least one other SRO, BX would generally not be designated as the DEA
for any of its members.
    Rule 17d-2 under the Act permits SROs to file with the Commission
plans under which the SROs allocate among each other the responsibility
to receive regulatory reports from, and examine and enforce compliance
with specified provisions of the Act and rules thereunder and SRO rules
by firms that are members of more than one SRO (``common members''). If
such a plan is declared effective by the Commission, an SRO that is a
party to the plan is relieved of regulatory responsibility as to any
common member for whom responsibility is allocated under the plan to
another SRO.
    All of the options exchanges, FINRA, and the New York Stock
Exchange (``NYSE'') have entered into the Options Sales Practices
Agreement, a Rule 17d-2 agreement. Under this Agreement, the examining
SROs will examine firms that are common members of BX and the
particular examining SRO for compliance with certain provisions of the
Act, certain of the rules and regulations adopted thereunder, certain
examining SRO rules, and certain BX Rules. FINRA will be the examining
SRO for BX Options.
    For those regulatory responsibilities that fall outside the scope
of any Rule 17d-2 agreements, BX will retain full regulatory
responsibility under the Act. However, BX has entered into a Regulatory
Services Agreement with FINRA, pursuant to which FINRA personnel
operate as agents for BX in performing certain of these functions. In
addition to performing certain membership functions for the Exchange,
FINRA performs certain disciplinary and enforcement functions for the
Exchange. Generally, FINRA investigates members, issue complaints, and
conducts hearings pursuant to the Exchange's rules.
    As is the case with NOM and BX equities, BX will supervise FINRA
and continue to bear ultimate regulatory responsibility.
    Finally, as it does with equities (and the same that is done for
NOM by NASDAQ Regulation), BX Regulation will perform real-time
surveillance of the BX Options market for the purpose of maintaining a
fair and orderly market at all times. As it does with BX's equities
trading and the same that is done for NOM by NASDAQ Regulation, BX
Regulation will monitor BX Options trading market on a real-time basis
to identify unusual trading patterns and determine whether particular
trading activity requires further regulatory investigation by FINRA. BX
Regulation will also conduct post-trade surveillance to determine
whether the trading activity requires further investigation by FINRA.
    In addition, BX Regulation will oversee the process for determining
and implementing trade halts, identifying and responding to unusual
market conditions, and administering BX's process for identifying and
remediating ``obvious errors'' by and among its Options
Participants.\37\ Appeals of disciplinary hearings will be handled by
the Exchange Review Council.
---------------------------------------------------------------------------

    \37\ BX's proposed obvious and catastrophic error rule mirrors
NOM's, stating that the Exchange shall either nullify a transaction
or adjust the execution price of a transaction that meets the
standards of the rule, which takes into account whether the
execution price of a transaction is higher or lower than the
Theoretical Price for the series by a certain amount. Like on NOM,
obvious error decisions can be appealed to a panel of the Market
Operations Review Committee, which will be comprised minimally of
representatives of one member engaged in Market Making and two
industry representatives not engaged in Market Making. See proposed
BX Options Rules, Chapter V, Section 6 and BX By-Laws Article IV,
Section 4.14(d).
---------------------------------------------------------------------------

    BX's disciplinary rules are set forth in the 9000 series of BX
Rules; such disciplinary rules will apply to Options Participants and
their associated persons. BX's Minor Rule Violation Plan (``MRVP'') is
set forth in Rule 9216 and related IM-9216. At this time, BX proposes
to amend its MRVP to cover certain BX Options rules listed in proposed
Chapter X, Section 7.
    BX's MRVP specifies those uncontested minor rule violations with
sanctions not exceeding $2,500 that would not be subject to the
provisions of Rule 19d-1(c)(1) under the Act \38\ requiring that an SRO
promptly file notice with the Commission of any final disciplinary
action taken with respect to any person or organization. Rule 19d-1(c)
allows SROs to submit for Commission approval plans for the abbreviated
reporting of minor disciplinary infractions.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.19d-1(c)(1).
---------------------------------------------------------------------------

    Any disciplinary action taken by an SRO against any person for
violation of a rule of the SRO which has been designated as a minor
rule violation pursuant to such a plan filed with and declared
effective by the Commission will not be considered ``final'' for
purposes of Section 19(d)(1) of the Act

if the sanction imposed consists of a fine not exceeding $2,500 and the
sanctioned person has not sought an adjudication, including a hearing,
or otherwise exhausted his administrative remedies.\39\
---------------------------------------------------------------------------

    \39\ In approving BX Rule 9216, the Commission noted that the
Exchange proposed that any amendments to such rule made pursuant to
a rule filing submitted under Rule 19b-4 of the Act would
automatically be deemded a request for Commission approval of a
modification to its MRVP. Securities Exchange Act Release No. 26737
(April 17, 1989), 54 FR 16438 (April 24, 1989) (SR-BSE-88-2).
---------------------------------------------------------------------------

    As stated above, currently, BX has in place a MRVP,\40\ and is now
proposing to amend that plan to cover options. In this regard, BX
proposes to amend IM-9216, Violations Appropriate for Disposition Under
Plan Pursuant to SEC Rule 19d-1(c)(2), in the BX Equity Rules.
Specifically, BX proposes to add a reference to BX Options Rules,
Chapter X, Section 7--Penalty for Minor Rule Violations for Options
Trading, in order to make clear that these provisions are included in
BX's MRVP. The rules included in proposed Chapter X, Section 7 are
similar to those of other options exchanges, and include position limit
violations of Chapter III, Section 7, order entry-related violations of
Chapter VII, Sections 6(a)-(c), continuous quoting required by Chapter
VII, Section 6(d), various reporting obligations in Chapter III,
Sections 7-10, expiring exercise declaration rules in Chapter VIII,
Sections 1-3, audit trail submission and recordkeeping requirements of
Chapter V, Section 7 and Chapter IX, Sections 1-3, representation of
orders, Chapter VII, Section 12, trade reporting, Chapter VI, Sections
14 and 15, locked and crossed Market Violations, Chapter XII, Section
3, trade-through violations, and Chapter XII, Section 2(a), failure to
timely file amendments to Form U4, Form U5 and Form BD.\41\ Upon
approval of the MRVP, BX will provide the Commission a quarterly report
of actions taken on minor rule violations under the MRVP. The quarterly
report will include BX's internal file number for the case, the name of
the individual and/or organization, the nature of the violation, the
specific rule provision violated, the sanction imposed, the number of
times the rule violation has occurred, and the date of disposition. BX
believes that adding these options rules to its MRVP should help it
carry out its oversight and enforcement responsibilities as an SRO in
cases where full disciplinary proceedings are unsuitable in view of the
minor nature of the particular violation.
---------------------------------------------------------------------------

    \40\ See BX Rule 9216(b).
    \41\ See e.g. ISE Rule 1614.
---------------------------------------------------------------------------

    Accordingly, BX represents that it has the ability to discharge all
regulatory functions related to its proposed options market. In
connection with its regulatory functions, the Exchange represents that
its regulatory oversight committee and its CRO will assume
responsibility for regulating quoting and trading on BX Options and
conduct by BX Options Participants. The Exchange's CRO has general
supervision of the regulatory operations of the Exchange, including
overseeing surveillance, examination, and enforcement functions, and
administers the Regulatory Services Agreement between the Exchange and
FINRA. BX's By-Laws and rules provide that it has disciplinary
jurisdiction over its members so that it can enforce its members'
compliance with its rules and the federal securities laws.\42\ The
Exchange's rules also permit it to sanction members for violations of
its rules and violations of the federal securities laws by, among other
things, expelling or suspending members, limiting members' activities,
functions, or operations, fining or censuring members, or suspending or
barring a person from being associated with a member.\43\ BX's Rules
also provide for the imposition of fines for minor rule violations in
lieu of commencing disciplinary proceedings. This framework will apply
to BX Options.\44\
---------------------------------------------------------------------------

    \42\ See e.g. Exchange By-Laws, Article XII, Section 12.2.
    \43\ See e.g. BX Rule 8310.
    \44\ BX Rules apply to Options Participants and the trading of
options contracts on BX Options. See BX Options Rules, Chapter I,
Section 2. Options Participants must, among other things, be an
existing member or become a member of the Exchange, pursuant to the
BX 1000 Rule Series, as well as maintain a membership on at least
one other options exchange. See BX Options Rules, Chapter II,
Sections 1 (b)(iii) and 2(f).
---------------------------------------------------------------------------

National Market System Plans
    As discussed herein, BX is a participant in the various national
market system plans for options trading established under Section 11A
of the Act, because BX has been the SRO for the BOX market, which
currently operates as its facility. Because BOX is becoming its own,
separate national securities exchange, it is pursuing its own
membership in these various plans. BX plans to retain these plan
memberships in order to operate BX Options. Specifically, BX is a
member of the Options Order Protection and Locked/Crossed Market Plan,
the Options Listings Procedures Plan (discussed below), and the Plan
for the Reporting of Options Last Sale Reports and Quotation
Information,\45\ through the Options Price Reporting Authority
(``OPRA''). In addition, BX is a participant in the Options Regulatory
Surveillance Authority (``ORSA'') and the Plan for the Selection and
Reservation of Securities Symbols. BX is transferring its status as a
participant exchange in OCC to BOX and securing a membership therein.
---------------------------------------------------------------------------

    \45\ See www.opradata.com.
---------------------------------------------------------------------------

Options Order Protection and Locked/Crossed Market Plan Rules
    BX will participate in the Options Order Protection and Locked/
Crossed Market Plan (``Plan''), and therefore will be required to
comply with the obligations of Participants under the Plan. BX proposes
to adopt rules relating to the Plan that are substantially similar to
the rules in place on or proposed by all of the options exchanges that
are Participants in the Plan. The Plan essentially applies the
Regulation NMS price-protection provisions to the options markets.
Similar to Regulation NMS, the Plan requires the Plan Participants to
adopt rules ``reasonably designed to prevent Trade-Throughs,'' while
exempting Intermarket Sweep Orders from that prohibition. The Plan's
definition of an Intermarket Sweep Order is essentially the same as
under Regulation NMS. The remaining exceptions to the trade-through
prohibition, discussed more specifically below, either track those
under Regulation NMS or correspond to unique aspects of the options
market, or both. The proposed rules in Chapter XII conform to the
requirements of the Plan. Section 1 sets forth the defined terms for
use under the Plan. Section 2 prohibits trade-throughs and exempts
Intermarket Sweep Orders from that prohibition. Section 2 also contains
additional exceptions to the trade-through prohibition that track the
exceptions under Regulation NMS or correspond to exceptions on other
options exchanges, or both.\46\ Section 3 sets forth the general
prohibition against locking/crossing other eligible exchanges as well
as several exceptions that permit locked markets in limited
circumstances; such exceptions have been approved by the Commission for
inclusion in the rules of other options exchanges.\47\ Specifically,
the exceptions to the general prohibition on locking and crossing occur
when (1) the locking or crossing quotation was displayed at a time when
the Exchange was experiencing a failure, material delay, or malfunction
of its systems or equipment; (2) the locking or crossing

quotation was displayed at a time when there is a Crossed Market; or
(3) the Member simultaneously routed an Intermarket Sweep Order to
execute against the full displayed size of any locked or crossed
Protected Bid or Protected Offer.
---------------------------------------------------------------------------

    \46\ See e.g., NOM Rules, Chapter XII, Section 2.
    \47\ See e.g., NOM Rules, Chapter XII, Section 3.
---------------------------------------------------------------------------

Securities Traded on BX Options
    BX proposes to adopt listing standards for options traded on BX
(Chapter IV of proposed rules) as well as for index options (Chapter
XIV) that are identical to the approved rules of other options
exchanges, including NOM.\48\ These include the specific criteria for
underlying securities in proposed Section 3 of Chapter IV, as well as
the withdrawal of such approval. In addition, Section 6 will cover the
series of options contracts open for trading, which spells out the
appropriate exercise dates and strike prices. In addition, BX intends
to participate in the $2.50 Strike Price Program,\49\ the $1.00 Strike
Price Program,\50\ the $5 Strike Price Program \51\ and the $.50 Strike
Program \52\ (``Programs'') on the same terms and conditions as the
other options exchanges. BX believes that the programs will provide
investors with flexibility in tailoring their options positions to meet
their investment objectives while avoiding the unnecessary
proliferation of illiquid options series. Sections 7 and 8 cover
adjustments and long-term options, respectively. With regard to the
impact on system capacity, BX has analyzed its capacity and represents
that it and the Options Price Reporting Authority have the necessary
systems capacity to handle the additional traffic associated with the
listing and trading of option series that may be listed and traded
pursuant to the Programs.
---------------------------------------------------------------------------

    \48\ See NOM Rules, Chapters IV and XIV.
    \49\ See proposed Chapter IV, Section 6, Supplementary Material
.03.
    \50\ See proposed Chapter IV, Section 6, Supplementary Material
.02.
    \51\ See proposed Chapter IV, Section 6(d)(v).
    \52\ See proposed Chapter IV, Section 6, Supplementary Material
.05.
---------------------------------------------------------------------------

    BX is a member of the Options Listings Procedures Plan and will
list and trade options already listed on other options exchanges. BX
will gradually phase-in its listing and trading of options, beginning
with a selection of actively traded options. BX will provide the
specific list in an Options Trader Alert to its membership. At least
initially, BX does not plan to develop new options products or listing
standards. BX is aware that, in the event BX determines to trade an
options class not listed on another options exchange or within BX's
existing listing standards, BX will be required to submit a proposed
rule change to establish listing standards.
Exemptions
    BX proposes to incorporate by reference as BX Options Rules certain
rules of Chicago Board Options Exchange, Incorporated (``CBOE''), NYSE
and FINRA. Specifically, BX proposes to incorporate by reference: (1)
CBOE position and exercise limits governing position and exercise
limits for equity and index options, which are cross-referenced in
Chapter III, Sections 7 and 9 of the BX Options Rules and Chapter XIV,
Sections 5 and 7 of the BX Options Rules, respectively; (2) the margin
rules of the CBOE or the NYSE, which are referenced in Chapter XIII,
Section 3 of the BX Options Rules; and (3) FINRA's rules governing
communications with the public, which are referenced in Chapter XI,
Section 22 of the BX Options Rules. BX will notify Participants
whenever the CBOE proposes to change a position limit rule that has
been incorporated by reference into the BX Options Rules.
    BX proposes to incorporate by reference as BX Options Rules certain
rules of the CBOE, NYSE, and FINRA such that BX members will comply
with a BX rule by complying with the CBOE, NYSE, or FINRA rule
referenced. In connection with its proposal to incorporate CBOE, NYSE,
and FINRA rules by reference, BX requests, pursuant to Rule 240.0-
12,\53\ an exemption under Section 36 of the Act from the rule filing
requirements of Section 19(b) of the Act for changes to those BX
Options Rules that are effected solely by virtue of a change to a
cross-referenced CBOE, NYSE, or FINRA rule. BX proposes to incorporate
by reference categories of rules (rather than individual rules within a
category) that are not trading rules. BX agrees to provide written
notice to Participants prior to the launch of BX Options of the
specific CBOE, NYSE, and FINRA rules that it will incorporate by
reference.\54\ BX will notify Participants whenever the CBOE, NYSE or
FINRA propose to change a rule that has been incorporated by reference
into the BX Options Rules.
---------------------------------------------------------------------------

    \53\ 17 CFR 240.0-12.
    \54\ BX will provide such notice through a posting on the same
Web site location where BX posts its own rule filings pursuant to
Rule 19b-4(1) under Act, within the time frame required by that
Rule. The Web site posting will include a link to the location on
the CBOE, NYSE, or FINRA Web site where those SROs' proposed rule
changes are posted.
---------------------------------------------------------------------------

    Using its authority under Section 36 of the Act, the Commission
previously exempted certain SROs from the requirement to file proposed
rule changes under Section 19(b) of the Act.\55\ Each such exempt SRO
agreed to be governed by the incorporated rules, as amended from time
to time, but is not required to file a separate proposed rule change
with the Commission each time the SRO whose rules are incorporated by
reference seeks to modify its rules. In addition, each SRO incorporated
by reference only regulatory rules (e.g., margin, suitability,
arbitration), not trading rules, and incorporated by reference whole
categories of rules (i.e., did not ``cherry-pick'' certain individual
rules within a category). Each exempt SRO had reasonable procedures in
place to provide written notice to its members each time a change is
proposed to the incorporated rules of another SRO in order to provide
its members with notice of a proposed rule change that affects their
interests, so that they would have an opportunity to comment on it. BX
believes that this exemption is appropriate in the public interest and
consistent with the protection of investors because it will promote
more efficient use of Commission and SRO resources by avoiding
duplicative rule filings based on simultaneous changes to identical
rule text sought by more than one SRO.
---------------------------------------------------------------------------

    \55\ See Securities Exchange Act Release No. 49260 (February 17,
2004), 69 FR 8500 (February 24, 2004) (Order Granting Application
for Exemptions Pursuant to Section 36(a) of the Exchange Act by the
American Stock Exchange LLC, the International Securities Exchange,
Inc., the Municipal Securities Rulemaking Board, the Pacific
Exchange, Inc., the Philadelphia Stock Exchange, Inc., and the
Boston Stock Exchange, Inc.).
---------------------------------------------------------------------------

No Relationship to BOX
    The new BX Options market will not be related to the BOX market.
Although BX is currently the SRO for the BOX market, once the BOX
market is approved as a national securities exchange, it will operate
as a separate SRO from BX; it will not be regulated by BX or owned by
The NASDAQ OMX Group, Inc. Accordingly, The NASDAQ OMX Group, Inc. will
continue to own and operate BX, including the new BX Options market.
Fees
    The Exchange has proposed that Chapter XV will be titled Options
Pricing, and provide that BX Options Participants may be subject to the
Charges for Membership, Services and Equipment in the Rule 7000 Series
as well as the fees in Chapter XV. Furthermore, Section 1, Collection
of Exchange Fees and Other Claims, requires that each BX Options
Participant, and all applicants for

registration, shall be required to provide a clearing account number
for an account at the National Securities Clearing Corporation
(``NSCC'') for purposes of permitting the Exchange to debit any
undisputed or final fees, fines, charges and/or other monetary
sanctions or other monies due and owing to the Exchange or other
charges related to Rule 1002(c)(1). Sections 2-6 are reserved for the
eventual transaction, routing and access fees that BX will impose and
separately file as a proposed rule change. Section 7 provides that all
fee disputes concerning fees which are billed by the Exchange must be
submitted to the Exchange in writing and must be accompanied by
supporting documentation; all fee disputes must be submitted no later
than 60 days after receipt of a billing invoice. Section 8 covers the
sales fee applicable when a sale in options occurs with respect to
which BX is obligated to pay a fee to the SEC under Section 31 of the
Act (``Sales Fee''). The Sales Fee is collected indirectly from members
through their clearing firms by a designated clearing agency, as
defined by the Act, on behalf of BX. The amount of the Sales Fee is
equal to the Section 31 fee rate multiplied by the member's aggregate
dollar amount of covered sales resulting from transactions through BX
transaction execution systems during any computational period.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \56\ in general, and furthers the objectives of Section
6(b)(5) of the Act \57\ 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, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system, and, in general,
to protect investors and the public interest. Section 6(b)(5) also
requires that the rules of an exchange not be designed to permit unfair
discrimination among customers, issuers, brokers, or dealers. Further,
BX believes that the proposal is consistent with Sections 6(b)(1) of
the Act,\58\ which requires, among other things, that a national
securities exchange be so organized and have the capacity to carry out
the purposes of the Act, and to comply and enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulation thereunder, and the rules of the
exchange. The BX Options market could confer important benefits on the
public and market participants. In particular, BX's entry into the
marketplace will provide market participants with an additional venue
for executing orders in standardized options, enhance innovation, and
increase competition between and among the options exchanges, resulting
in better prices and executions for investors.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b).
    \57\ 15 U.S.C. 78f(b)(5).
    \58\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    BX believes that because BX Options is part of BX and all BX
Options Participants are BX members, the composition and selection of
the BX Board of Directors will continue to satisfy the requirement in
Section 6(b)(3) of the Act that the rules of the Exchange provide for
the fair representation of members in the selection of directors and
administration of the Exchange.\59\
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    In addition, BX's MRVP, as proposed to be amended, is consistent
with Sections 6(b)(1), 6(b)(5) and 6(b)(6) of the Act, which require,
in part, that an exchange have the capacity to enforce compliance with,
and provide appropriate discipline for, violations of the rules of the
Commission and of the exchange.\60\ In addition, because IM-9216 offers
procedural rights to a person sanctioned for a violation listed in
proposed Chapter X, Section 7, BX will provide a fair procedure for the
disciplining of members and associated persons, consistent with Section
6(b)(7) of the Act.\61\ This proposal to include the rules listed in
Chapter X, Section 7 in BX's MRVP is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act, as required by Rule 19d-1(c)(2) under the
Act,\62\ because it should strengthen BX's ability to carry out its
oversight and enforcement responsibilities as an SRO in cases where
full disciplinary proceedings are unsuitable in view of the minor
nature of the particular violation. In requesting the proposed change
to the MRVP, BX in no way minimizes the importance of compliance with
BX Rules and all other rules subject to the imposition of fines under
the MRVP. However, the MRVP provides a reasonable means of addressing
rule violations that do not rise to the level of requiring formal
disciplinary proceedings, while providing greater flexibility in
handling certain violations. BX will continue to conduct surveillance
with due diligence and make a determination based on its findings, on a
case-by-case basis, whether a fine of more or less than the recommended
amount is appropriate for a violation under the MRVP or whether a
violation requires a formal disciplinary action.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6).
    \61\ 15 U.S.C. 78f(b)(7).
    \62\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

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. BX operates in an intensely
competitive global marketplace for listings, financial products,
transaction services, and market data. Relying on its array of services
and benefits, BX competes for the privilege of providing market and
listing services to broker-dealers and issuers. BX's ability to compete
in this environment is based in large part on the quality of its
trading systems, the overall quality of its market and its
attractiveness to the largest number of investors, as measured by
speed, likelihood and cost of executions, as well as spreads, fairness,
and transparency. With these aspects of competition as a guide, BX
designed its current proposal to create, like NOM, the fastest,
fairest, most transparent and most efficient trading venue available
for the trading of options. The resulting system should further reduce
overall trading costs and increase price competition, both pro-
competitive developments. BX believes that the resulting system will
have the pro-competitive effect of spurring further initiative and
innovation among market centers and market participants. Market
participants that disagree and do not view these developments as pro-
competitive, will have the flexibility to use only those functions that
improve their trading or to not use the system at all; participation in
the system in whole or in part is completely voluntary. BX Options will
benefit individual investors, options trading firms, and the options
market generally. The entry of an innovative, low cost competitor such
as BX will promote competition, further spurring existing markets to
improve their own execution systems and reduce trading costs. BX
Options will differentiate its market by offering innovative features
in the future. BX Options will operate in a highly competitive market
comprised of nine other U.S. options exchanges in which sophisticated
and knowledgeable market participants can and do send

order flow to competing exchanges based on many factors, including
technology, functionality, reliability, fees and customer service.

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 (i) as the Commission may
designate up to 90 days of such date 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 shall: (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_ADDRESS>Please include
File Number SR-BX-2012-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2012-030. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-BX-2012-030 and should be
submitted on or before June 8, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12034 Filed 5-17-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 98 (Tuesday, May 21, 2019)]
[Rules and Regulations]
[Pages 22982-22984]
[FR Doc No: 2019-10573]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R04-OAR-2018-0609; FRL-9993-90-Region 4]

Air Plan Approval; Kentucky: Jefferson County Process Operations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Environmental Protection Agency (EPA) is taking final
action to approve changes to the Jefferson County portion of the
Kentucky State Implementation Plan (SIP), submitted by the Commonwealth
of Kentucky, through the Energy and Environment Cabinet (Cabinet), by
way of a letter dated March 15, 2018. The SIP revision was submitted by
the Cabinet on behalf of the Louisville Metro Air Pollution Control
District (District) and makes minor ministerial amendments to
regulations regarding new and existing process operations.

DATES: This rule will be effective June 20, 2019.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-R04-OAR-2018-0609. All documents in the docket are listed on
the www.regulations.gov website. Although listed in the index, some
information is not publicly available, i.e., Confidential Business
Information or other information whose disclosure is restricted by
statute. Certain other material, such as copyrighted material, is not
placed on the internet and will be publicly available only in hard copy
form. Publicly available docket materials are available either
electronically through www.regulations.gov or in hard copy at the Air
Regulatory Management Section, Air Planning and Implementation Branch,
Air and Radiation Division (formerly the Air, Pesticides and Toxics
Management Division), U.S. Environmental Protection Agency, Region 4,
61 Forsyth Street SW, Atlanta, Georgia 30303-8960. EPA requests that if
at all possible, you contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to schedule your inspection. The Regional
Office's official hours of business are Monday through Friday 8:30 a.m.
to 4:30 p.m., excluding Federal holidays.

FOR FURTHER INFORMATION CONTACT: Andres Febres, Air Regulatory
Management Section, Air Planning and Implementation Branch, Air and
Radiation Division, Region 4, U.S. Environmental Protection Agency, 61
Forsyth Street SW, Atlanta, Georgia 30303-8960. The telephone number is
(404) 562-8966. Mr. Febres can also be reached via electronic mail at
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Background

    EPA is taking final action to approve changes to the Jefferson
County portion of the Kentucky SIP that were provided to EPA through a
letter dated March 15, 2018.\1\ EPA is finalizing approval of the
portions of this SIP revision that make changes to the District's
Regulation 6.09--Standards of Performance for Existing Process
Operations, and Regulation 7.08--Standards of Performance for New
Process Operations.\2\ The March 15, 2018, SIP revision makes minor and
ministerial changes that do not alter the meaning of these regulations
but rather are intended to clarify the applicability of these
regulations, as well as reduce redundancy in the particulate matter
(PM) and opacity standards. The SIP revision updates the current SIP-
approved versions of Regulation 6.09 (version 6) and Regulation 7.08
(version 3) to version 7 and version 4, respectively.
---------------------------------------------------------------------------

    \1\ EPA notes that the Agency received the SIP revision on March
23, 2018.
    \2\ EPA also notes that the Agency received several other
revisions to the Jefferson County portion of the Kentucky SIP
submitted with the same March 15, 2018, cover letter. EPA will be
considering action on the remaining revisions in separate actions.
---------------------------------------------------------------------------

    In a notice of proposed rulemaking (NPRM) published on March 4,
2019 (84 FR 7313), EPA proposed to approve the aforementioned changes
to Regulations 6.09 and 7.08 in the Jefferson County portion of the
Kentucky SIP, which address the control of emissions from existing and
new process operations, respectively. The NPRM provides additional
details regarding EPA's action. Comments on the NPRM were due on or
before April 3, 2019. EPA received no comments on the proposed action,
so EPA is now taking final action to approve the above-referenced
revision.

II. Incorporation by Reference

    In this document, EPA is finalizing regulatory text that includes
incorporation by reference. In accordance with requirements of 1 CFR
51.5, EPA is finalizing the incorporation by reference of Jefferson
County's Regulation 6.09, Standards of Performance for Existing Process
Operations, version 7, and Regulation 7.08, Standards of Performance
for New Process Operations, version 4, both State effective January 17,
2018. EPA has made, and will continue to make, these materials
generally available through www.regulations.gov and at the EPA Region 4
Office (please contact the person identified in the FOR FURTHER
INFORMATION CONTACT section of this preamble for more information).
Therefore, these materials have been approved by EPA for inclusion in
the State implementation plan, have been incorporated by reference by
EPA into that plan, are fully federally enforceable under sections 110
and 113 of the CAA as of the effective date of the final rulemaking of
EPA's approval, and will be incorporated by reference in the next
update to the SIP compilation.\3\
---------------------------------------------------------------------------

    \3\ See 62 FR 27968 (May 22, 1997).
---------------------------------------------------------------------------

III. Final Action

    EPA is taking final action to approve changes to the Jefferson
County portion of the Kentucky SIP that were provided to EPA through a
letter dated March 15, 2018. Specifically, EPA is approving the
District's Regulation 6.09, version 7, and Regulation 7.08, version 4.
The March 15, 2018, SIP revision makes minor and ministerial changes
and is intended to clarify the applicability of these regulations, as
well as reduce redundancy in the PM and opacity standards. These rule
adoptions do not contravene Federal permitting requirements or existing
EPA policy, nor will they impact the National Ambient Air Quality
Standards or interfere with any other applicable requirement of the
Act.

IV. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. This action merely
approves state law as meeting Federal requirements and does not impose
additional requirements beyond those imposed by state law. For that
reason, this action:
     Is not a significant regulatory action subject to review
by the Office of Management and Budget under Executive Orders 12866 (58
FR 51735,

October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
     Is not an Executive Order 13771 (82 FR 9339, February 2,
2017) regulatory action because SIP approvals are exempted under
Executive Order 12866;
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the CAA; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    The SIP is not approved to apply on any Indian reservation land or
in any other area where EPA or an Indian tribe has demonstrated that a
tribe has jurisdiction. In those areas of Indian country, the rule does
not have tribal implications as specified by Executive Order 13175 (65
FR 67249, November 9, 2000), nor will it impose substantial direct
costs on tribal governments or preempt tribal law.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the CAA, petitions for judicial review
of this action must be filed in the United States Court of Appeals for
the appropriate circuit by July 22, 2019. Filing a petition for
reconsideration by the Administrator of this final rule does not affect
the finality of this action for the purposes of judicial review nor
does it extend the time within which a petition for judicial review may
be filed and shall not postpone the effectiveness of such rule or
action. This action may not be challenged later in proceedings to
enforce its requirements. See section 307(b)(2).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Carbon monoxide,
Incorporation by reference, Lead, Nitrogen dioxide, Ozone, Particulate
matter, Reporting and recordkeeping requirements, Sulfur oxides,
Volatile organic compounds.

    Dated: May 6, 2019.
Mary S. Walker,
Acting Regional Administrator, Region 4.

    40 CFR part 52 is amended as follows:

PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

Subpart S--Kentucky

0
2. In Sec.  52.920, table 2 in paragraph (c) is amended by revising the
entries ``6.09'' and ``7.08'' to read as follows:

Sec.  52.920  Identification of plan.

* * * * *
    (c) * * *

                         Table 2--EPA-Approved Jefferson County Regulations for Kentucky
----------------------------------------------------------------------------------------------------------------
                                                                                District
        Reg             Title/subject     EPA approval date   Federal Register    effective       Explanation
                                                                   notice            date
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
                        Reg 6--Standards of Performance for Existing Affected Facilities
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
6.09...............  Standards of        5/21/19 in the      [insert Federal         1/17/18
                      Performance for     Federal Register].  Register
                      Existing Process                        citation].
                      Operations.

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
                           Reg 7--Standards of Performance for New Affected Facilities
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
7.08...............  Standards of        5/21/19 in the      [insert Federal         1/17/18
                      Performance for     Federal Register].  Register
                      New Process                             citation].
                      Operations.

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *
[FR Doc. 2019-10573 Filed 5-20-19; 8:45 am]
BILLING CODE 6560-50-P


Proposed Changes to General Conformity Rule to bring consistency with
Exceptional Events rule

--- per 4/5/07 call with Pete Lahm (USFS) Amy Flynn (OMB) and Tom Coda
(EPA) – Revised 4/10/07

--- per 4/24/07 call with Pete Lahm (USFS) and Bill Harnett (EPA)  --
Revised 4/24/07

PREAMBLE:

1.  Based on EPA’s Interim Air Quality Policy on Wildland and
Prescribed Fires, which was developed in consultation with Federal land
managers, EPA is proposing taking comment on two possible approaches:
1)to include a presumption of conformity for prescribed fire use that
are conducted in compliance with certified smoke management
plansprograms (SMPs)), and 2) for prescribe fires conducted using State
approved basic smoke management practices.

* * * * *

Second, EPA is proposing taking comment on to allowing Federal agencies
to presume that the emissions from prescribed burns in a nonattainment
or maintenance area will conform provided the burning is conducted under
a State certified SMP.  Alternatively, EPA is also asking for comments
on the approach of allowing Federal agencies to presume that the
emissions from prescribed burns conducted using State approved SMP.
basic smoke management practices in a nonattainment or maintenance area
conform.

In May 1998, EPA worked with States and other Federal agencies to
develop and publish an interim policy on prescribed fires on wildlands.
(See Interim Air Quality Policy on Wildland and Prescribed Fires,
U.S.EPA, May 1998).  To comply with the recommendations  in the interim
policy, state air regulators and land managers should develop a
certified SMP which promotes regional coordination, and may include
real-time air quality monitoring.   A State SMP establishes a basic
framework of procedures and requirements for managing smoke from a
prescribed fire managed for resource benefits. A SMP is typically
developed by a State or Tribe with cooperation and participation by
wildland managers, both public and private, and the general public. The
SMPs establish procedures and requirements for minimizing emissions and
managing smoke dispersion.  The goals of SMPs are to mitigate the
nuisance and public safety hazards (e.g., on roadways and at airports)
posed by smoke intrusions into populated areas; to prevent deterioration
of air quality and NAAQS violations; and to address visibility impacts
in mandatory Class I Federal areas.

Given the fundamental purpose of the SMP, EPA believes that it is
reasonable to assume that any action in compliance with the certified
SMP would be in conformance with the applicable SIP.  Therefore, EPA is
proposing taking comment on the approach to designate these actions as
actions presumed to conform.  Federal agencies would not have to conduct
a conformity determination for those actions.  The presumption to
conform is also based on the maintenance in stringency of the existing
SMPs where implemented or the implementation of new smoke management
programs or practices as identified above.

As reflected in the Interim Air Quality Policy on Wildland and
Prescribed Fires, States are provided flexibility on the structure of a
SMP. Thus, a SMP can be extensive and detailed, or simply identify the
basic smoke management practices for minimizing emissions, and
controlling impacts from a prescribed fire.  The EPA’s final rule on
the Treatment of Data Influenced by Exceptional Events published in the
Federal Register on March 22, 2007 (Volume 72, Number 55) states that
basic smoke management practices could include, among other practices,
steps that will minimize air pollutant emissions during and after the
burn, evaluate dispersion conditions to minimize exposure of sensitive
populations, actions to notify populations and authorities at sensitive
receptors and contingency actions during the fire to reduce exposure of
people at such receptors, identify steps taken to monitor the effects of
the fire on air quality, and identify procedures to ensure that burners
are using basic smoke management practices.

The Agency plans to begin revising its Interim Air Quality Policy on
Wildland and Prescribed Fires in 2007 as part of its overall Fire
Strategy.  The Agency believes that the conditions for prescribed fires
that are presumed to conform should be conducted in accordance with
programs and practices which meet the requirements of EPA’s Air
Quality Policy on Wildland and Prescribed Fires and those conditions
should be deliberated in the formation of the revised policy. To inform
the development of that policy, and the final revisions of this General
Conformity rule, EPA is also requesting comment on an alternative
approach for allowing a presumption to conform for emissions from
prescribed fires conducted in the absence of a State certified SMP,
where the Federal agency submits a demonstration and obtains written
permission from the State prior to the burn that the planned burn
employs State approved basic smoke management practices.  This approach
would thereby protect public health in nonattainment and maintenance
areas where a SMP has not been adopted, and allow Federal agencies the
flexibility needed to conduct necessary prescribed burning.

REG TEXT:

(i)  Emissions from the following actions are presumed to conform:

(1) Actions at installations with facility-wide emission budgets meeting
the requirements in §93.161 provided that the State has included the
emission budget in the EPA approved SIP and the emissions from the
action along with all other emissions from the installation will not
exceed the facility-wide emission budget.

 Alternative 1 for paragraph (i)(2)

(2) Prescribed fires conducted in accordance with a State certified
smoke management program (SMP) which meets the requirements of EPA’s
Air Quality Policy on Wildland and Prescribed Fires.

Alternative 2 for paragraph (i)(2)

(2) Prescribed fires conducted in accordance with a State certified
smoke management program (SMP) which meets the requirements of EPA’s
Air Quality Policy on Wildland and Prescribed Fires or, in the absence
of a State certified SMP, where the Federal agency has obtained written
assurance from the State prior to the burn that the planned burn employs
State approved basic smoke management practices.

(3) Emissions for actions that the State identifies in the EPA approved
SIP as presumed to conform.