[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18968]


[[Page Unknown]]

[Federal Register: August 4, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34456; International Series Release No. 693; File No. 
SR-BSE-94-01]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Boston Stock Exchange, Inc. To Establish a Northbound Trading 
Linkage With the Montreal Stock Exchange

July 28, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February 
7, 1994, the Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the self-regulatory organization.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\On June 20, 1994, the Exchange submitted to the Commission a 
draft of the proposed Linkage Plan for the northbound linkage 
(``Draft Linkage Plan''). The Linkage Plan is an agreement between 
the BSE and Montreal Stock Exchange which contains arrangements for 
the management of the northbound linkage, settlement of trade 
disputes, comparison and settlement of trades, and surveillance of 
trading activity.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE seeks to commence northbound trading pursuant to its 
linkage with the Montreal Stock Exchange (``ME'').

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    Securities markets are becoming increasingly international, 
reacting to many of the same economic and political events that affect 
the rest of the world. The globalization of these markets is driven by 
several factors, but advances in automation and telecommunications have 
propelled its rapid growth. Factors driving this globalization include 
investors' desire to enter foreign markets, the growth of large 
institutional funds needing to decrease risk by diversifying 
investments in other countries, and regulatory changes that opened 
markets to foreign broker-dealer firms and their customers.
    Effective international securities markets require efficient and 
valuable systems for order routing and execution, information 
dissemination, and clearance and settlement. Most major and emerging 
markets have automated or plan to automate all or some of these 
functions to take advantage of efficiency, competition and market 
expansion opportunities.
    The Commission in Securities Exchange Act Release No. 25284 stated 
that the international securities market should feature efficient 
structures for quotation, price and volume dissemination concerning 
securities and derivatives markets traded worldwide.\2\ A critical step 
in achieving a worldwide securities market information system would be 
the creation and maintenance of international linkages between the 
automated information systems of the various national securities 
markets. Such a link was established between the BSE and the ME in 1984 
for orders in U.S. stocks transmitted southbound from Montreal to 
Boston. This rule proposal is designed to complete the ``loop'' with 
orders in Canadian stocks being routed northbound from Boston to 
Montreal.\3\
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    \2\See Securities Exchange Act Release No. 26284 (November 14, 
1988), 53 FR 46963 (November 21, 1988). The Commission issued its 
Policy Statement on Regulation of International Securities Markets 
in 1988 to identify areas of regulatory concern presented by the 
continued internationalization of the securities markets.
    \3\Under the Draft Linkage Plan, see note 1 supra, all 
securities listed on the ME, except for options and futures, would 
be eligible to be traded through the proposed northbound linkage.
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    The proposed rule change seeks to commence northbound trading 
pursuant to the trading linkage previously established with the ME.\4\ 
This would provide an additional means for U.S. customers to place 
orders in Canadian stocks with U.S. brokers for execution on the ME. 
These orders would be entered into the broker/dealers' order-match 
systems which are linked to the BSE's BEACON system. BEACON would 
receive and log the details of the order and pass it on to the ME's 
automated order-routing and execution system. The order would contain 
the terms for the price, if any, stated in Canadian dollars, and an 
identifier indicating that its transmission is for the ME. The ME 
system would also log the order and direct it to the specialist's 
electronic book for action. These orders will be treated as would any 
other order sent to the ME floor.
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    \4\The Exchange's southbound foreign linkage rule and the 
linkage plan with the ME was approved by the Commission in 1989. See 
Securities Exchange Act Release No. 27080 (July 31, 1989) (File No. 
SR-BSE-89-01).
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    Upon execution, the customer report would be sent from the 
specialist's book through the ME system to the BEACON system, with both 
systems logging in the details of the report, then to the broker/
dealer's order-match system. BEACON will essentially function as a 
conduit for the benefit of member firms who today conduct this business 
through correspondents. While BEACON will keep detailed records of all 
traffic, it will not function as an execution system for Canadian 
stocks, nor show quotes in Canadian stocks, and it will not be 
advertised as such.
    The trades would be cleared pursuant to the BSE member's agreement 
with a Canadian correspondent to clear and settle trades at the 
Canadian Depository for Securities (``CDS'') on their behalf. BSE 
members would give up a valid CDS account at execution and would be 
treated like a customer of the Canadian correspondent. This is the 
clearing arrangement that U.S. broker/dealers currently utilize in 
clearing trades in Canadian stocks.
    The ME is an affiliate member of the Intermarket Surveillance Group 
(``ISG'') and as such has elected to participate in the ISG 
investigative procedures.\5\ This structure will enhance the level of 
cooperation between the BSE and ME surveillance departments with regard 
to transactions executed through the link, as is currently done today 
with southbound orders. Essentially, each northbound trade will be 
entered into the ME's electronic book and will therefore be subject to 
the ME's on-line stock trading monitoring system (``SECMA''). The ME 
currently focuses its trading reviews on insider trading, trading on 
non-public market information (``front running''), price manipulation 
(Market fraud of various types), short squeeze, short sales down 
ticking, normal course issue of bid up ticking, and restrictions on 
trading by members involved in a distribution.
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    \5\As an affiliate member of ISG, the ME has agreed to abide by 
the requirements of the ISG Affiliate Agreement.
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    In conducting these types of trading reviews, the ME utilizes price 
alerts, volume alerts, exception reports based on high-lows and closing 
prices, as well as other technical information analysis and graphics 
that are available.
2. Statutory Basis
    The basis under the Act for the proposed rule change is Section 
6(b)(5) in that the rule 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market, and in general, to protect investors and the 
public interest; and is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 self-regulatory organization consents, the Commission will:
    (A) By order approve the 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. Persons making written submissions 
should file copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549. Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying at the Commission's 
Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the BSE. All submissions should refer to 
File No. SR-BSE-94-01 and should be submitted by August 25, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18968 Filed 8-3-94; 8:45 am]
BILLING CODE 8010-01-M