[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21176]


[[Page Unknown]]

[Federal Register: August 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34569; File No. SR-BSE-94-09]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Boston Stock Exchange, Inc., Relating to Stopping Stock

August 22, 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 June 20, 
1994, the Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I, II and III below, 
which Items have been prepared by the self-regulatory organization. On 
June 24, 1994, the Exchange submitted to the Commission Amendment No. 1 
to the proposed rule change in order to clarify its pilot procedures 
for stopping stock in minimum variation markets and to specify the 
duration of that pilot program.\1\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\See letter from Karen A. Aluise, Assistant Vice Pr5esident, 
BSE, to Sandra Sciole, Special Counsel, Division of Market 
Regulation, SEC, dated June 21, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE seeks to codify its longstanding practice of stopping stock 
and to establish a procedure for stopping stock in minimum variation 
markets.\2\ The text of the proposed new rule is as follows:
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    \2\The BSE has proposed a March 21, 1995 termination date for 
its minimum variation market pilot program to conform with the pilot 
programs of other exchanges. see Amendment No. 1, supra, note 1.
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Chapter II of the BSE's Rules of the Board of Governors

    Section 38 (a) Stop Constitutes Guarantee--An agreement by a 
member or member organization to ``stop'' securities at a specified 
price shall constitute a guarantee of the purchase or sale by him or 
it of the securities at the price or its equivalent in the amount 
specified.
    (b) Execution of Stopped Orders--A market order which has been 
accepted by a specialist and stopped shall be executed on the last 
sale or based on subsequent prints. While the specialist is holding 
such order, the order should be reflected in the Exchange market.
    (c) Liability for Stopped Orders--If an order is executed at a 
less favorable price than that agreed upon, the member or member 
organization which agreed to stop the securities shall be liable for 
an adjustment of the difference between the two prices.
    (d) Stopping Stock in Minimum Variation Markets--In the case of 
a minimum variation market, a stopped sell order will be filled when 
a transaction takes place at the bid price or lower on the primary 
exchange, when the Exchange's displayed share volume at the offering 
has been exhausted, or may be filled at any time at a better price. 
A stopped buy order will be filled when a transaction takes place at 
the offering price or higher on the primary exchange, when the 
Exchange's displayed share volume at the bid has been exhausted, or 
may be filled at any time at a better price. Notwithstanding the 
foregoing, all orders stopped pursuant to this paragraph shall be 
executed by the end of the trading day on which such order was 
stopped at no worse than the stopped price.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to codify the 
longstanding practice\3\ that exists on the Exchange regarding stopping 
stock. In addition, the Exchange seeks to adopt a pilot provision 
regarding stopping stock in minimum variation markets.
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    \3\The practice of stopping stock has existed on the Exchange 
since at least 1966.
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The General Rule

    Because the Exchange provides primary market price protection, it 
is essential that its specialists have the ability to guarantee primary 
market prices without negatively impacting the overall market through 
the dissemination of executions at prices away from the primary market 
(for example, in sitatutions involving double up or down tricks, new 
highs or new lows, or out-of-range prints). The stop permits a BSE 
specialist to guarantee to its customers that their orders will be 
filled at the stop price, with an opportunity for price improvement. 
The BSE believes such price improvement potential is clearly a benefit 
to the customer.

Stopping Stock in Minimum Variation Markets

    The Exchange seeks to establish a procedure regarding the execution 
of stopped market orders in minimum variation markets (usually a 1/8th 
spread market).\4\ The proposed rule would require the execution of 
stopped market orders in minimum variation markets (a) after a 
transaction takes place at the stop price or worse (higher for buy 
orders and lower for sell orders), (b) after the applicable Exchange 
share volume is exhausted, or (c) at any time prior to (a) or (b) if 
filled at an improved price. In no event would a stopped order be 
executed at a price inferior to the stop price. The BSE believes that 
the proposed rule would continue to benefit customers because they 
might receive a better price than the stop price, yet it also protects 
Exchange specialists by eliminating their exposure to executing 
potentially large amounts of pre-existing bids or offers when such 
executions would not otherwise be required under Exchange rules.
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    \4\This procedure would be implemented on a pilot basis until 
March 21, 1995. See Amendments No. 1, supra, note 1.
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2. Statutory Basis
    The proposed rule change is consistent with section 6(b)(5) of the 
Act in that it furthers the objectives 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 a national market system 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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received written 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. The Commission specifically 
requests that commenters address whether the proposed procedures for 
stopping stock in minimum variation markets could disadvantage 
customers with unexecuted limit orders on the specialist's book and 
thus could be inconsistent with traditional auction market principles, 
as embodied in Section 11 of the Act and Chapter II, Section 6 of the 
BSE Rules. Persons making written submissions should file six 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-94-09 and should be submitted by September 19, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21176 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M