[Federal Register Volume 60, Number 39 (Tuesday, February 28, 1995)]
[Notices]
[Pages 10882-10884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4857]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35404; File No. SR-BSE-95-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Boston Stock Exchange, Inc. Requesting Permanent Approval of
Its Competing Specialist Initiative
February 22, 1995.
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
6, 1995, the Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The BSE seeks permanent approval of its Competing Specialist
Initiative. Specifically, the rules proposed for adoption are:
Additions are italicized and deletions are [bracketed].
Chapter XV--Specialists
* * * * * [[Page 10883]]
Sec. 17.
* * * * *
Procedures for Competing Specialists
Sec. 18. Any specialist can apply to the Exchange to function as a
competing specialist pursuant to these procedures:
1. Applications to compete must be directed to the Market
Performance Committee in writing and must list in order of preference
the stock(s) in which the applicant intends to compete. The Market
Performance Committee will use the following guidelines in reviewing an
application:
overall performance evaluation results of the applicant
financial capability
adequacy of manpower on the floor
objection by the regular specialist in a stock, with or
without cause
2. Any objection\1\ by the regular specialist to permit
competition in one or more of such specialist's stocks must be in
writing and filed with the Exchange within 48 hours\2\ of notice\3\ of
the competing specialist's application. The objection will be
considered by the Market Performance Committee in reviewing the
application, and its decision may be appealed to the Executive
Committee.
\1\Only the regular specialist can object to competition in his/
her stocks.
\2\Unless the regular specialist is unavailable, in which case
within 48 hours of becoming available.
\3\Once an application is received by the Exchange, a written
notification will be issued to the regular specialist(s) in whose
stocks competition is being sought.
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3. All applicants must be registered with the Exchange as
specialists and must meet the current minimum requirements for
specialists set forth in Chapter XV, the minimum capital and equity
requirements as set forth in Chapters VIII and XXII of the Rules of the
Exchange, and conform to all other performance requirements and
standards set forth in the Rules of the Exchange. A competing
specialist will be subject to all of the rules and policies applicable
to a regular specialist.
4. All applicant organizations, existing or newly created, must
satisfy the Market Performance Committee that they have sufficient
manpower to fulfill the functions of a specialist as set forth in
Chapter XV in all of the stocks in which the applicant will be
registered either as a regular or a competing specialist.
5. The regular specialist will receive all orderflow not
specifically directed to a competitor.
6. The receiving specialist is responsible for all orders directed
to him/her.
7. In any competitive situation, if either the regular specialist
to whom a stock was originally assigned or the specialist organization
which subsequently received approval to compete with the regular
specialist desires to terminate the competition by requesting that it
be relieved of the stock that is the subject of competition, it should
so notify the Market Performance Committee at least 3 business days
prior to the desired effective date of such withdrawal. When the
regular specialist requests to be relieved of a stock, the stock shall
be posted for reallocation by the Stock Allocation Committee. In the
interim, if the Market Performance Committee is satisfied that the
competing specialist can continue to maintain a fair and orderly market
in such stock, the competing specialist shall serve as the regular
specialist until the stock has been reallocated.\4\ Where there is more
than one competing specialist in the stock, Exchange staff shall place
the stock with a caretaker until reallocation.
\4\Once the stock has been reallocated to a regular specialist,
that specialist shall not be permitted to object to competition in
such stock.
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8. Any competing specialist who withdraws his/her registration in
a stock will be barred from applying to compete in that same stock for
a period of ninety (90) days following the effective date of
withdrawal.
9. Notwithstanding the existence of competing specialist
situations, there is only one Exchange market in a security subject to
competition. Due to the ease of communications on the Floor via the
Stentofon System, it will not be necessary to locate competing
specialists adjacent to each other. However, the regular specialist
will be responsible for updating quotations; thus all competitors must
communicate their markets to the regular specialist and be responsible
for their portion of the published bid and/or offer. Also, competitors
must cooperate with the regular specialist regarding openings and
reopenings to ensure that they are unitary.
10. Limit orders entrusted to each competing specialist are to be
represented and executed strictly according to time priority as to
receipt of the order in the BEACON System.
11. Competing specialists must keep each other informed and
communicate to inquiring Floor brokers the full size of any executable
``all-or-none'' orders in their possession since all-or-none orders
cannot be represented in the published quote. The competing specialists
are expected to represent such orders on a ``best efforts'' basis to
ensure the execution of the entire order at a single price or prices,
or not at all.
12. The registration of any competing specialist may be suspended
or terminated by the Market Performance Committee upon a determination
of any substantial or continued failure by such competing specialist to
engage in dealings in accordance with the Constitution and Rules of the
Exchange.
13. Competing Specialists shall be allowed to execute their
customer orderflow which is related to index arbitrage only on plus or
zero plus ticks when the Dow Jones Industrial Average (``DJIA'')
declines by fifty points or more from the previous day's closing value.
Such requirement shall remain in effect for the remainder of the
trading day once it has been activated, except that the requirement
shall no longer apply where the DJIA moves back to a value which is
twenty-five points or less from the previous day's closing value.
``Index arbitrage'' is defined as an arbitrage trading strategy
involving the purchase or sale of a group of stocks in conjunction with
the purchase or sale, or intended purchase or sale, of one or more
cash-settled options or futures contracts on index stock groups or
options on any such futures contracts, in an attempt to profit from the
price difference between the group of stocks and the derivative index
products.
The Specialist's Book
Sec. 6. The Specialist's book is the book, file or record in which
all orders entrusted to the Specialist in a particular issue must be
kept. It shall be closed at all times and the information therein
contained shall not be divulged or permitted to come to the knowledge
of anyone except the Specialist or relief Specialist for that book, or
to the Board of Governors, a committee of the Exchange, or the Chairman
or Officer designated by him, except that a Specialist may disclose
information contained in his/her book [;]:
(i) for the purpose of demonstrating the methods of trading to
visitors to the Floor; [or]
(ii) to other market centers in order to facilitate the operation
of ITS or any other Application of the System provided, in either case,
that at the same time he makes the information disclosed available to
all members [.]; or
(iii) to competing specialists in his/her stocks on a summary basis
as provided for in the ``Procedures for Competing Specialists''.
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 [[Page 10884]] 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 seek permanent
approval of the Exchange's Competing Specialist Initiative (``CSI'')
pilot program which is scheduled to expire on May 18, 1995. CSI permits
competing specialists on the floor of the Exchange in the form of one
regular specialist and one or more competing specialists. Orders are
directed to either specialist based on each customer's independent
decision, but all orders in a stock are executed in accordance with
strict time priority. Once all limit orders at a price level are
depleted, each specialist is responsible for the market orders directed
to them.
The regular specialist is responsible for updating quotations and
coordinating openings and reopenings to ensure they are unitary. All
ITS activity must be cleared through the regular specialist. To all
other markets in the National Market System, there is only one Boston
market. Trading halts are coordinated through the regular specialist
and apply to all competitors in a stock.
In addition, all competitors will be evaluated on competing stocks
in the Exchange's Specialist Performance Evaluation Program.
2. Statutory Basis
The BSE believes that the statutory basis for this proposal is
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
Comments were neither solicited nor received.
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 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 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 six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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, N.W.,
Washington, D.C. 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-95-02 and should be
submitted by March 21, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-4857 Filed 2-27-95; 8:45 am]
BILLING CODE 8010-01-M