[Federal Register Volume 60, Number 97 (Friday, May 19, 1995)]
[Notices]
[Pages 26908-26909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12312]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35716; File No. SR-BSE-95-07]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Boston 
Stock Exchange, Inc., Relating to Its Competing Specialist Pilot 
Program

May 15, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 5, 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 and 
II below, which Items have been prepared by the self-regulatory 
organization. On May 9, 1995, the BSE filed Amendment No. 1 with the 
Commission.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
    \3\See letter from Karen Aluise, BSE, to Glen Barrentine, SEC, 
dated May 9, 1995. In Amendment No. 1 the BSE removed its request to 
expand the pilot program by the number of securities, as well as the 
number of specialists per issue. The limitations imposed in the 
original approval order will remain through the extension (maximum 
of three specialists per stock; each specialist can compete in a 
maximum of 20 stocks). Thus, during the pilot program, the total 
number of stocks subject to competition will not exceed 360.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE seeks to extend the current pilot program for competing 
specialists on its floor until October 2, 1995.

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 III 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 extend the current 
pilot program for competing specialists until October 2, 1995. The 
program currently provides for up to three competing specialists in a 
stock on the floor of the Exchange. The pilot program provides for both 
a regular specialist and a competing specialist(s) in a stock, whereas 
currently there is only one specialist in that stock. Orders can be 
directed to either specialist based on each customer's independent 
decision,\4\ but all orders in that stock will be executed in 
accordance with strict time priority. Once all limits at a price level 
are depleted, each specialist is responsible for the market orders 
directed to them specifically.

    \4\Non-specifically directed orders would be routed to the 
regular specialist.
    All limit orders entrusted to each competing specialist and the 
regular specialist will be represented and executed strictly according 
to time priority as to receipt of the order in the BEACON System. Thus 
incoming market and marketable limit orders will automatically execute 
against limit orders on the books according to the order in which the 
limit orders were received in the system.\5\ 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. Openings and 
reopenings shall be coordinated through the regular specialist to 
ensure they are unitary. All ITS activity must be cleared through the 
regular specialist and only the regular specialist can input quotations 
to reflect the Boston market. Thus to all other markets in the National 
Market System, there will be only one Boston market. Trading halts will 
also be coordinated through the regular specialist and any trading halt 
will apply to all competitors in a stock.

    \5\The BEACON System will view all of the limits on the various 
books as one centralized book for purposes of order execution.
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    The Exchange has adopted procedures to provide guidelines for the 
pilot program participants and for the Exchange in its administration 
of the program.\6\ Any new competitive situation will be reviewed by 
the Exchange for the duration of the pilot program. Reports of 
specialists' dealings have been reviewed on a daily basis since the 
inception of the program and periodic reports have been provided to the 
Commission for review. In addition, the program was fully integrated 
into the Exchange's specialist performance evaluation program beginning 
in December 1994.

    \6\See Securities Exchange Act Release No. 34078 (May 18, 1994), 
59 FR 27082 (May 25, 1994); BSE Rules Ch. XV Secs. 18 and 6(iii).
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    Certain technical changes necessitated by the proposed pilot 
program have been made to Chapter XV Sec. 6 regarding the specialist's 
book to permit the competing specialist to see a summary of bids and 
offers at each price level in the subject stock.\7\ This will enable 
all competitors in a stock to know the combined market in that stock.

    \7\The Commission notes that this change was made in the initial 
pilot and will carry forward through the extension being approved 
herein.
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2. Statutory Basis
    The Exchange believes that 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 comments on the 
proposed rule change.

III. 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 [[Page 26909]] 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. Sec. 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-95-07 and should be 
submitted by [insert date 21 days of publication].
IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the BSE's proposal to extend its 
preferencing pilot program to October 2, 1995 is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange. Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act\8\ in that it will promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market and a national market system. The 
pilot is extended under the same conditions set out in the original 
pilot approval order.\9\

    \8\15 U.S.C. 78f(b)(5) (1988).
    \9\The BSE competing specialist program is limited by the 
following: (1) a competing specialist may preference up to a maximum 
of 20 stocks; (2) the number of competitors in any given stock is 
limited to three (one regular specialist and two competing 
specialists); (3) no payment for order flow; and (4) no index 
arbitrage. The Commission also notes that prior to the original 
approval order the BSE represented that, during the pilot program, 
the total number of stocks subject to competition will not exceed 
360. See Securities Exchange Act Release No. 34078 (May 18, 1994), 
59 FR 27082 (May 25, 1994).
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    The Commission notes that pursuant to its original pilot approval 
order, the BSE was required to submit quarterly data reports and a 
report analyzing such data.\10\ The BSE has submitted data to the 
Commission. In addition, the Commission has received extensive 
commentary on the Cincinnati Stock Exchange's (``CSE'') request for 
permanent approval of its preferencing pilot\11\ that present issues 
similar to those raised by the BSE pilot. In sum, the Commission is 
reviewing the comments and data submitted thus far, and believes that 
due to the complexity of the issues, and significant amount of data, 
the preferencing pilot should be extended to provide the Commission 
with adequate time to more thoroughly evaluate the data and the issues 
involved in the filing for permanent approval.

    \10\See Securities Exchange Act Release No. 34078 (May 18, 
1994), 59 FR 27082 (May 25, 1995).
    \11\See, File No. SR-CSE-95-03, Securities Exchange Act Release 
No. 35448 (March 7, 1995), 60 FR 13493 (March 13, 1995). The 
comments received on this proposal are available from the CSE or the 
Commission. (See Section III, supra.)
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the proposal is appropriate in 
order to avoid an unnecessary interruption to the pilot while allowing 
the Commission to continue to evaluate the data.
    It is therefore ordered, pursuant to Section 19(b)(2)\12\ that the 
proposed rule change is hereby approved, and the competing specialist 
pilot is extended through October 2, 1995.

    \12\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\

    \13\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12312 Filed 5-18-95; 8:45 am]
BILLING CODE 8010-01-M