[Federal Register Volume 61, Number 120 (Thursday, June 20, 1996)]
[Notices]
[Pages 31573-31574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15664]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37308; File No. SR-BSE-96-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Boston Stock Exchange, Inc. Relating to Its Specialist 
Performance Evaluation Program

June 12, 1996.
    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 11, 
1996, the Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') filed 
with the Securities 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. On June 11, 
1996 the Exchange submitted to the Commission Amendment No. 1 to the 
proposed rule change.\1\ The Commission is publishing this notice to 
solicit comments on the proposed rule change and Amendment No. 1 
thereto from interested persons.
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    \1\ See Letter from Karen Aluise, Assistant Vice President, BSE, 
to Sharon Lawson, Senior Special Counsel, SEC, dated June 11, 1996 
(``Amendment No. 1''). Amendment No. 1 corrects typographical errors 
in the original filing as to the existing and proposed program 
weight assigned to the Turnaround Time measure. Amendment No. 1 also 
adds a proposal to raise the overall score at which a specialist 
will be deemed to have adequately performed from 5.80 to 6.70 in 
order to account for the proposed changes to the threshold levels 
and weights.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE seeks to amend its Specialist Performance Evaluation 
Program (``SPEP'').\2\
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    \2\ The SEC initially approved the BSE's SPEP pilot program in 
Securities Exchange Act Release No. 22993 (March 10, 1986), 51 FR 
8298 (March 14, 1986) (File No. SR-BSE-84-04). The SEC subsequently 
extended the pilot program in Securities Exchange Act Release Nos. 
26162 (October 6, 1988), 53 FR 40301 (October 14, 1988) (File No. 
SR-BSE-87-06); 27656 (January 30, 1990), 55 FR 4296 (February 7, 
1990) (File No. SR-BSE-90-01); 28919 (February 26, 1991), 56 FR 9990 
(March 8, 1991) (File No. SR-BSE-91-01); and 30401 (February 24, 
1992), 57 FR 7413 (March 2, 1992) (File No. SR-BSE-92-01). The BSE 
was permitted to incorporate objective measures of specialist 
performance into its pilot program in Securities Exchange Act 
Release No. 31890 (February 19, 1993), 58 FR 11647 (February 26, 
1993) (File No. SR-BSE-92-04), at which point the initial pilot 
program ceased to exist as a separate program. The current pilot 
program was subsequently extended in Securities Exchange Act Release 
Nos. 33341 (December 15, 1993), 58 FR 67875 (December 22, 1993) 
(File No. SR-BSE-93-16); 35187 (December 30, 1994), 60 FR 2406 
(January 9, 1995) (File No. SR-BSE-94-12); and 36668 (January 2, 
1996), 61 FR 672 (January 9, 1996) (File No. SR-BSE-95-16) 
(``January 1996 Approval Order''). SEC approval of the current pilot 
program expires on December 31, 1996.
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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
    The purpose of the proposed rule change is to modify the current 
SPEP measures' threshold levels, weights, and review standards.\3\ The 
Exchange has been continuously monitoring the performance of its 
specialists in relation to the current SPEP standards, and has 
determined the following:

    \3\ The BSE's SPEP currently consists of five measures of 
performance, each accounting for a certain percentage of a 
specialist's overall evaluation score: Turnaround Time (15%); 
Holding Orders Without Action (15%); Trading Between the Quote 
(25%); Executions in Size Greater Than BBO (25%) and Questionnaire 
(20%). The Exchange has set thresholds at which a specialist will 
have been deemed to have adequately performed overall, and with 
regard to each measure, on the SPEP: Overall Evaluation Score--at or 
above weighted score of 5.80; Turnaround Time--below 21 seconds (8 
points); Holding Orders Without Action--below 21% (7 points); 
Trading Between the Quote--at or above 26.0% (5 points); Executions 
in Size Greater Than BBO--at or above 76% (6 points); and 
Questionnaire--at or above weighted score of 50.0 (4 points). For a 
detailed description of each of the measures of performance and the 
review standards applicable to specialists performing below the set 
thresholds, see January 1996 Approval Order, supra note 2.
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    (1) The Trading Between the Quote threshold level, currently at 
26.0, should be raised to 31.0;
    (2) Executions in Size Greater Than BBO threshold level, 
currently at 76.0, should be raised to 81.0;
    (3) The Turnaround Time program weight, currently at 15%, should 
be increased to 20%;
    (4) The Holding Orders Without Action program weight, currently 
at 15%, should be decreased to 5%;
    (5) The Trading Between the Quote program weight, currently at 
25%, should be increased to 35%;
    (6) The Executions in Size Greater Than BBO program weight, 
currently at 25%, should be increased to 35%;
    (7) The Questionnaire program weight, currently at 20%, should 
be decreased to 5%;
    (8) The standard for Performance Improvement Action Committee 
review for

[[Page 31574]]

substandard performance in any one objective measure, currently set 
at two out of three consecutive review periods, will be changed to 
the first instance of substandard performance;
    (9) The standard for Market Performance Committee review for 
substandard performance in any one objective measure, currently set 
at three out of four consecutive review periods, will be changed to 
two out of three consecutive review periods;
    (10) The standard for Market Performance Committee review for 
substandard performance on the overall program, currently set at two 
out of three consecutive review periods, will be changed to the 
first instance of substandard performance; and
    (11) The Overall Program score, currently at 5.80, should be 
increased to 6.70 to account for the proposed changes to the 
threshold levels and weights.

    The threshold levels for Turnaround Time, Holding Orders Without 
Action and the Questionnaire, as well as the staff review standards, 
will remain unchanged. The Exchange believes that together, these 
modifications will enhance the SPEP by providing:

    (A) More appropriate threshold levels when overall performance 
has improved beyond the current limits;
    (B) More effective measure weightings which reflect the 
industry's current market quality focus; and,
    (C) A more realistic approach to committee review in view of the 
time horizon required to address substandard performance.

    In addition, the Exchange is currently reviewing additional market 
quality statistics in an effort to develop other measures of 
performance for inclusion in the SPEP, and hopes to file for additional 
modifications to the program in the near future.
2. Statutory Basis
    The basis under the Act for the proposed rule change is Section 
6(b)(5) of the Act \4\ in that the SPEP results weigh heavily in stock 
allocation decisions and, as a result, specialists are encouraged to 
improve their market quality and administrative duties, thereby 
promoting just and equitable principles of trade and aiding in the 
perfection of a free and open market and a national market system.
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    \4\ 15 U.S.C. 78f(b)(5).
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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 and 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 on the proposed rule change 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 Exchange. All 
submissions should refer to File No. SR-BSE-96-05 and should be 
submitted by July 11, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15664 Filed 6-19-96; 8:45 am]
BILLING CODE 8010-01-M