[Federal Register Volume 64, Number 7 (Tuesday, January 12, 1999)]
[Notices]
[Pages 1838-1839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-590]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40871; File No. SR-BSE-98-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Boston 
Stock Exchange, Inc. Relating to Mandatory Year 2000 Testing

December 31, 1998.
    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 December 23, 1998, 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to approve the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange seeks to adopt mandatory Year 2000 testing and 
reporting guidelines. The text of the proposed rule change is below. 
Proposed new language is italicized.
* * * * *

CHAPTER XXXIII

Boston Exchange Automated Communication Order-routing Network

(BEACON)

Year 2000 Testing

    Sec. 8(a) Each member and member organization shall participate 
in testing of computer systems designed to prepare for Year 2000, in 
a manner and frequency prescribed by the Exchange, and shall provide 
to the Exchange reports related to such testing as requested by the 
Exchange.
    (b) The Exchange may exempt a member or member organization from 
this requirement if that member cannot be accommodated in the 
testing schedule by the organization conducting the test, if the 
member does not employ computers in its business, or for other good 
reasons.
    (c) Every member of the Exchange that clears securities 
transactions on behalf of other broker-dealers must take reasonable 
measures to ensure that each broker-dealer for which it clears 
securities transactions conducts testing with such member.

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 Exchange 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 Exchange 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 specifically mandate 
that all Exchange member firms, unless exempt, participate in Year 2000 
(``Y2K'') tests and report on Y2K remediation progress. The Exchange is 
proposing that the rule expire on January 2, 2001 so that the Exchange 
will be empowered to continue requiring testing and reporting as 
necessary to correct any Y2K problems which may not be resolved prior 
to January 1, 2000, as well as any unforeseen problems which may arise 
after January 1, 2000. Unresolved programming issues could result in 
erroneous data causing significant disruption in the securities 
industry,

[[Page 1839]]

and the various levels of testing occurring today will help to identify 
where additional work is required. Thus the Exchange seeks to mandate 
compliance with testing guidelines and will discipline members that 
fail to participate in the required Y2K testing and reporting of 
progress to the Exchange.
    Testing requirements may include participation in Securities 
Industry Association (``SIA'') sponsored industry-wide point-to-point 
tests and extended point-to-point tests. Reporting requirements may 
include compliance with Commission-mandated B/D reports and any 
Exchange requested reports, questionnaires or surveys regarding 
preparations, preparedness and/or results.\3\
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    \3\ The potential scope of BSE's testing and reporting 
requirements was clarified during a conversation between Karen 
Aluise, Vice President, BSE, and Joshua Kans, Attorney, Division of 
Market Regulation, Commission, December 22, 1998.
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    In addition, the Exchange proposes to exempt members and member 
organizations from this requirement if they cannot be accommodated in 
the testing schedule by the organization conducting the test, if they 
do not employ computers in their business, or for other good reasons. 
Furthermore, the Exchange proposes to require that any member of the 
Exchange that clears securities transactions on behalf of other broker-
dealers must take reasonable measures to ensure that each broker-dealer 
for which it clears securities transactions conducts testing with such 
member.
2. Basis
    The Exchange believes that the statutory basis for the proposed 
rule change is section 6(b)(5) of the Act,\4\ which requires that an 
exchange have rules that are designed 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 to perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \5\ 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 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

    No written comments were either solicited or received.

III. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful consideration, the Commission has concluded, for the 
reasons set forth below, that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder. Mandating Year 2000 testing and reporting is consistent 
with section 6(b)(5) of the Act, which, among other aspects, requires 
that the rules of an exchange promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, and remove impediments to 
and perfect he mechanism of a free and open market and a national 
market system. The Commission believes that the proposed rule change 
will facilitate the BSE's and member firms' efforts to ensure the 
securities markets' continued smooth operation during the period 
leading up to and beyond January 1, 2000.
    The Exchange has requested that the Commission approve the proposed 
rule change prior to the 30th day after the date of publication of 
notice of the filing in the Federal Register to ensure that as many 
firms as possible participate in Year 2000 testing. The Commission 
finds good cause for approving the proposed rule change prior to the 
30th day after the date of publication of notice of the filing in the 
Federal Register. It is vital that self-regulatory organizations 
(``SROs'') such as the BSE have the authority to mandate that their 
member firms participate in Year 2000 testing and that they report test 
results (and other Year 2000 information) to the SROs. The proposed 
rule change will help the BSE participate in coordinating Year 2000 
testing, including industry-wide testing, and in remediating any 
potential Year 2000 problems. This, in turn, will help ensure that the 
industry-wide tests and the BSE's Year 2000 efforts are successful. The 
proposed rule change will also help the BSE work with its member firms, 
the SIA, and other SROs to minimize any possible disruptions the Year 
2000 may cause.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., 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 Room. 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-98-15 and should 
be submitted by February 2, 1999.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\5\ that the proposed rule change (SR-BSE-98-15) is hereby approved on 
an accelerated basis.\6\
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    \5\ 15 U.S.C. 78s(b)(2).
    \6\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-590 Filed 1-11-99; 8:45 am]
BILLING CODE 8010-01-M