[Federal Register Volume 64, Number 154 (Wednesday, August 11, 1999)]
[Notices]
[Page 43793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20634]



[[Page 43793]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41700; File No. SR-BSE-99-04]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Boston Stock Exchange, Inc. Relating to Its Minor Rule 
Violation Plan

August 3, 1999.

I. Introduction

    On March 26, 1999, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the Summary Fine 
Schedule of the Minor Rule Violation Plan through the addition of 
violations of Rule 11Ac1-4 under the Act (``Display Rule'').\3\ Notice 
of the proposed rule change appeared in the Federal Register on May 20, 
1999.\4\ The Commission received no comment letters about the proposed 
rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.11Ac1-4.
    \4\ Securities Exchange Act Release No. 41396 (May 13, 1999) 64 
FR 27609.
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II. Description of the Proposal

    The Exchange proposes to amend its Minor Rule Violation Plan 
(``Plan'') to include violations of the Display Rule which are 
inadvertent or unintentional. The amendment will allow the assessment 
of fines, rather than a full disciplinary procedure in such situations.
    The proposal provides that failure to display a customer limit 
order immediately (no later than 30 seconds) after receipt will result 
in a written warning for the initial offense. A second offense will 
result in a $50 fine. Subsequent offenses will be fined at $100. The 
proposal allows for calculation of subsequent violations on the basis 
of a rolling 12 month period. Where violations of the Display Rule are 
found to be intentional, however, the Exchange is not precluded under 
the proposal from initiating formal Disciplinary Proceedings under 
Chapter XXX or imposing sanctions of more or less than the recommended 
fines (not to exceed $2,500 in any event).

III. Discussion

    The Commission has reviewed carefully the Exchange's proposal, and 
finds, for the reasons set forth below, that the proposed rule change 
is consistent with the Act and the rules and regulations under the Act 
applicable to a national securities exchange.\5\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Sections 6(b)(5), 6(b)(6), 11A(a)(1)(C)(iii) and (iv) of the Act and 
Rule 11Ac1-4 under the Act.\6\ Section 6(b)(5) of the Act requires that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, 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. Section 
6(b)(6) of the Act provides that the rules of an exchange provide that 
its members and associated persons be appropriately disciplined for 
violations of the Act and the rules of the exchange.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5), 15 U.S.C. 78f(b)(6), 15 U.S.C. 78k-
1(a)(1)(C)(iii) and (iv), and 17 CFR 240.11Ac1-4.
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    In Section 11A of the Act, Congress found that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities, and to assure the 
practicability of brokers executing investors' orders in the best 
market. The proposed rule change should help to ensure the timely 
availability of information with respect to quotations.
    The Display Rule, which the Commission adopted under Section 11A of 
the Act, requires specialists to display immediately, i.e., as soon as 
practicable (which under normal market conditions means no later than 
30 seconds from the time of receipt) \7\ the price and full size of 
customer limit orders that would improve the bid or offer in a security 
or add to the size of the best bid or offer. The Commission believes 
that displaying customer limit orders benefits investors by providing 
enhanced execution opportunities and improved transparency.\8\ The 
Commission finds that the proposal reinforces the obligations of an 
exchange specialist to display immediately certain customer limit 
orders in accordance with Sections 6 and 11A of the Act and the Display 
Rule.
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    \7\ See Securities Exchange Act Release No. 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996) (``Adopting Release''). A 
specialist is not displaying customer limit orders immediately if 
the specialist regularly executes customer limit orders at, for 
example, the 27th second after receipt. The requirement that a limit 
order be displayed ``immediately'' means that the limit order must 
be displayed as soon as practicable, but no later than 30 seconds 
after receipt under normal market conditions. This 30 seconds is an 
outer limit under normal market conditions and is not to be 
interpreted as a 30-second safe harbor.
    \8\ Id.
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    Although the Commission believes that certain violations of the 
Display Rule are amenable to efficient and equitable enforcement and 
therefore are appropriate for inclusion in the Exchange's Plan, because 
a violation of the Display Rule amounts to a violation of federal 
securities law, the Commission expects that the Exchange will err on 
the side of caution in disposing of such violations under the Plan. The 
Commission expects the Exchange will continue to resolve intentional 
violations of the Display Rule through formal disciplinary proceedings.

IV. Conclusion

    For the above reasons, the Commission finds that the proposed rule 
change, as amended, is consistent with the provisions of the Act, and 
in particular with Sections 6(b)(5), 6(b)(6), 11A(a)(1)(C)(iii) and 
(iv) of the Act, and rule 11Ac1-4 under the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
act,\9\ that the proposed rule change (SR-BSE-99-04), be and hereby is 
approved.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-20634 Filed 8-10-99; 8:45 am]
BILLING CODE 8010-01-M