[Federal Register Volume 64, Number 215 (Monday, November 8, 1999)]
[Notices]
[Pages 60863-60864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29099]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42074; File No. SR-BSE-99-11]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Granting Approval to Proposed Rule Change Implementing a Post Primary 
Session

October 29, 1999.

I. Introduction

    On July 13, 1999, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), 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 implement a Post Primary 
Session (``PPS'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on September 8, 1999. No comments were received on the 
proposal. This order approves the proposal.

II. Description of the Proposal

    The Exchange proposes to extend the close of trading on the BSE 
from 4 p.m. to 4:15 p.m. Eastern Time, creating a new PPS. Pursuant to 
Chapter I-B, Section 1 (Primary Session), the current trading hours at 
the Exchange are from 9:30 a.m. until 4:00 p.m. Eastern Time. The 
proposal will extend these hours for an additional fifteen minutes, 
until 4:15 p.m. Eastern Time. Under the proposal, all Exchange rules 
applicable to floor trading during the Exchange's Primary Session will 
continue to apply during the PPS, with the following exceptions: (1) 
Only orders that are designated ``PPS'' will be eligible for execution; 
(2) limit order on the book from the Primary Session will not be 
eligible for execution, but will carry over to the next day; (3) there 
will be no automated executions; (4) there will be no application of 
the Execution Guarantee Rule,\3\ and (5) GTX \4\ orders will be 
executable after the close of the PPS (i.e., GTX orders are executable 
after 4:15 p.m. instead of 4:00 p.m. Eastern Time). Accordingly, the 
Exchange proposes to amend the following rules: (1) Chapter I-B, 
Sections 2 and 3, and (2) Chapter IIB, Sections 1 and 3.
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    \3\ See BSE Rules, Paragraph 2039A, Section 33.
    \4\ For a description of GTX Orders, see ``GTX Orders'' infra.
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PPS Eligible Orders

    Pursunt to the proposed amendment of Chapter IIB, Section 3, only 
orders designated ``PPS'' will be eligible for execution during the 
PPS. Since the PPS is merely an extension of the Exchange's auction 
market, wherein bids and offers are continuously updated for trading 
under normal auction market principles, Exchange rules will continue to 
apply. Thus, to be designated as eligible for execution in the PPS, a 
market, limit, or contingent order must be acceptable under current 
Exchange rules.
    Under the proposal, limit orders on the book from the Primary 
Session are not eligible for the PPS, and must be carried over to the 
next day. Also, those limits orders that are received during the PPS 
(and thus PPS eligible) remain subject to the Limit Order Display 
Rule.\5\
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    \5\ See Chapter II, Section 40, Paragraph 2039B7.
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GTX Orders

    A GTX Order is an agency limit order that is good until canceled, 
and is eligible for primary market protection based on the volume that 
prints on the after-hours trading session of the New York Stock 
Exchange or the American Stock Exchange. Thus, a GTX Order may be 
executed during regular trading hours or after the PPS, at 5 p.m. 
Eastern Time, but no GTX Order may be executed during the PPS.

BEACON as a Routing System

    ``BEACON'' is the acronym for the Boston Exchange Automated 
Communication Order-routing Network. It provides a system for the 
automatic execution of orders on the Exchange under predetermined 
conditions. Orders accepted under the system may be executed on a fully 
automated or manual basis. The Exchange proposes to amend Chapter IIB, 
Section 3(b), to indicate that BEACON will continue to operate as a 
routing system for PPS eligible orders, but will not provide an 
automatic execution mechanism.

Operation of the ITS System During the PPS

    In the amendment to Chapter IIB, Section 3(a), the BSE represents 
that ITS will be available for both inbound and outbound commitments 
during the PPS to the extent that other market centers (i.e., the 
Pacific Exchange, Inc. (``PCX''),\6\ the Philadelphia Stock Exchange, 
Inc. (``PHLX'') \7\ and the Chicago Stock Exchange, Inc. (``CHX'')) \8\ 
are open for trading. The BSE also represents that it will perform 
surveillance during the PPS in the same manner and using the same 
techniques as those used during the Primary Session. To facilitate the 
surveillance of the PPS, BSE's surveillance staff will remain on-site 
during the PPS and for any necessary additional time period after the 
close of the PPS.
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    \6\ PCX's regular equity session closes at 4:30 p.m. Eastern 
Time. During the crossing session, PCX does not utilize ITS. See PCX 
Rule 4.2, Commentary .02.
    \7\ PHLX operates a Post Primary Session from 4 p.m. until 4:15 
p.m. Eastern Time which is an extension of its regular auction 
market. During the Post Primary Session, PHLX utilizes ITS to the 
same extent it does during regular trading hours. See PHLX Rule 101.
    \8\ CHX's primary session closes at 4 p.m. Eastern Time. CHX 
conducts an Extended Session from 4 p.m. until 4:30 p.m. Eastern 
Time. Both sessions utilize ITS. See generally Article 20, CHX Rules 
20, 37, 39, 40 and 41.
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Execution Guarantee Does Not Apply

    The Execution Guarantee provides that Specialists must guarantee 
execution on all agency market and marketable limit orders from 100 up 
to and including 1,299 shares. According to the proposed amendments to 
Chapter IIB, Section 3(d), the Execution Guarantee will not be 
available in any form during the PPS.

III. Discussion

    The Commission has reviewed carefully the BSE's proposed rule 
change \9\ and finds, for the reasons set forth below, that the 
proposal is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange, and in particular, with the requirements of Section 6(b).\10\ 
In particular, the Commission finds the proposal is consistent with the 
Section 6(b)(5) \11\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public, in that it is reasonably designed to promote just and 
equitable principles of trade, and, in general, perfect the mechanism 
of a free and open national market system. The implementation of the 
BSE's Post Primary Session should enhance

[[Page 60864]]

competition in the expanding after-hours market.
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    \9\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the implementation of the Exchange's PPS 
does not raise any new regulatory concerns. The Exchange will provide 
full transparency by disseminating quotes through the Consolidated 
Quotation System and reporting trades to the consolidated tape. The 
Commission notes that investors are accustomed to trading after-hours 
on regional exchanges between 4 p.m. and 4:30 p.m.,\12\ and that the 
implementation of BSE's PPS does not significantly alter the after-
hours market with regard to regional exchanges during that time period. 
In addition, the Commission has not received any comment letters from 
the public or BSE members raising any regulatory issues in connection 
with the implementation of the PPS.
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    \12\ See supra footnotes 6-8.
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    The Commission believes that it is reasonable for the Exchange to 
implement the rule changes discussed above \13\ during the PPS. Given 
that the after-hours trading market is in its nascent stage, with 
differences in volatility, liquidity, and volume as compared to the 
traditional trading session, the Commission believes it is reasonable 
to require investors to affirmatively choose to participate in the 
developing after-hours market. The Commission believes investors will 
be better protected if the Exchange requires them to knowingly opt-in 
to the PPS.
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    \13\ See supra Section II, PPS Eligible Orders, GTX Orders, and 
Execution Guarantee Does Not Apply.
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C) of the Act.\14\ Congress found in those provisions 
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.\15\ The proposed rule change accomplishes the objectives of the 
Act by providing an opportunity for investors to trade outside of 
traditional market hours, complete with the safeguards and standards 
upon which investors have come to rely during traditional market hours.
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    \14\ 15 U.S.C. 78k-1(a)(1)(C).
    \15\ Id.
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    The Commission further notes that BSE has represented it intends to 
implement surveillance procedures during the PPS. Such surveillance 
should assist BSE in satisfying the requirements of Section 6(b)(5) of 
the Act \16\ that Exchange rules be designed to prevent fraudulent and 
manipulative acts and practices, and to promote just and equitable 
principles of trade. Accordingly, the Commission does not believe that 
the Exchange's implementation of a PPS will have an adverse effect on 
the maintenance of fair and orderly markets of disadvantage public 
customers.
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    \16\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-BSE-99-11) is approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29099 Filed 11-5-99; 8:45 am]
BILLING CODE 8010-01-M