[Federal Register Volume 65, Number 179 (Thursday, September 14, 2000)]
[Notices]
[Pages 55656-55658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 43255; File No. SR-BSE-00-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc., Amending Its Rules to Accommodate Price Quotations in Decimals

September 6, 2000.
    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 August 7, 2000, 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, II, 
and III below, which Items have been prepared by the BSE. On September 
5, 2000, the BSE submitted Amendment No. 1 to the proposal to make 
certain technical corrections in the amended rule language.\3\ The BSE 
has filed the proposal pursuant to Section 19(b)(3)(A) of the Act,\4\ 
and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John Boese, Assistant Vice President, Rule 
Development and Market Structure, Boston Stock Exchange, 
Incorporated, to Alton Harvey, Office Chief, Division of Market 
Regulation, Securities and Exchange Commission, dated September 1, 
2000.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Rules to provide for the 
implementation of decimal pricing. The BSE believes the proposed rule 
change conforms to the uniform industry approach to implementing 
decimal pricing contained in the joint submission to the Commission by 
the BSE and other interested parties dated July 24, 2000, and entitled 
``Decimals Implementation Plan for the Equities and Options Markets'' 
(``Decimals Plan''). The text of the proposed rule change is set forth 
below. Proposed new language appears in italics; proposed deletions 
appear in brackets.
* * * * *

Chapter II

Dealings on the Exchange

Orders to Buy and Sell the Same Security

    Section 18. When a member has an order to buy and an order to sell 
the same security, he shall audibly offer such security, if bonds at 
\1/8\ of 1%, and if stocks, at the approved [m]Minimum Price [v] 
Variation (``MPV'')[permitted](as defined in Chapter II, Section 41), 
higher than his bid before making a transaction with himself.

Minimum Price Variation

    Section 41. For securities which trade in decimals, the Minimum 
Price Variation shall be 0.01, and for the remaining period until the 
decimals conversion is completed, those securities trading in fractions 
shall continue to trade in Minimum Price Variations as currently 
approved by the Exchange.
* * * * *

Chapter XVII

Members Dealing for Own Account

Make offering above his bid
    (b) A member may take the securities named in the order provided 
(1) he shall have offered the same in the open market at a price which 
is higher than his bid by \1/8\ of 1% if bonds, and by [\1/8\ of one 
dollar if stocks] the approved Minimum Price Variation (``MPV'') (as 
defined in Chapter II, Section 41) if stocks, (2) the price is 
justified by the condition of the market, and (3) the member, if any, 
who gave the order shall directly, or through a broker authorized to 
act for him, after prompt notification, accept the trade;
Make bid below his offer
    (c) A member may supply the securities named in the order, provided 
(1) he shall have bid for the same in the open market at a price which 
is lower than his offer by \1/8\ of 1% if bonds, and by [\1/8\ of one 
dollar if stocks] the approved Minimum Price Variation (``MPV'') (as 
defined in Chapter II, Section 41) if stocks, (2) the price is 
justified by the condition of the market, and (3) the member, if any, 
who gave the order shall directly, or through a broker authorized to 
act for him, after prompt notification, accept the trade;
* * * * *

Chapter XXIV

Portfolio Depositary Receipts

Initial and Continued Listing and/or Trading

Section 5.

Interpretation and Policies:

    10.  The [minimal fractional variation] the approved Minimum Price 
Variation (``MPV'') for dealings in SPDRs and MidCap SPDRs shall be \1/
64\ of $1.00, until such time as the primary market conversion to 
decimals begins, after which the MPV shall be as defined in Chapter II, 
Section 41.
* * * * *

Chapter XXIV-B

Index Fund Shares

Section 5.

Interpretation and Policies:

    .01  (e) [Minimal Fractional Trading Variation] the approved 
Minimum Price Variation (``MPV''). The [minimal fractional trading 
variation] approved MPV may vary among different series of Index Fund 
Shares but will be set at \1/16\th, \1/32\nd, or \1/64\th of $1.00, 
until such time as the primary market conversion to decimals begins, 
after which the MPV shall be as defined in Chapter II, Section 41.
    .05  The [minimum fractional trading variation] approved Minimum 
Price Variation (``MPV'') will be \1/16\th of $1.00 for iShares MSCI 
and \1/64\th of $1.00 for Select Sector SPDRs, until such time as the 
primary market conversion to decimals begins, after which the MPV shall 
be as defined in Chapter II, Section 41.
* * * * *

[[Page 55657]]

Chapter XXXI

Intermarket Trading System

Section 3.

    (a)(I)(A)(i) * * *

------------------------------------------------------------------------
                                                       Applicable Price
            Security                 Consolidated       Change $ (More
                                     closing price           Than)
------------------------------------------------------------------------
Network A.......................  Under $15.........  \1/8\ point, or
                                  $15 or over[*]....   for stocks
                                                       trading in
                                                       decimals, .10
                                                      \1/4\ point, or
                                                       for stocks
                                                       trading in
                                                       decimals, .25
Network B.......................  Under $5..........  \1/8\ point, or
                                  $5 or over[*].....   for stocks
                                                       trading in
                                                       decimals, .10
                                                      \1/4\ point, or
                                                       for stocks
                                                       trading in
                                                       decimals, .25**
------------------------------------------------------------------------

    * If the previous day's consolidated closing price of [an] a 
Network A Eligible [Listed] Security exceeded $100 and the Security 
does not underlie an individual stock option contract listed and 
currently trading on a national securities exchange, the ``applicable 
price change'' is [one point] one dollar.
    ** If the previous day's consolidated closing price of a Network B 
Eligible Security exceeded $75 and the Security is not Portfolio 
Deposit Receipts, Index Fund Shares, or Trust Issued Receipts, or does 
not underlie an individual stock option contract listed and currently 
trading on a national securities exchange, the ``applicable price 
change'' is one dollar.
    (C) indicate the ``applicable price range'' by being formatted as a 
standardized pre-opening administrative message as follows:

    X/XYZ {RANGE}

The price range shall not exceed the ``applicable price range'' shown 
below:

------------------------------------------------------------------------
                                     Consolidated      Applicable price,
            Security                 closing price          range $
------------------------------------------------------------------------
Network A.......................  Under $50.........  \1/2\ point, or
                                  $50 or over[*]....   for stocks
                                                       trading in
                                                       decimals, .50.
                                                      1 point, or for
                                                       stocks trading in
                                                       decimals, 1.00.*
Network B.......................  Under $10.........  \1/2\ point, or
                                  $10 or over.......   for stocks
                                                       trading in
                                                       decimals, .50.
                                                      1 point, or for
                                                       stocks trading in
                                                       decimals, 1.00.**
------------------------------------------------------------------------

    *If the previous day's consolidated closing price of [an] a Network 
A Eligible [Listed] Security exceed $100 and the Security does not 
underlie an individual stock option contract listed and currently 
trading on a national securities exchange, the ``applicable price 
change'' is two [points] dollars.
    **If the previous day's consolidated closing price of Network B 
Eligible Security exceeded $75 and the Security is not Portfolio 
Deposit Receipts, Index Fund Shares, or Trust Issued Receipts, or does 
not underline an individual stock option contract listed and currently 
trading on a national securities exchange, the ``applicable price 
change'' is two dollars.
The price range also shall not straddle the previous day's consolidated 
closing price, although it may include it as an endpoint (e.g., a \1/
8\-\5/8\ , or for stocks trading in decimals, 40.15-40.65 price range 
would be permissible if the previous day's consolidated closing price 
were \1/8\ or \5/8\, or for stocks trading in decimals, 40.15 or 40.65, 
but not if the closing price were \1/4\, \3/8\ or \1/2\, or for stocks 
trading in decimals, within the price range or 40.16--40.64).

(a)(I)(A)(ii)(B)(ii)

    *Example: CT closes at 30. Pre-Opening notification set with any 
one of the following price ranges: 30--30\1/2\; 30\1/8\-30 or 30\1/
4\-30\3/4\, or, for stocks trading in decimals, a price range of 30-
30.64; 30.10-30.74; or 30.25-30.87. It is then determined that the 
stock will open st at 29\3/4\ or 29\7/8\, or, for stocks trading in 
decimals, a price within the range of 29.75 to 29.99. Under 
paragraph (3)(a)(I)(A)(ii)(B)(i), the specialist ``shall'' send a 
cancellation notification. If it is subsequently determined that the 
stock will open a 30, 30\1/8\, or 30\1/4\, or, for stocks trading in 
decimals, a price within a range of 30 to 30.25, the specialist need 
not reindicate the stock pursuant to paragraph 
(3)(a)(I)(A)(ii)(B)(ii).
    (C) Participation as Principal Precluded (``Second Look'')--If a 
responding market-marker, who has shown in his pre-opening response 
interest as principal at a price better than the anticipated opening 
price, would be precluded from participation as principal in the 
opening transaction (e.g. his responding principal interest is to 
sell at a price\1/8\ or more, or, for stocks trading in decimals, 
.01 or more below the opening price established by paid agency 
orders), the specialist shall send a ``second look'' notification 
through the System notifying such responding market-maker of the 
price and size a which he participate as principle (i.e., in the 
parenthetical example above, the total amount of the security that 
he would have to sell the [\1/8\--]better price to permit the 
opening transaction to occur at that price). (b)(i)(C) show the 
specialist's interest (if any), both as a principal for his own 
account (``P'') and as agent for orders left with him (``A''), at 
each price level within the price range indicated in the pre-opening 
notification (e.g., 40\3/8\, or, for stocks trading in decimals, 
40.40), reflected on a netted share basis by being formatted as a 
standardized pre-opening administrative message as follows:

    RES X/XYZ BUY {SELL} A-P 40\3/8\ (or, for stocks trading in 
decimals, 40.40)
* * * * *

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 regarding 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 
Section 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 Commission has ordered the securities and other interested 
parties to implement decimal pricing in their markets.\6\ Pursuant to 
that Order, the Commission has required the exchanges

[[Page 55658]]

to submit proposed rule changes implementing a uniform decimals phase-
in schedule. As described above, the Exchange is proposing to amend the 
following rules in conjunction with the securities industry's 
conversion or its markets to decimal pricing: Chapter II, Section 18; 
Chapter XVII, Sections (b) and (c); Chapter XXIV, Section 5, 
Interpretation and Policies, Paragraph.10; Chapter XXIV-B, Section 5, 
Interpretation and Policies, Paragraphs .01(e) and .05; and Chapter 
XXXI Intermarket Trading System (in accordance with the Operating 
Committee's determination on this matter), Section 3. The Exchange also 
proposes to add Chapter II, Section 41, Minimum Price Variation 
(of.01).
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    \6\ Securities Exchange At Release No. 4214 (June 8, 2000), 65 
FR 38010 (June 19, 2000).
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2. Statutory Basis
    The BSE believes that the proposal is consistent with the 
provisions of Section 6(b)(5) \7\ of the Act which requires that an 
exchange have rules that are designed to prevent fraudulent and 
manipulative acts and practices, 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 system and, in general, to protect 
investors and the public interest.
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    \7\ 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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and 
Rile 19b-4(f)(6) thereunder.\9\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    The BSE has requested that the Commission accelerate the operative 
date. The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause to 
designate the proposal to become immediately operative upon filing.\11\ 
Acceleration of the operative date will ensure that the BSE is able to 
operate in accordance with the terms and conditions of the Decimals 
Plan. For these reasons, the Commission finds good cause to designate 
that the proposal become operative immediately upon filing.\12\
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    \11\ The Decimals Plan provides for minimum price variations for 
equities and options of no less than one cent. The Commission's June 
8th Order requires the Participants to submit joint or individual 
studies two months after Full Implementation (as defined in the 
Plan) regarding the impact of decimal pricing on systems capacity, 
liquidity, and trading behavior, including an analysis of whether 
there should be a uniform minimum quoting increment. If a 
Participant wishes to move to quoting in an increment of less than 
one cent, the Participant should include in its study a full 
analysis of the potential impact of such trading on the 
Participant's market and the markets as a whole. Within thirty days 
after submitting the study, and absent Commission action, the 
Participants individually must submit for notice, comment, and 
Commission action, proposed rule changes under Section 19(b) of the 
Exchange Act to establish their individual choice of minimum 
increments by which equities or options are quoted on their 
respective markets.
    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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 20549-0609. 
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 in 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 number SR-BSE-00-11 and 
should be submitted by October 5, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23611 Filed 9-13-00; 8:45 am]
BILLING CODE 8010-01-M