[Federal Register Volume 65, Number 221 (Wednesday, November 15, 2000)]
[Notices]
[Pages 69080-69082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29180]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43525 File No. SR-BSE-98-11]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
an Amendment to the Proposed Rule Change by the Boston Stock Exchange, 
Inc. Relating to Its Competing Specialist Initiative

November 7, 2000.

I. Introduction

    On November 23, 1998, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to modify the procedures by which a regular specialist may 
object to competition in a stock.
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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 January 12, 1999.\3\ The Commission received no comments on 
the proposal. The Exchange filed amendments on March 26, 1999 \4\ and 
April 13, 2000.\5\ The Exchange filed a third amendment to the proposed 
rule change on August 25, 2000, which superseded the earlier 
amendments.\6\ This order approves the proposed rule change, and grants 
accelerated approval to the third amendment to the proposed rule 
change.
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    \3\ See Securities Exchange Act Release No. 40883 (January 5, 
1999), 64 FR 1839 (January 12, 1999).
    \4\ See Letter from Karen Aluise, Vice President, BSE, to 
Richard Strasser, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated March 25, 1999, with attachments 
(``Amendment No. 1''). Amendment No. 1 proposed to eliminate the 
right to appeal rulings by the Market Performance Committee 
regarding applications to serve as a competing specialist.
    \5\ See Letter from William Cummings, Manager of Legal and 
Regulatory Affairs, BSE, to Nancy Sanow, Senior Special Counsel, 
Division, Commission, dated April 12, 2000, with attachments 
(``Amendment No. 2''). Amendment No. 2 superseded Amendment No. 1. 
Amendment No. 2 generally sought to revert the proposed rule change 
back to a form that was similar to the version that the BSE 
originally proposed, but which differed from the BSE's original 
proposal in a few ways: by clarifying that an applicant competing 
specialist could appear before the Market Performance Committee to 
respond to issues raised by the regular specialist regarding 
competition, by omitting language which provided that competition 
could begin during an appeal of a Market Performance Committee 
ruling in favor of competition, and by making other changes 
regarding the appeal process.
    \6\ See Letter from John Boese, Assistant Vice President, BSE, 
to Nancy Sanow, Assistant Director, Division, Commission dated 
August 24, 2000, with attachments (``Amendment No. 3''). Amendment 
No. 3, which superseded Amendment No. 2, clarified that competition 
could begin pending the outcome of an appeal of a pro-competition 
ruling by the Market Performance Committee, which is consistent with 
the rule change as it was originally proposed by the BSE.
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II. Description

    The Exchange's Competing Specialist Initiative permits multiple 
specialists to make a market in individual securities traded on the 
BSE. The Exchange has proposed a rule change to modify the process that 
governs objections to competition in a security.
    The Procedures for Competing Specialists, which are set forth in 
chapter XV, section 18 of the Exchange's Rules, currently provide that 
a regular specialist in a security may object to any application by 
another specialist to act as a competing specialist in that security. 
The Exchange's Market Performance Committee will consider the regular 
specialist's objections as one factor in reviewing applications to act 
as a competing specialist in a security. The Market Performance 
Committee may not deny applications based solely on such an objection, 
but only in circumstances wherein the stock at issue requires special 
treatment such that an entering competitor could jeopardize the fair 
and orderly market maintained by the regular specialist.\7\
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    \7\ See Securities Exchange Act Release No. 37045 (March 29, 
1996), 61 FR 15318 (April 5, 1996) (order permanently approving 
Competing Specialist Initiative).

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[[Page 69081]]

    As presently written, section 18(2) requires the regular specialist 
to object in writing within 48 hours of notice of another specialist's 
application to compete in a stock. This section also states that the 
Market Performance Committee's decision may be appealed to the 
Executive Committee of the Exchange. Moreover, decisions of the 
Executive Committee may be appealed to the Board of Governors of the 
Exchange.\8\ Competition may not begin during the appeal process.\9\
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    \8\ See BSE Constitution, Art. II, Section 6, which provides 
that certain persons affected by a decision of a committee acting 
under powers delegated by the Board of Governors may require that 
the Board review the decision.
    \9\ The Exchange's existing procedures for handling objections 
to competition were clarified during a conversation between Karen 
Aluise, Vice President, BSE, and Joshua Kans, Attorney, Division, 
Commission, December 2, 1998.
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    The Exchange is proposing to amend its existing rules that govern a 
regular specialist's ability to object to another specialist's 
application to serve as a competing specialist in a security. As 
amended, the proposal would divide section 18(2) into four parts (a to 
d). Proposed section 18(2)(a) would continue to require that a regular 
specialist file its objection within 48 hours after receiving notice of 
the request to compete, and would now require that the specialist 
submit the objection on a form designated by the Exchange.
    Proposed section 18(2)(b) would require that when a specialist 
objects to competition, the specialist set forth the reasons in writing 
and deliver them to the Exchange within 24 hours of the filing of the 
objection.
    Proposed section 18(2)(c) would provide that a Market Performance 
Committee meeting will be scheduled to review the reasons for objection 
and to determine whether competition could jeopardize the regular 
specialist's ability to maintain a fair and orderly market in the 
issue. That section adds that the regular specialist would be permitted 
to appear before that committee to discuss the reasons for objection, 
and that the applicant competing specialist would also be permitted to 
appear before that committee to respond to any issues raised. That 
section further states that after the committee renders its decision, 
either party may appeal the decision to the Exchange's Executive 
Committee, and, if necessary, to the Exchange's Board of Governors. A 
footnote to proposed section 18(2)(c) further would provide that the 
appeal must be submitted to the Exchange within 10 days notice of the 
Market Performance Committee's or the Executive Committee's final 
decision.
    Proposed section 18(2)(d) would provide that if the Market 
Performance Committee rules in favor of competition, competition will 
commence pending the outcome of any appeal process.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\10\ 
Specifically, the Commission believes that 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 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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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change is 
appropriate because it permits the Exchange to evaluate applications to 
serve as a competing specialist in a security more efficiently. In 
particular, the Commission believes that proposed chapter XV, sections 
18(2)(a), (b) and (c)--which would require the regular specialist to 
submit objections using an Exchange-designated form and set forth the 
reasons for objection in writing within 24 hours of the objection, and 
which would permit the regular specialist and applicant competing 
specialist to discuss those reasons at a Market Performance Committee 
meeting scheduled to review the reasons for the objection--would 
streamline the process for evaluating a regular specialist's objections 
while paying due regard to the interests of the regular specialist and 
applicant competing specialist. The Commission also believes that 
proposed Section 18(2)(d), which would provide that competition will 
commence during the appeal process, provides a reasonable means of 
reconciling the interests of the Exchange, the regular specialist, and 
the applicant competing specialist.
    The Commission finds good cause for approving Amendment No. 3 prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. Amendment No. 3, which supplanted two earlier 
proposed amendments, most significantly modified the Exchange's 
original language by clarifying that an applicant competing specialist 
has the right to appear before the Market Performance Committee to 
respond to issues raised by the regular specialist. The Commission 
finds that clarifying this right will better enable the committee to 
make fully informed decisions and will promote the adequate 
representation of applicant competing specialists. Amendment No. 3 also 
modified the rule change as it was originally proposed by specifying 
that appeals of decisions by the Market Performance Committee would go 
first to the Executive Committee and then, if necessary, to the Board 
of Governors (in contrast to the original version of the proposed rule 
change, which would have provided that appeals go directly to the Board 
of Governors), and by making technical changes to the structure and 
language of the proposed rule change. The Commission finds that 
modifying the appeal process is consistent with the Exchange's right to 
set forth rules governing its own administration, and that the 
technical changes to the rule language do not change the substance of 
the proposed rule change. Based on the above, the Commission believes 
that good cause exists, consistent with sections 6(b)(5) and 19(b)(2) 
\12\ of the Act, to accelerate approval of Amendment No. 3.
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    \12\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether it is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., 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 Exchange. All 
submissions should refer to File No. SR-BSE-98-11 and should be 
submitted by December 6, 2000.

V. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change SR-BSE-98-11,

[[Page 69082]]

including Amendment No. 3, in approved.

    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. 00-29180 Filed 11-14-00; 8:45 am]
BILLING CODE 8010-01-M