[Federal Register Volume 67, Number 111 (Monday, June 10, 2002)]
[Notices]
[Pages 39757-39758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46007; File No. SR-BSE-2001-08]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to 
Competing Specialists and the Execution of Directed Agency Orders

May 30, 2002.

I. Introduction

    On December 21, 2001, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 related to competing specialists and the execution 
of directed agency orders. On April 19, 2002, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, together with Amendment No. 1, was published for comment in the 
Federal Register on April 26, 2002.\4\ No comments were received on the 
proposal. This order approves the proposed rule change, including 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John A. Boese, Assistant Vice President, 
Legal and Regulatory, BSE, to Belinda Blaine, Associate Director, 
Division of Market Regulation, Commission, dated April 18, 2002 
(``Amendment No. 1'').
    \4\ See Securities Exchange Act Release No. 45791 (April 19, 
2002), 67 FR 20852.
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II. Description of the Proposal

    The Exchange proposes to amend certain sections of its rules 
related to Competing Specialist Initiative Rules (see BSE Rules, 
Chapter XV, Dealer Specialists, Section 18, Procedures for Competing 
Specialists) to allow, under certain conditions, for the altering of 
priority of specialist/competing specialist principal quotations when 
orders are directed by a customer to another specialist/competing 
specialist.\5\ Specifically, the Exchange seeks to add an exception for 
orders directed to a specialist/competing specialist. The exception 
will allow the specialist/competing specialist who receives such an 
order to elect to execute the order for his own account at the same 
national best bid and offer (``NBBO'') price or better than the 
quotation on the book, if the quotation on the book is for the account 
of another specialist/competing specialist, or to permit the directed 
order to execute against the prevailing specialist/competing 
specialist's quotation.\6\
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    \5\ Under this proposal, all non-directed and Intermarket 
Trading System (``ITS'') orders will continue to be routed according 
to existing competing specialist rules.
    \6\ Where an agency order resides on the book of a specialist/
competing specialist and a specialist/competing specialist then 
receives an executable order routed to him/her, the subsequent 
agency orders may be price improved by the specialist/competing 
specialist receiving such order, or permitted to match the resident 
agency order at the limit price (without price improvement).
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    Furthermore, the Exchange proposes to amend certain other 
paragraphs of Chapter XV, Dealer Specialists, Section 18, Procedures 
for Competing Specialists, in order to remain consistent. Namely, the 
Exchange proposes to amend Paragraph 6 to reflect that all specialist/
competing specialists will be responsible for orders directed to him/
her. Likewise, the exchange seeks to amend Paragraph 9 to reflect 
certain Boston Exchange Automated Communication and Order Routing 
Network (``BEACON'') system changes, which will update quotations more 
efficiently, removing the burden from the regular specialist.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the provisions of section 6(b) of the Act,\7\ in general, and 
section 6(b)(5) of the Act,\8\ in particular, which requires, among 
other things, that the rules of an exchange be 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 perfect the mechanism of a 
free and open market and a national market system, and not be designed 
to permit unfair discrimination between customers, issuers, brokers or 
dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    In today's BEACON system, an agency order is automatically routed 
to the specialist quote in accordance with price/time priority amongst 
competing specialists if such quote is at the NBBO. This will continue 
to be the case for all customer orders. However, this rule will now 
allow the specialist/competing specialist who receives such an order to 
elect to execute the order for his own account at the NBBO price or 
better than the quotation on the book, if the quotation is for the 
account of another specialist/competing specialist, or to permit the 
directed order to execute against the prevailing specialist/competing 
specialist's quotation.
    Implementation of the proposed rule will enable the order to be 
routed to the designated specialist and will enable competing 
specialists to exercise greater control over more of their firm's 
orderflow and provide price improvement opportunities to their 
customers over existing specialist proprietary quotations. All ITS 
transactions and non-directed orders will continue to be routed 
according to price/time priority, and available for price improvement 
by exposure to the specialists/competing specialists.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-BSE-2001-08), as amended, is 
hereby approved.
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    \9\ Id.


[[Page 39758]]


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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 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14434 Filed 6-7-02; 8:45 am]
BILLING CODE 8010-01-P