[Federal Register Volume 67, Number 146 (Tuesday, July 30, 2002)]
[Notices]
[Pages 49378-49380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19156]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46238; File No. SR-BSE-2002-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Boston Stock Exchange, Inc. Relating to Competing 
Specialists and Objections to Competing Specialist Competition

July 19, 2002.
    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 June 25, 2002, 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 Exchange. 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.
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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 certain sections of its rules 
related to competing specialists (as defined in BSE Rules, Chapter XV, 
Dealer Specialists, section 18, Procedures for Competing Specialists) 
and objections to competition that may be raised by

[[Page 49379]]

regular specialists when competing specialists apply for the right to 
compete with regular specialists. The text of the proposed rule change 
is below. Proposed new language is in italics; proposed deletions are 
in brackets.
* * * * *
Chapter XV
Dealer Specialists
Procedures for Competing Specialists
Sec. 18 * * *
* * * 2. Objections to Competition

    a. A specialist may object to competition.\3\ After notice of such 
objection to permit competition is provided by the regular specialist, 
the specialist must reduce his objection, and the reason(s) therefore, 
to writing [Any objection by the regular specialist to permit 
competition in one or more of such specialist's stocks must be in 
writing on a form designated by the Exchange] and file it [filed] with 
the Exchange within 48 hours \4\ of notice \5\ of the competing 
specialist's application.
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    \3\ Only the regular specialist can object to competition in 
his/her stocks.
    \4\ Unless the regular specialist is unavailable, in which case 
within [48] 24 hours of becoming available.
    \5\ Once an application is received by the Exchange [a written] 
notification will be issued to the regular specialist(s) in whose 
stocks competition is being sought.
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    [b. Once a specialist has objected to competition, the reasons for 
objection must be set forth in writing and delivered to the Exchange 
within 24 hours of the objection.]
    [c] b. A Market Performance Committee meeting will be scheduled to 
review the reasons for objection, and to determine whether an entering 
competitor could jeopardize the fair and orderly market maintained by 
the regular specialist in relation to the stock at issue. The regular 
specialist will be permitted to appear before the Committee to give the 
Committee the opportunity to question the regular specialist in regard 
to the reasons for objection. The applicant (competitor) will also be 
permitted to appear before the Committee to respond to any issues 
raised. After the Market Performance Committee renders its decision, 
either party may appeal to the Executive Committee and then, if 
necessary, to the Board of Governors.\6\
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    \6\ All appeals must be submitted within ten (10) business days 
of the final decision of either the Market Performance Committee or 
the Executive Committee.
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    d. [In the event that the Market Performance Committee rules in 
favor of competition and the regular specialist seeks to appeal that 
decision] Pending Market Performance Committee review of any objection, 
competition in the security may be permitted upon the affirmative 
determination of a majority of the floor members of the Market 
Performance Committee, based on the standard set forth in Paragraph b. 
of this section 18. Pending the outcome of any appeal process, 
competition in the security at issue will [commence] be permitted. The 
results of such competition may be used by either the regular 
specialist in support of their objection, or considered by the Market 
Performance Committee, Executive Committee, or Board of Governors, in 
their respective determinations. [pending the outcome of the appeal 
process.]
* * * * *

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 on 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 
sections 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 purpose of the proposed rule change is to amend the section of 
the Exchange's Competing Specialist Initiative (``CSI'') procedures 
relating to objections to competition filed by a regular specialist. 
The Exchange is seeking to implement a procedure that would permit 
competition pending a review of any objection to competition filed by a 
regular specialist.
    Under current CSI procedures set forth in Chapter XV, Dealer 
Specialists, section 18, Procedures for Competing Specialists, any 
objection to competition by a regular specialist will prevent a 
competing specialist from trading, and competing with the regular 
specialist, in the security at issue, until the objection is 
adjudicated by the Exchange's Market Performance Committee (``MPC''). 
The result of this procedure is that competition is therefore 
prohibited during the period between the time a specialist first states 
an objection, and the time when an MPC meeting can be convened, and the 
objection fully vetted and decided upon by the committee. By current 
design, this process takes several days, as the specialist is permitted 
48 hours to formally present his objection and the reason therefore to 
the Exchange, and a meeting of the 15 person Market Performance 
Committee is then convened. In the meantime, competition is not 
permitted in the security in question, regardless of the reasons 
supporting the regular specialist's objection, and regardless of the 
volatility or other characteristics of the security.
    In order to streamline this process, the Exchange is proposing that 
a majority of the floor members of the MPC can vote to permit 
competition in a security pending the formalization of a regular 
specialist's objection and the subsequent convening of a full meeting 
of the MPC to review the objection. This will enhance competition to 
the ultimate benefit of investors, while still offering the regular 
specialist the opportunity to formalize an objection, and have that 
objection be heard before the full MPC. At the same time, it will allow 
competition in instances in which a majority of the floor members of 
the MPC deem it, after consideration of the pertinent facts, to be 
warranted.
    The standard by which the MPC judges whether competition is 
warranted is the ``fair and orderly maintenance of the market.'' This 
standard will be imposed, as it is currently, on the full MPC during 
their ultimate hearing of any objection, but also on the floor members 
of the MPC during any interim decisions. By mandating this standard, 
the Exchange is ensuring that at all stages of objection, each MPC 
member is consistent in his consideration and decision making. 
Moreover, the Exchange is preventing a situation whereby a regular 
specialist may object for competitive or other reasons unrelated to the 
fair and orderly maintenance of the market.
    It should be noted that nothing in this proposal will affect the 
MPC's ultimate decision making authority relating to whether 
competition in a security should be permitted. If competition is 
permitted based on an affirmative vote of the majority of the floor 
members of the MPC, it can be withdrawn at a subsequent meeting of the 
full committee, if the full committee agrees that the fair and orderly 
maintenance of the market would be adversely affected by continued 
competition. It should also be noted that, since the establishment of 
the CSI program at the Exchange in 1996, there have been only three 
objections to competition by regular specialists, only one of which was 
upheld by the MPC based on the

[[Page 49380]]

standard of the maintenance of a fair and orderly market.
2. Statutory Basis
    The Exchange believes 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 transactions in 
securities, to remove impediments to and 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, 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-2002-07 and 
should be submitted by August 20, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-19156 Filed 7-29-02; 8:45 am]
BILLING CODE 8010-01-P