[Federal Register Volume 67, Number 180 (Tuesday, September 17, 2002)]
[Notices]
[Pages 58662-58663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23534]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46482; File No. SR-BSE-2002-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc. Relating to an Interpretation of Its Execution Guarantee Rule

September 10, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
September 4, 2002, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. On September 10, 2002, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\3\
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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, Legal 
and Regulatory, BSE, to Alden Adkins, Associate Director, Division 
of Market Regulation, Commission, dated September 9, 2002 
(``Amendment No. 1'').
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    The Commission is publishing this notice to solicit comments on the 
proposed rule from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to implement an interpretation of its 
Execution Guarantee Rule in response to Commission action regarding de 
minimis trades through of certain Exchange Traded Funds (``ETFs'') in 
ITS.

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 add Paragraph .07 to 
the Interpretations and Policies section of Chapter II, Dealings on the 
Exchange, Section 33, Execution Guarantee, of the BSE Rules. This 
proposed rule change is in response to a Commission Order issued August 
28, 2002, granting a de minimis exemption for transactions in certain 
ETFs from the Trade-Through Provisions of the Intermarket Trading 
System (``ITS'') Plan (``Order'').\4\
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    \4\ See Securities Exchange Act Release No. 46428 (August 28, 
2002). Participants of the ITS Plan are exempt from Section 8(d) of 
the Plan for the period of September 4, 2002 until June 4, 2003 with 
respect to transactions in QQQs, DIAMONDs, and SPDRs, that are 
executed at a price that is no more than three cents lower than the 
highest bid displayed in CQS and no more than three cents higher 
than the lowest offer displayed in CQS.
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    As of the implementation date of the Order, September 4, 2002, 
certain executions that take place according to the rules of the 
Exchange may be deemed violative of the provisions thereof. 
Accordingly, the Exchange is seeking to implement this proposed rule 
change on a temporary basis, for a period of thirty days.
    In Chapter II, Dealings on the Exchange, Section 33, Execution 
Guarantee of the BSE Rules, paragraph (c)(2) states that ``All agency 
limit orders will be filled if one of the following conditions occur * 
* * (2) there has been price penetration of the limit in the primary 
market. * * *'' Moreover, in various sections of Chapter XV, Dealer 
Specialists, there are similar provisions.\5\ These provisions, in 
particular those set forth in Chapter II, guarantee that a limit order 
in a BSE specialist's book will be filled if the primary market trades 
through the limited price. The BSE specialist provides this protection 
to its customer limit orders in part due to the fact that the 
specialist can seek relief through ITS in the event of a trade-through.
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    \5\ See, e.g., Commentary to Section 1, Specialists, which sets 
forth a specialist's obligations in relation to buying and selling 
on a principal basis while holding unexecuted orders in his book; 
Section 2, Responsibilities, which sets forth, in part, a 
specialist's primary duties as agent; Section 4, Precedence to 
Orders in the Book, which sets forth the precedence parameters a 
specialist must adhere to; and Section 18, Procedures for Competing 
Specialists, which sets forth, in various paragraphs, obligations 
which may conflict with the de minimis exemption in the Order.
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    As a result of the Commission's Order, certain primary market 
trades-through in ETFs will constitute exempt trades-through, but will 
still, under BSE Rules, trigger an obligation on the part of a BSE 
specialist to provide trade-through protection. However, the specialist 
will no longer be able to seek recourse to seek satisfaction through 
ITS from the primary market. Accordingly, the BSE specialist will be 
competitively disadvantaged if this section of its rules is strictly 
enforced, while the de minimis exemption exists for other ITS 
participants. Therefore, the BSE is seeking to implement an 
Interpretation of Chapter II, Section 33(c)(2) of its rules permitting 
the Exchange to not enforce the provision following a de minimis trade 
through of certain ETFs outlined in the Order.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of section 6(b) of the Act \6\ and furthers the objectives 
of Section 6(b)(5),\7\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to facilitate 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, in 
that it is designed to protect investors and the public interest; and 
is not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \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.

[[Page 58663]]

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 comments on the 
proposed rule change.

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

    The foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange and therefore, has 
become effective pursuant to section 19(b)(3)(A)(i) of the Act \8\ and 
subparagraph (f)(1) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(i).
    \9\ 17 CFR 240.19b-4(f)(1).
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    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.

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 at 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 the File No. SR-BSE-2002-13 and 
should be submitted by October 8, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23534 Filed 9-16-02; 8:45 am]
BILLING CODE 8010-01-P