[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79187-79189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32736]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47031; File No. SR-BSE-2002-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1, 2, and 3 Thereto by the Boston Stock 
Exchange, Inc. Relating to the Trading of Nasdaq Securities on the 
Exchange

December 18, 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 May 13, 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 BSE 
amended the proposed rule change on June 13, 2002,\3\ on October 22, 
2002,\4\ and on November 21, 2002.\5\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
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, Legal 
and Regulatory, BSE, to Katherine England, Assistant Director, 
Division of Market Regulation, Commission, dated June 12, 2002 
(``Amendment No. 1'').
    \4\ See File No. SR-BSE-2002-05, Amendment No. 2, dated October 
18, 2002 (``Amendment No. 2'').
    \5\ See File No. SR-BSE-2002-05, Amendment No. 3, dated November 
20, 2002 (``Amendment No. 3'').
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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 trading rules for securities 
listed on The Nasdaq Stock Market, Inc. (``Nasdaq'') to allow for 
extended hours and remote trading of Nasdaq securities. The text of the 
proposed rule change, as amended, is below. Proposed new language is in 
italics; proposed deletions are in brackets.
* * * * *

Chapter XXXV

Trading in Nasdaq Securities
* * * * *
Dealings on the Floor--Hours
    Section 8. [Pursuant to Chapter I-B, Sec. 2, Dealings on the 
Floor--Hours, no member or member organization shall make any bid, 
offer or transaction upon the floor of the Exchange, issue a commitment 
to trade through ITS or send an order for a Nasdaq security to a Nasdaq 
System market maker other than during the hours the Exchange is open 
for the transaction of business. Nasdaq securities will not be eligible 
to participate in the Post Primary Session.] For the purposes of 
transacting business in Nasdaq securities only, the Exchange shall be 
open from 7:00 a.m. until 6:30 p.m. Only transactions in Nasdaq 
securities will be permitted outside the hours of 9:30 a.m. and 4:15 
p.m., in accordance with Chapter I-B, Business Hours, Section 1, 
Primary Session, and Section 1(a) Post Primary Session.

Remote Trading in Nasdaq Securities

    Section 31. Nasdaq trading terminals and related equipment will be 
provided to remote member firm locations for specialist trading. The 
remote terminals will be linked to the Exchange's Nasdaq trading system 
and will provide the same functionality as is available to on-floor 
specialists. There will be no remote Nasdaq floor brokerage services. 
Floor broker orders will be routed to remote specialists under the same 
criteria by which they are routed to on-floor specialists.
    (a) All rules and policies of the Board of Governors of the 
Exchange shall apply except as specifically excluded or amended under 
this section.
    (b) Any eligible firm may apply to the Market Performance Committee 
to participate in the program. All applicants must meet the current 
minimum requirements for Nasdaq specialists set forth in Chapters XV 
and XXXV, including, but not limited to their background, experience, 
staffing, training procedures, adequacy of

[[Page 79188]]

applicant's proposed confidentiality policy, adequacy of applicant's 
contingency plans for communication or technical failures, adequacy of 
applicant's offsite facilities, performance standards (as measured by 
the Exchanges SPEP and Best Execution programs), and the minimum 
margin, capital and equity requirements as set forth in Chapters VIII 
and XXII of the Rules of the Exchange, and conform to all other 
performance requirements and standards set forth in the Rules of the 
Exchange.
    (c) Unless the Market Performance Committee specifically authorizes 
otherwise, participating member firms shall be prohibited from trading 
remotely any Nasdaq securities which are currently being traded on-
floor by that individual member firm. In evaluating a member firm's 
petition for changing the location of where a particular security is 
traded, the Market Performance Committee shall consider the application 
in light of the requirements set forth in paragraph (b) above. 
Individual securities, however, may not be traded by one specialist 
firm in more than one location under any circumstances.
    (d) The number of Nasdaq stocks traded remotely shall not exceed 
two hundred (200) per specialist account.
    (e) All rule references pertaining to the trading floor of the 
Exchange shall be deemed to include any trading done remotely through 
the Exchange's Nasdaq trading system, and all such trades shall be 
deemed to be Boston executions.
    (f) A written confidentiality policy regarding the location and 
access to information, terminals and equipment must be adopted by the 
firm and filed with and approved by the Exchange prior to the 
commencement of remote trading. Specifically, this policy must conform 
to the requirements set forth in Chapter II, Section 36 (Specialist 
Member Organizations Affiliated with an Approved Person), and Section 
37 (ITSFEA Procedures) of the Rules of the Board of Governors of the 
Boston Stock Exchange. In accordance therewith, reasonable principles 
must be applied to limit access by non-specialists to Remote Specialist 
facilities and information, and to limit Remote Specialist access to 
and from other proprietary trading venues, including access from outcry 
or visible communication, intentional or otherwise.
    (g) Floor policies regarding dress code, and smoking shall not 
apply. Access to the area designated as that of the Remote Specialist's 
shall be restricted to the specialist, backup specialist, clerks, 
designated management of the specialist, and Exchange authorized 
personnel, consistent with the Rules of the Exchange, including, but 
not limited to, ``Chinese Wall'' procedures set forth in Chapter II, 
Section 36, (Specialist Member Organizations Affiliated with an 
Approved Person), and procedures set forth in Chapter XV, Section 6 
(The Specialist's Book).
    (h) All Exchange correspondence, memoranda, bulletins and other 
publications shall be sent to the Exchange's Nasdaq Remote Specialists 
via electronic means and via U.S. mail or overnight delivery.
    (i) All Exchange Nasdaq Remote specialists will have stentofon, (or 
a similarly operational speakerphone), as well as dedicated telephone 
access, to the physical trading floor. Any regulatory requirements 
including trading halts, trading practices, policies, procedures or 
rules requiring floor official involvement will be coordinated by 
Exchange personnel with the remote specialist through the dedicated 
telephone line.
    (j) Servicing of the Exchange's Nasdaq trading system terminals and 
related equipment shall be by Exchange authorized and trained personnel 
only.
    (k) The Exchange's examination program of non-DEA floor members 
would include the remote specialist operations. Every firm must submit 
specific supervisory procedures relating to the Remote Specialist 
operations and appropriate identification of all individuals who will 
have access to the Remote Specialist operation, including all 
supervisory personnel.
    (l) Any arbitration or disciplinary action arising out of trading 
activity pursuant to this section would be held at the physical offices 
of the Exchange located in Boston.
    (m) Each remote Nasdaq trading terminal assigned and registered by 
the Exchange will require an ETP, and will be subject to the following:
    (1) Each approved Specialist unit may be authorized to trade up to 
200 issues.
    (2) Each Specialist unit must have at least one registered Exchange 
seat assigned to the approved specialist.
    (a) A specialist may be authorized to obtain additional ETPs for 
qualified registered clerks to access the Nasdaq trading system in 
support of the Specialist unit.
    (b) All Specialists and registered clerk ETP holders must be 
approved by the Market Performance Committee and must meet the 
following:
    (i) file an ETP application form with the BSE Surveillance 
Department;
    (ii) completion of the required floor training program;
    (iii) successful completion of the BSE floor examination within 90 
days of application;
    (iv) successful completion of the Series 63 (NASAA Uniform State 
Law Exam), and registration with the Commonwealth of Massachusetts, 
and;
    (v) submission of fingerprint records to the BSE.
* * * * *

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, as 
amended. 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 one section of 
Chapter XXXV of its Rules related to the trading of Nasdaq securities 
on the Exchange and to add a new section to the chapter, extending the 
Exchange's remote trading program to include Nasdaq securities.
    The Exchange is proposing an alteration of the hours the Exchange 
seeks to be open for trading Nasdaq securities. Chapter XXXV, Trading 
in Nasdaq Securities, Section 8, Dealings on the Floor--Hours, limits 
the hours of trading in Nasdaq securities on the Exchange to the hours 
of 9:30 a.m. to 4 p.m. The Exchange will delete the present rule and 
replace it with one that will permit the transaction of business, in 
Nasdaq securities only, between the hours of 7 a.m. and 6:30 p.m. Such 
an extension of hours will allow Exchange specialists who trade Nasdaq 
securities to remain competitive with their counterparts on other 
exchanges that trade Nasdaq securities pursuant to unlisted trading 
privileges (``UTP''), as well as NASD member market makers who are 
permitted to conduct transactions in Nasdaq securities during this 
extended period. Furthermore, such extended hours are contemplated and 
permitted by Article XI of the Joint Self-

[[Page 79189]]

Regulatory Organization Plan Governing the Collection, Consolidation 
and Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privilege 
Basis (``UTP Plan'').
    The Exchange is also proposing to adopt rules based on its BEACON 
Remote trading program but modified for Nasdaq securities. As such, the 
Exchange will republish, in large part, its remote trading rules 
located in Chapter XXXIII, BEACON, Section 9, BEACON Remote, as a new 
section 31 in Chapter XXXV, Trading in Nasdaq Securities. As part of 
the remote trading program, the Exchange will denote separately a rule 
for the Exchange's Nasdaq trading program. In so doing, the substance 
of the remote trading rule will not change. For instance, all 
requirements relating to the applicability of other BSE rules, 
confidentiality, ``Chinese Walls,'' communications, and Electronic 
Trading Permits will still apply. The only deletions or amendments will 
be those necessary to make the rule applicable to the Nasdaq program, 
such as deleting references to the BEACON trading system, which is 
presently designed for the trading of listed securities on the 
Exchange. Such changes will be administrative and non-substantive in 
nature.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\6\ in general, and 
Section 6(b)(5) of the Act,\7\ 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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    \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 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-2002-05 and 
should be submitted by January 17, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-32736 Filed 12-26-02; 8:45 am]
BILLING CODE 8010-01-P