[Federal Register Volume 68, Number 105 (Monday, June 2, 2003)]
[Notices]
[Pages 32785-32787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47913; File No. SR-BSE-2003-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc. Relating to the Exchange's Nasdaq Trading Rules

May 22, 2003.
    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 21, 2003, 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 and II 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 its Nasdaq trading rules by deleting 
inapplicable and outdated sections and making certain additions to the 
rule text. Set forth below is the text of the proposed rule change. 
Proposed new language is italicized; proposed deletions are in 
brackets.
Chapter XXXV
Trading in Nasdaq Securities
    Sec. 1--no change.
    Sec. 2 (a)(i) Each Exchange specialist shall provide direct 
telephone or other means of access to the specialist post to Nasdaq 
System market makers, acting in their capacity as market makers, for 
each Nasdaq security in which the market maker is registered as a 
market maker. Access shall include appropriate procedures which assure 
the timely response to telephonic or other communications. Nasdaq 
System market makers may use such telephone or other access to transmit 
orders for execution on the Exchange.
    Any order received on the floor via telephone or otherwise from a 
Nasdaq System market maker shall be effected in accordance with the 
rules applicable to the making of bids, offers and transactions on the 
Floor (see Chapter II, Dealings on the Exchange, Chapter XV, 
Specialists). All limit orders shall be immediately displayed upon 
receipt, in accordance with Chapter II, Dealings on the Exchange, 
Section 40, Limit Order Display Rule.
    (ii) Exchange specialists may send orders from the Floor for 
execution via telephone, or otherwise, to any Nasdaq System market 
maker in each Nasdaq security in which it is registered as specialist. 
All of the Boston Stock Exchange Rules related to the trading of 
securities shall be applicable to bids and offers transmitted by 
telephone, or otherwise, in the same way as they apply to orders 
transmitted via automated trading systems.
    (iii) Comparisons of transactions effected with a Nasdaq System 
market maker via telephone access, or otherwise, will be made pursuant 
to procedures to be established between Nasdaq and the Exchange.
    [(b)--Orders may be transmitted to a specialist via Nasdaq 
Workstation II (``NWII'') at the election of a Nasdaq market maker 
originating the order. Orders transmitted through NWII may be executed 
by the system automatically or on a manual basis in accordance with the 
provisions of this Chapter XXXV.]
    ([c]b)--[Specialists will have ``Level III Service'', as defined by 
the Nasdaq Unlisted Trading Privileges Plan, on the Nasdaq System. As 
such, specialists will have input and query ability with respect to 
quotations and sizes in securities included in the Nasdaq System. 
Access to the specialist via the Nasdaq System will be limited to floor 
brokers, BSE members, NASD members, NASD non-BSE members (including 
Electronic Communications Networks), and certain other member firms and 
other professionals represented by member firms (``clients''). Clients] 
Members may have access to enter orders to the specialist either 
electronically[, through the Nasdaq System,] or telephonically. Any 
order received by the specialist telephonically, or verbally in any 
manner other than electronically [through the Nasdaq System] must be 
memorialized in accordance with Chapter II, Dealings on the Exchange, 
Section 2, Recording of Sales, and Section 15, Record of Orders from 
Offices to Floor.

[[Page 32786]]

    [(d)--Access to the specialist via the Nasdaq System, or electronic 
access, includes
    (i) Orders sent by clients through Nasdaq'a ACES Pass Thru 
capability (which consolidates orders sent by various client systems to 
the Nasdaq System)
    (ii) Orders sent by BSE floor brokers directly through the BSE 
Nasdaq trading system (currently Nasdaq Tools)
    (iii) Orders sent by clients directly into the Nasdaq System and 
routed to the specialist; and,
    (iv) Orders sent by Nasdaq and NASD Market Makers through the 
Nasdaq System.]
    [Sec. 3--All transactions in Nasdaq securities shall be reported 
through the Automated Confirmation Transaction Reporting Service 
(``ACT''), in accordance with NASD Rule 4630, et. seq., unless other 
arrangements are made with, and approved by, the Exchange.]
    Secs. 4-5--renumbered to become Sections 3 and 4, no substantive 
change.
    Sec. [6]5--Pre-opening orders in Nasdaq securities must be accepted 
and filled at the Exchange opening trade price. In trading halt 
situations, orders will be executed based on the Exchange reopening 
price. [(Note: In the case of a trading halt in a Nasdaq security, 
notice will be provided via the Nasdaq ``NEWS'' frame, in accordance 
with NASD Rule 4120).]
    Secs. 7-30--renumbered to become Sections 6-29, no substantive 
change.
* * * * *

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 BSE included statements 
concerning the purpose of, and the 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 BSE 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 Exchange proposes to update, through deletions and minor 
additions, certain of the Exchange's Nasdaq rules contained in Chapter 
XXXV (``Nasdaq Rule Set'') of the Rules of the Board of Governors of 
the BSE (``BSE Rules''). The Exchange's Nasdaq Rule Set was implemented 
in October, 2001, and was designed specifically for Nasdaq trading as 
it then existed on the Exchange. At the time, the BSE utilized a third-
party Nasdaq trading system, and certain of the rules within the Nasdaq 
Rule Set were specifically designed to address functionalities of that 
system, and the manner in which BSE specialists were participating in 
the Nasdaq marketplace at that time.
    The Exchange now seeks to make its Nasdaq Rule Set applicable to 
Nasdaq trading on the BSE in a more general manner, so that BSE 
specialists will not be limited in the ways that they participate in 
the Nasdaq marketplace, particularly due to the fact that rules which 
the Exchange is seeking to delete specifically addressed functionality 
which the Exchange no longer utilizes. None of the proposed deletions 
affect the manner in which BSE specialists are obligated to participate 
in the Nasdaq marketplace under the strictures of the Act or the Joint 
Self-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 Privileges Basis (``UTP Plan''). Rather, the Exchange 
is merely deleting inapplicable language and making minor additions. 
The BSE has therefore designated the rule filing as non-controversial 
in nature. Moreover, the Exchange is requesting a waiver of both the 
five-day pre-filing notice and the thirty-day operative delay period.
    The majority of the proposed deletions occurs in section 2 of the 
Exchange's Nasdaq Rule Set, and are with regard to the transmission of 
orders to a BSE Nasdaq specialist. As previously written, the 
provisions addressed access to the specialist through means provided as 
a result of BSE's participation in SuperSoes, a Nasdaq trading system. 
The BSE is no longer a participant in SuperSoes, or its successor 
system, SuperMontage, so the access provisions pertaining to such 
participation are no longer valid. However, the access provisions which 
remain in the BSE rules, are substantively the same provisions in 
existence on at least two other exchanges that participate in Nasdaq 
trading under the UTP Plan. Specifically, the access provisions which 
remain in the BSE rules after the proposed deletions relating to 
telephone access (i.e., section 2 (a)) are essentially the same rules 
in place on the American Stock Exchange LLC (``Amex'') and the 
Cincinnati Stock Exchange, Inc. (``CSE'').\3\ Moreover, the BSE is 
leaving in place a provision providing for electronic access to the BSE 
specialists. Again, such a provision leaves the BSE in a similar 
position as the Amex and CSE regarding electronic access.\4\ Although 
the Rules of the AMEX and CSE do not specifically state that there 
shall be electronic access granted to their respective exchange 
specialists, their rules speak to functionalities of electronic access. 
The BSE actually goes further in specifically stating that there shall 
be electronic access to its specialists, while discussing essentially 
the same functionalities regarding automatic executions and other 
automated features as set forth in the Amex and CSE rules.
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    \3\ See e.g., Amex Rule 118, Trading in Nasdaq National Market 
Securities, and CSE Rule 11.9, National Securities Trading System.
    \4\ Id.
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    The BSE is also proposing to delete a section of its Nasdaq Rule 
Set regarding reporting through Nasdaq's Automated Confirmation 
Transaction (``ACT'') system. Again, ACT is a Nasdaq system, formerly 
utilized by BSE Nasdaq specialists who participated in the Nasdaq 
marketplace using functionality which enabled them to participate in 
SuperSoes. The Exchange no longer chooses to use ACT for the reporting 
of its transactions, and will thereby revert to its clearing rules as 
set forth elsewhere in its rules, and incorporated by reference. ACT 
usage was a specific exception to the Exchange's clearing and reporting 
rules, and that exception is simply being removed.
    It is important to note that nothing in the Exchange's proposed 
deletions and additions will in any way effect the priority or in any 
other way effect how orders are treated on the Exchange. All other 
rules of the Nasdaq Rule Set, as well as applicable other sections of 
the BSE rules, will still apply. All of these provisions have been 
separately approved by the Commission at different times, and will not 
change as a result of the deletions and additions proposed herein.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\5\ in general, and the provisions of 
section 6(b)(5) of the Act,\6\ in particular, which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, is

[[Page 32787]]

not designed to permit unfair discrimination between customers, 
brokers, or dealers, or to regulate by virtue of any authority matters 
not related to the administration of the Exchange.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder because 
the proposal: (1) Does not significantly affect the protection of 
investors or the public interest; (2) does not impose any significant 
burden on competition; and (3) does not become operative for 30 days 
from the date of filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest; provided that the Exchange has given the Commission notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date of the proposed rule change or the Commission 
waives such prior notice. At any time within 60 days of the filing of 
such 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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    The BSE has requested that the Commission waive the five-day pre-
filing notice and the 30-day operative delay. The Commission believes 
waiving the five-day pre-filing notice and the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
Waiving the pre-filing notice and accelerating the operative date will 
permit the BSE to reinstate its previously approved Nasdaq trading 
program by making certain deletions and minor additions to its Nasdaq 
trading rules. Moreover, the Commission believes that waiving both the 
five-day pre-filing notice and the 30-day operative delay will 
facilitate the BSE's expeditious reinstatement of a Nasdaq trading 
program that includes electronic access and is substantially similar to 
the programs of other national securities exchanges that currently 
trade Nasdaq securities. For these reasons, the Commission designates 
the proposal to be effective and operative upon filing with the 
Commission.\10\
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    \10\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f). In addition, the Commission notes that BSE has represented 
to the Commission that BSE members will be able to access BSE 
specialists' quotations in person on the floor of the Exchange, by 
telephone, or by electronic access via industry standard Financial 
Information Exchange (``FIX'') protocol interfaces. BSE has also 
represented that non-BSE members (i.e., Nasdaq market makers) will 
be able to access the quotations of BSE specialists either by 
telephone or electronically through a major securities industry 
connectivity provider. Moreover, BSE's current rules regarding the 
priority of customer orders will remain in effect and will not be 
impacted by this rule filing. Finally, BSE has made assurances to 
the Commission that the BSE rule covering automatic execution of 
Nasdaq securities (BSE Nasdaq Rule Set, Section 4, Trading) will 
remain in effect. Meeting between Division of Market Regulation 
staff and BSE staff (May 9, 2003).
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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-2003-06 and 
should be submitted by June 23, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-13606 Filed 5-30-03; 8:45 am]
BILLING CODE 8010-01-P