[Federal Register Volume 68, Number 126 (Tuesday, July 1, 2003)]
[Notices]
[Pages 39169-39171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16520]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48080; File No. SR-BSE-2003-11]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Boston 
Stock Exchange Relating to an Extension of a Temporary Exemption 
Concerning an Interpretation of Its Execution Guarantee Rule

June 24, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 16, 2003, the Boston Stock Exchange (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule from interested persons and to grant 
accelerated approval retroactively to June 5, 2003.
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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 extend a temporary exemption related to an 
interpretation of its Execution Guarantee Rule in response to 
Commission action regarding de minimis trades through of certain 
Exchange Traded Funds (``ETFs'') in the Intermarket Trading System 
(``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 III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 39170]]

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 extend a temporary 
exemption granted to the Exchange regarding an Interpretation of its 
Execution Guarantee Rule in response to Commission action concerning de 
minimis trades through of certain ETFs in ITS.
    The Exchange's original rule proposal in this matter was filed 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 ITS Plan (``Order'').\3\ As of the 
implementation date of the Order, September 4, 2002, certain executions 
that took place according to the Rules of the Exchange would have been 
deemed violative of the provisions thereof.\4\ On September 9, 2002, 
the Exchange requested, and was subsequently granted, a thirty day 
implementation of a proposed rule, which would allow the Exchange to 
not enforce a specific provision of its rules relating to trade-through 
protection for certain securities.\5\ The Commission granted this 
temporary exemption for a period of thirty days, set to expire October 
3, 2002, and the exemption was subsequently extended to June 4, 
2003.\6\ The Exchange is now seeking to extend the period of the 
effectiveness of the Commission's order until March 4, 2004, consistent 
with a recent order extending the overall ETF de minimis exemption 
until that date.\7\ The Exchange has requested that the proposed rule 
be effective retroactively to June 5, 2003, to avoid a lapse of the 
previous exemptions.
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    \3\ See Securities Exchange Act Release No. 46428 (August 28, 
2002), 67 FR 56607 (September 4, 2002). Pursuant to this Release, 
participants of the ITS Plan were 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.
    \4\ Chapter II, Dealings on the Exchange, Section 33, Execution 
Guarantee, of the BSE Rules paragraph (c)(2) states that ``[a]ll 
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 * * *.'' There are similar provisions in 
various sections of Chapter XV, Dealer Specialists. 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 limit price. When the BSE 
specialist provides this trade-through protection to its customer 
limit orders, he is permitted to seek relief through ITS.
    \5\ See Securities Exchange Act Release No. 46482 (September 10, 
2002), 67 FR 58662 (September 17, 2002) (SR-BSE-2002-13).
    \6\ See Securities Exchange Act Release No. 46651 (October 11, 
2002), 67 FR 64669 (October 21, 2002) (SR-BSE-2002-18).
    \7\ See Securities Exchange Act Release No. 47950 (May 30, 
2003), 68 FR 33748 (June 5, 2003).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act \8\ and furthers the objectives 
of Section 6(b)(5),\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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.

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. 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 number in the caption 
above and should be submitted by July 22, 2003.

IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule is consistent with the requirements of Section 6(b)(5) of the Act 
\11\ because it is designed 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, 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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    \10\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of the publication of 
notice thereof in the Federal Register, and for granting approval 
retroactively to June 5, 2003, the date of the Commission's extension 
of the ITS exemption. The Commission believes that by extending the 
Exchange's proposed exemption for its members, the Exchange removes the 
specialist's obligation to provide trade-through protection in 
situations where it will not be permitted to seek satisfaction through 
ITS from the primary market.
    This obligation was one the BSE assumed voluntarily in order to 
make its market more attractive to sources of order flow, not an 
obligation the Act imposes on a market. The Commission believes that 
the business decision to potentially forego order flow by no longer 
providing print protection is a judgment the Act allows the BSE to 
make.\12\
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    \12\ The Commission notes that the BSE's proposed rule change 
will remain in effect only until the expiration of the extension of 
Commission's ITS Exemption Order on March 4, 2004.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-BSE-2003-11) is approved on 
an accelerated basis and is effective retroactively to June 5, 2003.
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    \13\ 15 U.S.C. 78f(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).


[[Page 39171]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16520 Filed 6-30-03; 8:45 am]
BILLING CODE 8010-01-P