[Federal Register Volume 68, Number 199 (Wednesday, October 15, 2003)]
[Notices]
[Pages 59435-59437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25975]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48596; File No. SR-BSE-2003-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Boston Stock Exchange, Inc. 
Relating to the Exchange's Instant Liquidity Access Service for Certain 
Limit Orders

October 7, 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 July 14, 2003, 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. On 
September 8, 2003, the Exchange submitted an amendment to the 
filing.\3\

[[Page 59436]]

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.
    \3\ See letter from John Boese, Vice President, Legal and 
Compliance, BSE, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated September 5, 2003 (``Amendment 
No. 1''). In Amendment No. 1, the BSE: (1) Clarified that the 
proposal is substantially similar to the New York Stock Exchange, 
Inc. (``NYSE'') rule related to the NYSE's Direct+ execution 
functionality; (2) corrected typographical errors in the purpose 
section; (3) clarified how trades will be reported to the 
Consolidated Tape Association; (4) noted that the proposed rule will 
be replacing an obsolete BSE rule related to year 2000 testing; and 
(5) and inserted a cross reference to other BSE rules that clarify 
instances in which BSE published quotes might not be ``firm.''
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add provisions to its rules governing a 
new service that will provide for the instant execution of certain 
limit orders of a specified size. The text of the proposed rule change 
is below. Proposed new language is in italics; proposed deletions are 
in brackets.
* * * * *
Chapter I
Definitions
Sec. 3.

Instant Liquidity Access (``ILA'') Order

    An ILA order is a round-lot limit order of no less than 100, nor 
more than 1000, shares priced at the Exchange's published offer (in the 
case of a buy) or at the Exchange's published bid (in the case of an 
order to sell), which a member or member-organization has entered for 
immediate execution in accordance with, and to the extent provided by, 
Chapter XXXIII, Section 8 (Instant Liquidity Access) of these Rules.
* * * * *
Chapter XXXIII
Beacon
    Sec. 8. [Year 2000 testing] Instant Liquidity Access (a) Each 
member and member organization shall participate in testing of computer 
systems designed to prepare for Year 2000, in a manner and frequency 
prescribed by the Exchange, and shall provide to the Exchange reports 
related to such testing as requested by the Exchange.
    (b) The Exchange may exempt a member or member organization from 
this requirement if that member cannot be accommodated in the testing 
schedule by the organization conducting the test, if the member does 
not employ computers in its business, or for other good reasons.
    (c) Every member of the Exchange that clears securities 
transactions on behalf of other broker-dealers must take reasonable 
measures to ensure that each broker-dealer for which it clears 
securities transactions conducts testing with such member.

Adopted.

December 31, 1998.]

    This section applies to the facilitation of orders through Instant 
Liquidity Access, a mechanism offered by the Exchange. All other 
provisions of the Constitution and Rules of the Exchange are applicable 
unless superseded by this section.
    (a) Only straight limit orders without tick restrictions are 
eligible for entry as instant execution or Instant Liquidity Access 
(``ILA'') orders. ILA orders to buy shall be priced at the price of the 
published BSE offer. ILA orders to sell shall be priced at the price of 
the BSE bid. An ILA order shall receive an immediate, instant execution 
against orders reflected in the Exchange's published quotation and 
shall be immediately reported as BSE transactions, unless:
    (i) the BSE's published quotation is not firm (in accordance with 
Rule 11Ac1-1 of the Act, as set forth in these Rules in Chapter III, 
``Dealings on the Exchange'', Section 7, ``Dissemination of 
Quotations'');
    (ii) the primary market's published quotation is spread away from 
the BSE quotation in an amount, as determined by the Market Performance 
Committee of the Exchange, which would warrant curtailing the 
availability of instant executions in a particular security (currently 
$0.25). Such an amount can be altered by the Market Performance 
Committee, as market conditions warrant, from time to time;
    (iii) with respect to a single-sided ILA order, a better price 
exists in another ITS participating market center;
    (iv) with respect to a single-sided ILA order, the BSE's published 
bid or offer is 100 shares;
    (v) trading in the subject security has been halted;
    (vi) the primary market has executed a block size trade at a price 
inferior to the BSE bid or offer.
    ILA orders that cannot be immediately executed shall be cancelled.
    (b) Availability of ILA feature. ILA orders in a particular stock 
shall be eligible to receive an instant execution if entered after the 
Exchange has disseminated a published bid or offer in that stock until 
4:00 p.m. or any other closing time of the exchange's floor market.
    (c) Orders may not be broken into smaller amounts. An ILA order for 
any account in which the same person is directly or indirectly 
interested may only be entered at intervals of no less that 30 seconds 
between the entry of each such order in the book.
    (d) Interaction with ITS orders. If an inbound ITS commitment has 
been processed and apportioned according to the rules set forth in 
Chapter XXXI, Intermarket Trading Sysem, herein, based on orders in the 
BSE book, an ILA execution cannot take place against the same order.
    (e) Partial executions. An ILA order which is for a size greater 
than that displayed on the BSE book will receive an instant execution 
up to the displayed size of the BSE quotation. Any excess will 
automatically be cancelled.
* * * * *

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 new sections to 
its rules concerning new trading system functionality to provide for 
the instant execution of limit orders of 1000 shares or less against 
trading interest in the Exchange's published quotation. This new 
functionality, Instant Liquidity Access (``ILA''), will accommodate 
Exchange customers seeking immediate execution or cancel, similar to 
services offered by other exchanges and Electronic Communications 
Networks (``ECNs''), such as the New York Stock Exchange's Direct+ 
service.\4\
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    \4\ As noted above, the BSE's proposal is substantially similar 
to the existing NYSE Direct+ automatic execution functionality. It 
does, however, differ in the following four respects. First, inbound 
ILA orders to sell must be priced ``at'' (while the NYSE rule 
requires orders to be priced ``at or above'') the BSE published bid 
price and inbound orders to buy must be priced ``at'' (while the 
NYSE rule requires orders to be priced ``at or below'') the BSE 
published ask price. Second, the NYSE rule includes an exclusion, 
relating to an automatic execution trade being more than 5 cents 
away from the previous trade in that security executed on the NYSE. 
Third, the NYSE rule requires the display of any unexecuted portion 
of a Direct+ order or any Direct+ orders that cannot be immediately 
filled as limit orders regular way. The BSE proposal requires that 
such orders be canceled if not immediately filled. Finally, the BSE 
proposal includes an exclusion for such instances when the national 
best bid or offer spread is $0.25 or more. Teleconference between 
John Boese, Vice President, Legal and Compliance, BSE, and 
Christopher B. Stone, Special Counsel, Division of Market 
Regulation, Commission (September 30, 2003).

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[[Page 59437]]

    It would not be mandatory that all limit orders of 1000 shares or 
less be entered as ILA orders; rather, the member organization entering 
the order can choose to enter an ILA order when such member 
organization believes that the speed and certainty of an execution at 
the Exchange's published bid or offer price is in its customer's best 
interest. In such a case, the member organization would enter an ILA 
order priced at the Exchange's published offer price (in the case of an 
ILA order to buy), or an ILA order priced at the Exchange's published 
bid price (in the case of an ILA order to sell). The ILA order would 
then receive an instant execution without being exposed to the auction 
market, provided the bid or offer is still available. If the ILA 
feature is not available for any reason, the ILA order will be 
cancelled. Moreover, any member organization that believes in any 
particular case that the customer's interests would be best served by 
affording the customer's order the opportunity for price improvement 
may enter a limit or market order into BEACON for representation in the 
auction market, rather than an ILA order.
    ILA orders will be reported to the Consolidated Tape Association 
with a unique identifier, a ``.e'', to denote that they were instantly 
executed. The Exchange's published bid or offer would be automatically 
decremented to the extent of the size of the ILA order to reflect the 
ILA execution. The contra side of the ILA order would be the trading 
interest reflected in the Exchange's bid or offer, with such interest 
participating in the execution according to the Exchange's auction 
market principles of priority and parity. Additionally, if an inbound 
ITS commitment has been processed and apportioned according to the 
rules set forth in Chapter XXXI, Intermarket Trading System, based on 
orders on the BSE book, an ILA execution cannot take place against that 
same order. Finally, any ILA order, which is for a size greater than 
that displayed in the BSE book will receive an instant execution up to 
the displayed size of the BSE quotation. Any excess will automatically 
be cancelled.
    The Exchange's proposal would implement a new set of rules, set 
forth in Section 8 of Chapter XXXIII, BEACON \5\, and an addition to 
Chapter 1, Definitions, Section 3, Orders.
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    \5\ The existing language in this Section will be deleted, as it 
applied to Y2K systems testing requirements, and replaced with 
provisions detailing the instant proposal.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act \6\ 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 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 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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    The Exchange also believes that the proposed rule change is 
designed to support the principles of section 11A(a)(1) of the Act \8\ 
in that it seeks to assure economically efficient execution of 
securities transactions, makes it practicable for brokers to execute 
investor's orders in the best market and provide an opportunity for 
investors' orders to be executed without the participation of a dealer.
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    \8\ 17 U.S.C. 78k-l(a)(1).
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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-2003-08 and 
should be submitted by November 5, 2003.

    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. 03-25975 Filed 10-14-03; 8:45 am]
BILLING CODE 8010-01-P