[Federal Register Volume 68, Number 243 (Thursday, December 18, 2003)]
[Notices]
[Pages 70550-70551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31168]



[[Page 70550]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48914; File No. SR-BSE-2003-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the Boston 
Stock Exchange, Inc. To Establish a General Revenue Sharing Program for 
Member Firms

December 12, 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 December 9, 2003, the Boston Stock Exchange, Incorporated (``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 
December 10, 2003, the Exchange amended the proposed rule change.\3\ 
The Exchange has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by the BSE under section 
19(b)(3)(A)(ii) of the Act,\4\ which renders the proposal effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See December 9, 2003 letter from John Boese, Vice President, 
Legal and Compliance, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, and attachments (``Amendment No. 
1'') Amendment No. 1 completely replaces and supersedes the original 
filing. For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to have commenced on December 
10, 2003, the date the BSE filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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

    The BSE proposes to establish a general revenue sharing program for 
Member Firms. The text of the proposed rule change is available at the 
BSE and at the Commission.

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 amend the Exchange's 
Transaction Fee Schedule to establish a new general revenue sharing 
program. In order to remain competitive with other market centers that 
trade Nasdaq National Market and Nasdaq SmallCap securities (``Nasdaq 
Securities''), including the Nasdaq Stock Market and National Stock 
Exchange (formerly the Cincinnati Stock Exchange), the BSE is 
implementing a general revenue sharing program based on National Stock 
Exchange's revenue sharing program, as adopted in 1999 and subsequently 
amended.\5\
    The purpose of the proposed rule change is to provide general 
revenue sharing in certain securities on the BSE. To compete more 
effectively, the BSE proposes to provide incentive for Member Firms to 
execute trades on the BSE and recover costs by means of a quarterly 
revenue sharing program, without diminishing the quality of the market, 
including regulatory quality.\6\
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release Nos. 41082 (February 22, 
1999), 64 FR 10035 (March 1, 1999) (SR-CSE-99-02) (notice); 41286 
(April 14, 1999), 64 FR 19843 (April 22, 1999) (SR-CSE-99-02) 
(approval order); 46688 (October 18, 2002), 67 FR 65816 (October 28, 
2002) (SR-CSE-2002-14) (notice of filing and immediate 
effectiveness).
    \6\ See infra note 7.
---------------------------------------------------------------------------

    The proposed rule change contemplates the Exchange sharing with 
Member Firms all or a portion of the BSE Member Firm's Operating 
Revenue (``MFOR'') attributable to transactions in Nasdaq Securities 
after operating expenses and working capital needs have been met. MFOR 
is comprised of all operating revenue generated by trading activity on 
the Exchange and consists of transaction fees, technology fees, and 
market data revenue that is attributable to BSE Member Firm activity in 
Nasdaq Securities. All regulatory monies are excluded from MFOR.
    Under the proposal, the Exchange's Board of Governors would have 
the authority to determine on an ongoing basis the appropriate amount 
of MFOR to be shared with Member Firms. In making this determination, 
the Board would be guided by the need to balance the objective of 
maintaining the BSE's financial integrity.\7\ To simplify the 
administration of the revenue sharing program and smooth out monthly 
expense fluctuations, the program will operate on a quarterly basis. In 
addition, to the extent that Nasdaq market data revenue is subject to a 
year-end adjustment, revenues distributed to Member Firms are subject 
to adjustment accordingly, to ensure that Member receipts of market 
data revenue are consistent with the year-end true up procedures 
applied under the Nasdaq UTP Plan.
---------------------------------------------------------------------------

    \7\ In particular, the BSE will not compromise its regulatory 
responsibilities by sharing revenue that would more appropriately be 
used to fund regulatory responsibilities. The Exchange will be 
mindful of its regulatory responsibilities when determining its 
working capital needs. See Securities Exchange Act Release No. 41286 
(April 14, 1999), 64 FR 19843, 19844 (April 22, 1999) (SR-CSE-99-
02).
---------------------------------------------------------------------------

    MFOR will be shared with Member Firms on a pro rata basis. After 
the BSE has accounted for operating expenses and working capital 
contributions, each Member Firm will receive a percentage of the MFOR 
to be shared that is equal to that firm's percentage contribution to 
the MFOR. In no event will the amount of revenue shared with Member 
Firms exceed MFOR.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act,\8\ in general, and with section 6(b)(4) of the 
Act,\9\ in particular, in that it provides for the equitable allocation 
of reasonable dues, fees, and other charges among its members.
    In addition, the BSE believes that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\10\ in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect that mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The BSE believes that the proposed rule change will 
create incentives for Member Firms to actively quote and execute 
transactions on the Exchange, which will, in turn, enhance the National 
Market System.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 70551]]

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 proposed rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\12\ because it involves a due, fee, or other charge. 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
BSE-2003-22. This file number should be included on the subject line if 
e-mail is used. To help the Commission process and review your comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 number SR-BSE-2003-22, and should be 
submitted by January 8, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31168 Filed 12-17-03; 8:45 am]
BILLING CODE 8010-01-P