[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Notices]
[Pages 9657-9658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49304; File No. SR-BSE-2002-06]


Self-Regulatory Organizations; Boston Stock Exchange; Order 
Approving Proposed Rule Change To Clarify Exchange Liability

February 23, 2004.

I. Introduction

    On September 26, 2002, the Boston Stock Exchange (``BSE'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-BSE-2002-06 pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ On November 5, 2002, May 
29, 2003, and July 21, 2003, BSE amended the proposed rule change.

[[Page 9658]]

Notice of the proposal was published in the Federal Register on January 
13, 2004.\2\ No comment letters were received. For the reasons 
discussed below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 49026 (January 6, 2004), 
69 FR 2026.
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II. Description

    The purpose of the proposed rule change is to amend certain 
sections of the BSE Constitution and Rules to clarify BSE's liability 
with respect to its members' contractual obligations.\3\
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    \3\ The Commission approved a companion proposed rule change 
filed by the Boston Stock Exchange Clearing Corporation (``BSECC'') 
to amend various sections of its Rules as they pertain to BSECC's 
liability in order to maintain a consistent approach with the 
changes approved in this filing. Securities Exchange Act Release No. 
49305 (February 23, 2004), [File No. SR-BSECC-2003-01].
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    In particular, BSE is modifying Articles XII and XIII of its 
Constitution to insure that any BSE member who is a party to a 
transaction remains solely liable for the transaction. This language is 
consistent with similar language and approaches of other exchanges in 
limiting the liability of an exchange with respect to contracts entered 
into by members.\4\ In Article XIII of its Constitution, the BSE is 
also adding certain language from the BSECC Participant Hypothecation 
Agreement. The provision to be inserted into the Constitution would 
prevent BSE from becoming a de facto guarantor of an insolvent member's 
contractual obligations.
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    \4\ See, e.g., New York Stock Exchange Rules 137 and 142; 
Chicago Stock Exchange Rules, Article XXV, Rule 11; and Philadelphia 
Stock Exchange Rule 254.
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    BSE is amending other sections of its Rules consistent with this 
theme. Chapter III, ``Comparisons--Liability on Contracts,'' Section 4, 
``Failures to Compare,'' now states that BSE shall have no liability to 
any of the original parties to a contract entered into by a member. 
Chapter VI, ``Failure to Fulfill Contracts,'' Section 1, ``Closing 
Contracts,'' now makes it clear that no action taken by BSE in closing 
or assisting to close a contract entered into by a BSE member shall 
have the effect of transferring any liability related to that contract 
to BSE. Chapter VI, Section 2, ``Notice of Closing Contracts,'' echoes 
this approach for instances in which BSE takes action to attempt to 
close a contract on behalf of a member in default. None of these 
changes are in response to any recent circumstance. They are only aimed 
at clarifying BSE's unique position in relation to assisting its 
members in other contractual matters exclusively linked to conducting 
transactions in the buying and selling of equity securities.

III. Discussion

    Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating 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 are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.\5\ The Commission finds that BSE's proposed rule change is 
consistent with these requirements because it clarifies BSE's liability 
with respect to its members' contractual obligations.
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    \5\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular section 6(b)(5) of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-BSE-2002-06) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4434 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P