[Federal Register Volume 69, Number 87 (Wednesday, May 5, 2004)]
[Notices]
[Pages 25158-25160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10200]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49626; File No. SR-BSE-2004-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto by the Boston Stock Exchange, Inc. Relating to an 
Interpretation of ITS Trade-Throughs and Locked Markets

April 28, 2004.
    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 March 23, 2004, the Boston Stock Exchange, Inc. (``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. The Exchange filed the 
proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-
4(f)(1) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission. On April 5, 2004, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\5\ On April 22, 2004, the Exchange 
submitted Amendment No. 2 to the proposed rule change.\6\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 19b-4(f)(1).
    \5\ See letter from John A. Boese, Vice President, Legal and 
Compliance, BSE, to Nancy Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated April 2, 2004 
(``Amendment No. 1''). Amendment No. 1 adds an exhibit to the 
proposed rule change to include the proposed interpretation as rule 
text, and replaces the original filing in its entirety.
    \6\ See letter from John A. Boese, Vice President, Legal and 
Compliance, BSE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated April 21, 2004 (``Amendment No. 2''). Amendment 
No. 2 clarifies the proposed interpretation by adding the term 
``contemporaneously'' to the proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to codify an interpretation concerning 
ITS Trade-Throughs and Locked Markets. The text of the proposed rule 
change is below. Additions are in italics.
* * * * *

Chapter XXXI

Intermarket Trading System

    Secs. 1-3 no change
    Sec. 4(a)-(f) no change
    * * * Supplementary Material
    (1)-(10) no change
    (11)(a) The terms ``trade through'' and ``third participating 
market center trade-through'' do not include the situation where a 
member who initiated the purchase (sale) of an ITS security at a price 
which is higher (lower) than the price at which the security is being 
offered (bid) in another ITS participating market, contemporaneously 
sends through ITS to such ITS participating market a commitment to 
trade at such offer (bid) price or better and for at least the number 
of shares displayed with that market center's better-priced offer 
(bid); and
    (b) a trade-through complaint sent in these circumstances is not 
valid, even if the commitment sent in satisfaction cancels or expires, 
and even if there is more stock behind the quote in the other market.
* * * * *

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 25159]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the filing is to codify a long-standing 
interpretation of Chapter XXXI (Intermarket Trading System), Section 4 
(Trade-Throughs and Locked Markets) of the Rules of the Board of 
Governors of the Boston Stock Exchange (``BSE Rules''). This section of 
the BSE Rules uses certain defined terms as follows:
    (a)(1) A ``trade-through'', as that term is used in this Rule, 
occurs whenever a member on the Exchange purchases a security traded 
through ITS (referred to in this Rule as ``an ITS Security'') on the 
Exchange at a price which is higher than the price at which the 
security is being offered (or sells such a security on the Exchange at 
price which is lower than the price at which the security is being bid 
for) at the time of the purchase (or sale) in another ITS participating 
market center as reflected by the offer (bid) then being displayed on 
the Floor from such other market center. The member described in the 
foregoing sentence is referred to in this Rule as the member who 
initiated a trade-through.
    (2) A ``third participating market center trade-through'', as that 
term is used in this Rule, occurs whenever a member on the Exchange 
initiates the purchase of an ITS Security by sending a commitment to 
trade through the System and such commitment results in an execution at 
a price which is higher than the price at which the security is being 
offered (or initiates the sale of such a security by sending a 
commitment to trade through the System and such commitment results in 
an execution at a price which is lower than the price at which the 
security is being bid for) at the time of the purchase (or sale) in 
another ITS participating market center as reflected by the offer (bid) 
then being displayed on the Exchange from such other market center. The 
member described in the foregoing sentence is referred to in this Rule 
as the ``member who initiated a third participating market center 
trade-through.''
    According to the BSE, the basic concept of the Trade-Through Rule 
(``Rule'') is that superior priced quotations in a security displayed 
from other ITS Participant markets should be protected/satisfied if, in 
another ITS Participant market, an execution in the security occurs at 
an inferior price (``trade-through''). One of the remedies the Rule 
provides is that, upon a valid complaint of a trade-through, a 
commitment to trade, at the price and for the number of shares in the 
disseminated quotation, must be sent to the other ITS Participant 
market to fully satisfy such quotation. The proposed interpretation 
being filed by the BSE has long recognized that superior quotations are 
fully protected/satisfied if an ITS commitment is sent to trade with a 
bid/offer that would otherwise appear to have been traded-through. That 
is, a trade will not be considered a trade-through if an ITS commitment 
is sent contemporaneously from the ITS Participant executing the trade 
for the purpose of being executed against the better-priced displayed 
bid or offer. A trade-through complaint is not valid even if a 
commitment cancels or expires or there is more stock behind the away 
quote. Furthermore, the BSE believes that the proposed interpretation 
recognizes the impracticality of having to wait for the other market to 
revise its quotation as a result of trading with a satisfying 
commitment before trade activity may occur in other markets.
    Specifically, the proposed interpretation is that:
    i. The terms ``trade-through'' and ``third participating market 
center trade-through'' do not include the situation where a member who 
initiated the purchase (sale) of an ITS security at a price which is 
higher (lower) than the price at which the security is being offered 
(bid) in another ITS participating market, sends through ITS to such 
ITS participating market a commitment to trade at such offer (bid) 
price or better and for at least the number of shares displayed with 
that market center's better-priced offer (bid); and,
    ii. A trade-through complaint sent in these circumstances is not 
valid, even if the commitment sent in satisfaction cancels or expires, 
and even if there is more stock behind the quote in the other market.
2. Statutory Basis
    The Exchange believes that the statutory basis for the proposed 
rule change is Section 6(b)(5) of the Act,\7\ in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating securities 
transactions, 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.
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    \7\ 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 on the proposed rule change were neither solicited 
nor received.

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)(i) of the Act \8\ and subparagraph (f)(1) of Rule 19b-4 
thereunder,\9\ because it is concerned solely with the interpretation 
of the meaning, administration or enforcement of an existing BSE Rule. 
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.\10\
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    \8\ 15 U.S.C 78s(b)(3)(A)(i).
    \9\ 17 CFR 240.19b-4(f)(1).
    \10\ For purposes of determining the effective date of the 
filing and calculating the 60-day abrogation date, the Commission 
considers the period to commence on April 22, 2004, the date the BSE 
filed Amendment No. 2.
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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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number SR-BSE-2004-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.

[[Page 25160]]

    All submissions should refer to File Number SR-BSE-2004-11. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the BSE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-BSE-2004-11 and should be submitted on or before May 26, 
2004.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-10200 Filed 5-4-04; 8:45 am]
BILLING CODE 8010-01-P