[Federal Register Volume 69, Number 121 (Thursday, June 24, 2004)]
[Notices]
[Pages 35403-35404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14285]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49869; File No. SR-BSE-2004-19]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change, and Amendment 
No. 1 Thereto, by the Boston Stock Exchange, Inc. for the Extension of 
a Pilot Program Limiting Liability for Trade-Throughs at the End of the 
Trading Day

June 15, 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 May 7, 2004, 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 and 
II below, which Items have been prepared by the BSE. The BSE filed 
Amendment No. 1 to the proposed rule change on June 1, 2004.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons, and to grant 
accelerated approval to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John Boese, Chief Regulatory Officer, BSE, 
to Nancy Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated June 8, 2004 (``Amendment No. 1''). In Amendment 
No. 1, the Exchange made technical corrections to the proposed rule 
text submitted to the Commission.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Intermarket Options Linkage 
Rules of the BSE to extend a pilot program for limitations on Trade-
Through \4\ liability that occur from five minutes before the close of 
trading of the underlying security to the close of trading in the 
options class. The pilot program would be extended to January 31, 2005, 
and would increase the limit on Trade-Through liability during the last 
seven minutes of the day from 10 contracts to 25 contracts per 
Satisfaction Order.
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    \4\ A ``Trade-Through'' is defined as a transaction in an 
options series at a price that is inferior to the national best bid 
or offer in an options series calculated by a Participant. See 
Section 2(29) of the Linkage Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan''). A 
``Participant'' is defined as an Eligible Exchange whose 
participation in the Linkage Plan has become effective pursuant to 
Section 4(c) of the Linkage Plan. See Section 2(24) of the Linkage 
Plan. Currently, the Participants in the Linkage Plan are the 
International Securities Exchange, Inc., the American Stock Exchange 
LLC, the Chicago Board Options Exchange, Inc., the Pacific Exchange, 
Inc., the Philadelphia Stock Exchange, Inc. and the BSE.
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    The text of the proposed rule change, as amended, is available at 
the Exchange 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 III 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 make the rules of the 
Boston Options Exchange, a facility of the Exchange, consistent with 
the other options exchanges in regard to end-of-day Trade-Through 
liability under the Linkage Plan. The Participants have submitted a 
Linkage Plan amendment to extend the Linkage Plan's pilot provision 
limiting Trade-Through liability during the last seven minutes of the 
trading day.\5\ Pursuant to the pilot currently in effect, a BSE 
Options Participant's Trade-Through liability is limited to 10 
contracts per Satisfaction Order \6\ for the period between five 
minutes prior to the close of trading in the underlying security and 
the close of trading in the options class.
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    \5\ The BSE has separately filed Joint Amendment No. 12 to the 
Linkage Plan to implement substantially the same change to the 
Linkage Plan. See Securities Exchange Act Release No. 49692 (May 12, 
2004), 69 FR 29956 (May 19, 2004) (Notice of Joint Amendment No. 
12). The Commission previously approved the pilot to implement a 
limitation on Trade-Through liability during the last seven minutes 
of the trading day on a 120-day temporary basis on January 31, 2003. 
See Securities Exchange Act Release No. 47298, 68 FR 6524 (February 
7, 2003). On June 18, 2003, the Commission approved the pilot until 
January 31, 2004. See Securities Exchange Act Release No. 48055, 68 
FR 37869 (June 25, 2003) (Order approving Joint Amendment No. 4). 
The Commission subsequently extended the pilot until June 30, 2004. 
See Securities Exchange Act Release No. 49146 (January 29, 2004), 69 
FR 5618 (February 5, 2004) (Order approving Joint Amendment No. 8).
    \6\ A ``Satisfaction Order'' is defined as an order sent through 
the Options Intermarket Linkage to notify a member of another 
Participant of a Trade-Through and to seek satisfaction of the 
liability arising from that Trade-Through. See Section 2(16) of the 
Linkage Plan.
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    The Participants are proposing to extend the pilot for an 
additional seven months, until January 31, 2005. In addition, the 
Participants propose to increase the limit on Trade-Through liability 
during the last seven minutes of the trading day from 10 contracts to 
25 contracts per Satisfaction Order. This increase in the limit on 
liability would be effective on July 1, 2004, when the current pilot 
expires. The period during which this limit will apply will remain the 
same, from five minutes prior to the close of trading in the underlying 
security until the close of trading in the options class.

[[Page 35404]]

    As a condition to granting permanent approval of this limitation, 
the Commission required that the Participants provide the Commission 
with a report regarding data on the use of the exemption no later than 
60 days before seeking permanent approval (the ``Report''). The 
Participants have provided the Commission with certain information 
required in the Report, and continue to discuss with Commission staff 
what additional information the staff may need to evaluate possible 
permanent approval of the Trade-Through limitation. This extension will 
allow the limitation to continue in effect, with the increase in 
liability to 25 contracts per Satisfaction Order, while the Commission 
staff and the Participants continue to discuss permanent approval.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act \7\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act \8\ in 
particular, in that it is 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 protect 
investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 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 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, 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-2004-19 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. All submissions should refer to File Number 
SR-BSE-2004-19. 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, 450 Fifth Street, NW., Washington, DC 20549. 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-2004-19 and should be submitted on or before July 
15, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\9\ 
In particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the rules of a national 
securities 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 to protect 
investors and the public interest. The Commission believes that 
extending the pilot will enable Participants to continue to compile the 
data necessary for the Commission to determine whether permanent 
approval of the proposed rule change is appropriate and in the public 
interest. The Commission further believes that raising the limitation 
in liability for Satisfaction Orders during the last seven minutes of 
the trading day from 10 contracts to 25 contracts for this pilot period 
should help to protect investors and promote the public interest.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 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 publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the BSE Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 12, which 
was published for public comment in the Federal Register on May 19, 
2004.\11\ The Commission received no comments in response to 
publication of Joint Amendment No. 12. The Commission believes that no 
new issues of regulatory concern are being raised by the BSE's proposed 
rule change. The Commission believes, therefore, that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\12\
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    \11\ See supra note 5.
    \12\ 15 U.S.C. 78f and 78s(b).
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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-2004-19), as amended, is 
approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14285 Filed 6-23-04; 8:45 am]
BILLING CODE 8010-01-P