[Federal Register Volume 69, Number 122 (Friday, June 25, 2004)]
[Notices]
[Pages 35693-35695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14451]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49886; File No. SR-BSE-2004-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change, and Amendment 
Nos. 1 and 2 Thereto, By the Boston Stock Exchange, Inc., Relating to 
Handling of Principal Acting as Agent Orders Under Linkage

June 17, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 27, 2004, the Boston Stock Exchange, Inc. (the 
``Exchange'' or the ``BSE'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I and II 
below, which items have been prepared by the BSE. The BSE submitted 
Amendment No. 1 to the proposed rule change on May 21, 2004.\3\ The BSE 
submitted Amendment No. 2 to the proposed rule change on June 9, 
2004.\4\ The Commission is publishing this notice to solicit comments 
on the proposed rule change 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 Glenn J. Verdi, Chief Regulatory Officer, 
Boston Options Exchange Regulation LLC, BSE to Nancy Sanow, 
Assistant Director, Division of Market Regulation (``Division''), 
Commission, dated May 20, 2004 (``Amendment No. 1''). Amendment No. 
1 replaced and superceded the original filing in its entirety.
    \4\ See Letter from Glenn J. Verdi, Chief Regulatory Officer, 
Boston Options Exchange Regulation LLC, BSE to Nancy Sanow, 
Assistant Director, Division, Commission, dated June 8, 2004 
(``Amendment No. 2''). In Amendment No. 2, the Exchange made a 
technical correction 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 BSE is proposing to amend Ch. XII, Section 2(c)(ii) of the BSE 
rules related to the intermarket options linkage (``Linkage'').
    The text of the proposed rule change 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 this proposed rule change is to implement proposed 
Joint Amendment No. 10 to the Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan'').\5\ That 
Plan amendment, together with the instant proposed rule change, would 
clarify the manner in which BOX Options Participants may send principal 
acting as agent orders (``P/A Orders'') \6\ that are larger than the 
Firm Customer Quote Size (``FCQS''). The FCQS, among other things, is 
the minimum size for which an exchange that is a participant in the 
Linkage Plan must provide an execution in its automatic execution 
system for a P/A Order, if the exchange's auto-ex system is 
available.\7\
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    \5\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953 (May 19, 2004) (File No. 4-429) (Notice of filing 
Joint Amendment No. 10 to the Linkage Plan).
    \6\ A P/A Order is an order for the account of a Market Maker 
that is authorized to represent Customer orders, reflecting the 
terms of a related Customer order for which the Market Maker is 
acting as agent. See Section 2(16)(a) of the Linkage Plan.
    \7\ See Sections 7(a)(ii)(A) & (B) of the Linkage Plan.
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    Currently, Linkage Plan Section 7(a)(ii)(B) and Ch. XII, Section 
2(c)(ii) of the BSE Rules (``BSE Rule'') provide a BOX Options 
Participant with two ways to handle orders that are larger than the 
FCQS. First, the BOX Options

[[Page 35694]]

Participant may send a P/A Order larger than the FCQS for manual 
processing at the receiving exchange. Second, the BOX Options 
Participant may send an initial P/A Order for up to the FCQS to be 
executed in the automatic execution system of the receiving exchange, 
if available. If the BOX Options Participant then seeks to send another 
P/A Order, it must send an order for the lesser of the entire remaining 
size of the underlying customer order or 100 contracts.
    This proposed rule change addresses the handling of orders if the 
BOX Options Participant chooses the second alternative, the sending of 
multiple P/A Orders. As currently drafted, the Linkage Plan and the BSE 
Rule do not recognize the possibility that an exchange's disseminated 
quotation may be for less than either the remaining size of the 
customer order or 100 contracts. Thus, this proposal specifies that a 
BOX Options Participant sending a second P/A Order may limit such order 
to the lesser of: the remaining size of the customer order; 100 
contracts; or the size of the receiving exchange's disseminated 
quotation.
    In addition, there is a practical issue if multiple exchanges are 
displaying the same bid or offer. In that case, the Linkage Plan is 
unclear as to whether a BOX Participant must send the entire order to 
one exchange or can send orders to multiple exchanges, as long as they 
are for the size of the entire order, or 100 contracts, in the 
aggregate. This proposed rule change clarifies the BSE Rule to specify 
that a BOX Options Participant may send P/A Orders to multiple 
exchanges, as long as all such orders, in the aggregate, are for the 
lesser of the entire remaining size or 100 contracts. However, as is 
the case when only one exchange is at the NBBO, a BOX Options 
Participant may limit the size of any single additional order to the 
size of the receiving market's disseminated quotation.
2. Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Section 
6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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-2004-15 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-2004-15. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal offices 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-
2004-15 and should be submitted on or before July 16, 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.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act \11\ 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 to protect investors and the public interest. The 
Commission believes that the proposed rule change should clarify the 
specialist's obligations in handling P/A Orders, which should 
facilitate the efficient handling of P/A Orders through the Linkage.
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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change, as amended, 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. 10, which was published for comment on May 19, 2004.\12\ 
The Commission received no comments on the substance of that Amendment. 
The Commission believes that no new issues of regulatory concern are 
being raised by 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.\13\
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    \12\ See supra note 5.
    \13\ 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,\14\ that the proposed rule change, as amended, (SR-

[[Page 35695]]

BSE-2004-15) is approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14451 Filed 6-24-04; 8:45 am]
BILLING CODE 8010-01-P