[Federal Register Volume 69, Number 147 (Monday, August 2, 2004)]
[Notices]
[Pages 46193-46194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17494]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50083; File No. SR-BSE-2004-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc. To Allow for the Pricing of the Options Leg(s) of Stock-Option 
Orders in Penny Increments

July 26, 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 July 16, 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 submitted 
the proposed rule change under section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\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 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 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE proposes to revise the procedures for executing stock-
option orders on the Boston Options Exchange Facility (``BOX'') by 
allowing for the pricing of the options leg(s) of stock option orders 
in penny increments. In addition, the proposed rule change corrects a 
typographical error in the original rule text. The text of the proposed 
rule change is below. Proposed new language is italicized; proposed 
deletions are in brackets.
* * * * *
Chapter V Doing Business on BOX
Sec. 27 Complex Orders
* * * * *
    (b) Applicability of BOX Rules. Except as otherwise provided in 
this Section, Complex Orders shall be subject to all other BOX Rules 
that pertain to orders generally.
    i. Minimum Increments. Bids and offers on [c]Complex [o]Orders may 
be expressed in any decimal price pursuant to Section 6 of this Chapter 
V (Minimum Trading Increments), and the option leg(s) of a stock-option 
order may be executed in one cent increments, regardless of the minimum 
increments otherwise [appropriate] applicable to the individual option 
legs of the order. Complex [o]Orders expressed in net price increments 
that are not multiples of the minimum increment are not entitled to the 
same priority under subparagraph (b)(ii) of this Section 27 as such 
orders expressed in increments that are multiples of the minimum 
increment.
* * * * *

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 BSE 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 and is set forth in Sections A, B, and C below.

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

1. Purpose
    The Exchange proposes to revise the procedures for executing stock-
option orders on BOX by allowing for the pricing of the options leg(s) 
of stock-option combination orders in penny increments. In addition, 
the proposed rule change corrects a few typographical errors in the 
original rule text. The proposed rule change is based on

[[Page 46194]]

International Securities Exchange, Inc. (``ISE'') Rule 722(b)(1).\5\
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    \5\ See also Securities Exchange Act Release No. 49251 (February 
13, 2004), 69 FR 8252 (February 23, 2004) (order approving File No. 
SR-ISE-2003-37) (revising the ISE's procedures for executing stock-
option orders by automating the transmission of the stock leg(s) of 
a stock-option combination order to a broker-dealer on behalf of ISE 
members and allowing for the pricing of the options leg(s) of stock-
option combination orders in penny increments).
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    Because the options leg(s) of a stock-option order must be executed 
in $.05 increments (for options trading below $3) and $.10 increments 
(for options trading at or above $3),\6\ while the stock leg(s) of a 
stock-option order trades in $.01 increments, it is not always possible 
to achieve a proposed net price for stock-option orders. For example, 
suppose an investor proposes to buy stock and sell options at a net 
price of $8.50. If the stock is $11.72 bid to $11.74 offered, and the 
option is $3.20 bid to $3.30 offered, a net price of $8.50 cannot be 
achieved without executing the option leg at $3.22, $3.23, or $3.24.\7\ 
Therefore, the Exchange proposes to allow for the execution of the 
option leg(s) of stock-option combination orders in one-cent increments 
to allow investors greater opportunities to receive execution of their 
stock-option orders. The options leg(s) of a stock-option order will 
continue to be reported through the Options Price Reporting Authority 
with a code that indicates that the trade was part of a complex order. 
The actual price of the trade will be reported.
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    \6\ See Chapter V, Section 6 of the BOX rules.
    \7\ To execute the order within the bid and offer for the stock 
and the option, a net price of $8.50 could only be achieved by (1) 
executing the stock at $11.72 and the option at $3.22 ($11.72-
$8.50); (2) executing the stock at $11.73 and the option at $3.23 
($11.73-$8.50); or (3) executing the stock at $11.74 and the option 
at $3.24 ($11.74-$8.50).
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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with section 6(b) of the Act,\8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\9\ in particular, in that it 
is designed to remove impediments to and perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange further 
believes that the execution of the options leg(s) of a stock-option 
order in $.01 minimum increments would improve investors' ability to 
receive execution of their orders.
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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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The BSE has filed the proposed rule change pursuant to section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date on which it 
was filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. As required 
under Rule 19b-4(f)(6)(iii), the BSE provided the Commission with 
written notice of its intent to file the proposed rule change at least 
five business days prior to filing the proposal with the Commission or 
such shorter period as designated by the Commission.
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    \10\ 15 U.S.C. 78s(b)(3)(a).
    \11\ 17 CFR 240.19b-4(f)(6).
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    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.

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-2004-30 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-2004-30. 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 the 
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-2004-30 and should be submitted on or before August 
23, 2004. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-17494 Filed 7-30-04; 8:45 am]
BILLING CODE 8010-01-P