[Federal Register Volume 69, Number 189 (Thursday, September 30, 2004)]
[Notices]
[Pages 58562-58563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2416]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50431; File No. SR-BSE-2004-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Boston Stock Exchange, 
Inc. Modifying the Allocation of Certain Orders Under the Rules of the 
Boston Options Exchange Facility

September 23, 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 August 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, II, 
and III below, which Items have been prepared by the Exchange. The 
proposed rule change has been filed by BSE as a ``non-controversial'' 
rule change pursuant to 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders the proposal effective on filing with the 
Commission. On September 10, 2004, BSE filed Amendment No. 1 to the 
proposed rule change.\5\ 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 240.19b-4(f)(6).
    \5\ See Letter from Annah F. Kim, Chief Regulatory Officer, BSE, 
to Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated September 8, 2004 (``Amendment No. 
1''). Amendment No. 1 made clarifying revisions to the text of the 
proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSE proposes to adopt a rule change to modify the allocation of 
certain customer orders under the rules of the Boston Options Exchange 
Facility (``BOX''). Pursuant to the current rule, when a customer order 
is submitted to BOX's Price Improvement Period (the ``PIP''), the PIP 
participant who submitted the customer order to the PIP retains 
priority for 40% of the unexecuted portion of the customer order 
available at that price level. The Exchange proposes to modify this 
priority to 40% of the original size of the customer order. The 
Exchange believes that this modification is consistent with the 
allocation of comparable orders executed on CBOEdirect, the screen-
based trading system of the Chicago Board Options Exchange, Inc. 
(``CBOE'').\6\
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    \6\ See CBOE Rule 43.12A (Crossing Trades).
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    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deletions are bracketed.
* * * * *

Rules of the Boston Stock Exchange

Rules of the Boston Options Exchange Facility

    Trading of options contracts on BOX

Chapter VI Doing Business on BOX.

Sec. 18 The Price Improvement Period (``PIP'')
* * * * *
    (f) The PIP Participant who submitted the Customer Order to the PIP 
process for price improvement retains certain priority and trade 
allocation privileges upon conclusion of the PIP, as follows:
    i. In instances in which the Primary Improvement Order as modified 
(if at all) is matched by or matches any competing Improvement Order(s) 
and/or non-Public Customers unrelated order(s) at any price level, the 
PIP Participant retains priority at that price level for only forty 
percent (40%) of [any unexecuted portion] the original size of the 
Customer Order [available at that price level], notwithstanding the 
time priority of the Primary Improvement Order, competing Improvement 
Order(s) or non-Public Customer unrelated order(s). The PIP Participant 
who submitted the Customer Order to the PIP process will receive 
additional allocation only after all other orders have been filled at 
that price level.
* * * * *

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 IV below. The

[[Page 58563]]

Exchange has prepared summaries, set forth in Sections A, B, and C 
below, of the most significant parts of such statements.

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

1. Purpose
    When the Exchange drafted the rules that would govern the 
allocation of customer orders on BOX with respect to the PIP, it took 
care to comply with the requirements of Section 11(a) of the Act \7\ 
and provide priority to public customer and non-member orders as well 
as adhere to a policy of not allowing a trade allocation guarantee of 
more than 40% of a facilitated order to the facilitator of that 
customer order. At that time, the Exchange believed it was necessary to 
allocate any guaranteed portion of the Primary Improvement Order \8\ 
based on what remained of the customer order at a given price level 
after all public customer and non-member orders had been executed, and 
drafted the BOX rules accordingly. It has since come to the attention 
of the Exchange that the rules of at least one other options exchange 
provide for the allocation of a guaranteed portion of comparable 
facilitated orders based on the original size of such facilitated 
orders, and not on the amount that remains at a price level after 
orders with priority have been executed.\9\ Members of the Exchange who 
participate on BOX requested that, in this regard, the BOX rules be 
modified to match those of other options exchanges.
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    \7\ 15 U.S.C. 78k(a).
    \8\ See Chapter V, Section 18(e) of the BOX Rules (definition of 
Primary Improvement Order).
    \9\ See CBOE Rule 43.12A (Crossing Trades).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and Section 6(b)(5) of 
the Act,\11\ in particular, in that it is designed to promote just and 
equitable principles of trade, and to protect investors and the public 
interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    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

    Because, the foregoing proposed 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) by its terms, does not become operative until 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, and the Exchange provided the Commission with written notice 
of its intent to file the proposed rule change at least five business 
days prior to the date of filing of the proposed rule change, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) thereunder.\13\ At any time within 60 days of the 
filing of this proposed rule change,\14\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ For purposes of calculating the sixty-day abrogation 
period, the Commission considers the abrogation period to have begun 
on September 10, 2004, the date BSE submitted Amendment No. 1. See 
15 U.S.C. 78s(b)(3)(C).
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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 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-2004-36 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-2004-36. 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 office of 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-2004-36 
and should be submitted on or before October 21, 2004.

    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. E4-2416 Filed 9-29-04; 8:45 am]
BILLING CODE 8010-01-P