[Federal Register Volume 69, Number 216 (Tuesday, November 9, 2004)]
[Notices]
[Pages 64998-65000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3076]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50622; File No. SR-BSE-2004-25]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Approving a Proposed Rule Change and Amendment Nos. 1, 2 and 3 Thereto 
and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 4 Thereto Relating to the Specialist Performance 
Evaluation Program

November 2, 2004.

I. Introduction

    On June 21, 2004, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its rules concerning its Specialist 
Performance Evaluation Program (``SPEP''). On July 26, 2004, the BSE 
submitted Amendment No. 1 to the proposed rule change.\3\ On August 25, 
2004, the BSE submitted Amendment Nos. 2 \4\ and 3 \5\ to the proposed 
rule change. The proposed rule change, as amended by Amendment Nos. 1, 
2 and 3, was published for comment in the Federal Register on September 
3, 2004.\6\ The Commission received no comments on the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John Boese, Vice President, Chief Regulatory 
Officer, BSE, to Nancy Sanow, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated July 22, 2004 and 
accompanying Form 19b-4 (``Amendment No. 1''). Amendment No. 1 
replaced and superceded the originally filed proposed rule change.
    \4\ See letter from John Boese, Vice President, Chief Regulatory 
Officer, BSE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated August 18, 2004 (``Amendment No. 2''). Amendment 
No. 2 replaced and superceded BSE Rule Chapter XV, Section 17, 
Paragraph (a) of the previously filed proposed rule change.
    \5\ See letter from John Boese, Vice President, Chief Regulatory 
Officer, BSE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated August 19, 2004 (``Amendment No. 3''). Amendment 
No. 3 replaced and superceded BSE Rule Chapter XV, Section 17, 
Paragraph (a) of the previously filed proposed rule change.
    \6\ See Securities Exchange Act Release No. 50287 (August 27, 
2004), 69 FR 53966.
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    On October 15, 2004, the BSE submitted Amendment No. 4 to the 
proposed rule change.\7\ This order

[[Page 64999]]

approves the proposed rule change, as amended by Amendment Nos. 1, 2, 3 
and 4. Simultaneously, the Commission is providing notice of filing of 
Amendment No. 4 and granting accelerated approval of Amendment No. 4.
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    \7\ See letter from John Boese, Vice President, Chief Regulatory 
Officer, BSE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated October 6, 2004 (``Amendment No. 4''). In 
Amendment No. 4, the BSE proposed permanent approval of the SPEP by 
deleting Paragraph (f) of Chapter XV, Dealer-Specialists, Section 
17, Specialist Performance Evaluation Program, which limited the 
effective date of the SPEP through December 31, 2004.
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II. Description

    The Exchange proposes to amend the SPEP, which is set forth in 
Chapter XV, Dealer-Specialists, Section 17, Specialist Performance 
Evaluation Program. Specifically, the BSE proposes to eliminate the 
current measurement standards set forth in the rule and replace them 
with a ranking program based on statistics reported under Rule 11Ac1-5 
under the Act \8\ (``Rule 5'').\9\ Because the measurement standards 
will no longer be set forth in the rule, the BSE proposes to 
communicate the measurement standards and thresholds to members via 
Floor Memoranda, at least thirty days in advance, at least each time a 
new Rule 5 measurement is chosen, or a new threshold is established. 
The BSE also proposes to replace references to the Performance 
Improvement Action Committee (``PIAC'') in the rule text with the 
Market Performance Committee (``MPC''), because the PIAC, a 
subcommittee of the MPC, has been abolished by the Exchange, and its 
duties have been subsumed by the MPC.
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    \8\ 17 CFR 240.11Ac1-5.
    \9\ See Securities Exchange Act Release No. 43590 (November 17, 
2000), 65 FR 75414 (December 31, 2000) (adopting Rule 5).
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III. Discussion

    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\ and, in particular, the requirements of Section 6(b) of the Act 
\11\ and the rules and regulations thereunder. The Commission finds 
that the proposed rule change, as amended, is consistent with Section 
6(b)(5) of the Act,\12\ which requires that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, 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, in general, to protect investors and the public 
interest.
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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).
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission finds that utilizing Rule 5 
measurements for SPEP should provide the Exchange with greater 
flexibility in tailoring its SPEP criteria to respond to market 
conditions. The BSE, as part of its self-regulatory responsibilities, 
must conduct effective oversight of specialists. Among the obligations 
imposed upon specialists by the Act and the rules thereunder is 
engaging in a course of dealings for their own accounts to assist in 
the maintenance of fair and orderly markets in their designated 
securities.\13\ To ensure that specialists fulfill their obligations, 
the Exchange must review specialists' performance. The Commission 
believes that the BSE's SPEP is critical to this oversight.
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    \13\ Rule 11b-1, 15 CFR 240.11b-1.
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    The Commission notes that the proposed rule change, as amended, 
includes objective measures of performance, as derived from Rule 5. The 
Commission believes that the Rule 5 measurements should provide the BSE 
with adequate statistics upon which to evaluate its specialists' 
performance. Further, the SPEP contains procedures for the review and 
discipline of specialists who fail to perform their obligations 
adequately.
    In Amendment No. 4, the BSE proposed to make its SPEP permanent. 
The Commission notes that the SPEP rule have been subject to notice and 
comment and that no comments have been received. The Commission 
believes that the proposed SPEP program, which utilizes Rule 5 
measurements and sets forth a review and disciplinary procedures, 
merits permanent approval. The Commission emphasizes, however, that the 
BSE should continue to closely monitor the conditions for review and 
should take steps to ensure that all specialists whose performance is 
deficient will be subject to meaningful review. Accordingly, the 
Commission finds that there is good cause, consistent with Section 
6(b)(5) \14\ and Section 19(b)(2) of the Act,\15\ to approve Amendment 
No. 4 on an accelerated basis prior to the 30th day of the date of 
publication of notice of filing thereof in the Federal Register.
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 4, including whether Amendment No. 4 
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-2004-25 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-2004-25. 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 Amendment No. 4 that are filed 
with the Commission, and all written communications relating to 
Amendment No. 4 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 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-
2004-25 and should be submitted on or before November 30, 2004.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (File No. SR-BSE-2004-25), as 
amended by Amendment Nos. 1, 2 and 3, be, and hereby is, approved, and 
that Amendment No. 4 to the proposed rule change be, and hereby is, 
approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).


[[Page 65000]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3076 Filed 11-8-04; 8:45 am]
BILLING CODE 8010-01-P