[Federal Register Volume 69, Number 230 (Wednesday, December 1, 2004)]
[Notices]
[Pages 69962-69963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50733; File No. SR-BSE-2004-50]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate a Restriction Precluding a BSE Specialist From Trading Both 
Nasdaq-Listed and New York Stock Exchange-Listed Securities 
Simultaneously

November 24, 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 November 22, 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 Exchange. The BSE 
filed the proposed rule change pursuant to section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it 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 eliminate the restrictions precluding a BSE 
specialist from trading both Nasdaq-listed and New York Stock Exchange 
(``NYSE'')-listed securities at the same time. The text of the proposed 
rule change is below. Proposed deletions are in brackets.\5\
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    \5\ With the instant proposed rule change, the BSE eliminated 
Section 11 of Chapter XXXV (``Limitations on Specialists''). As a 
result, all subsequent Sections in Chapter XXXV are renumbered.
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Chapter XXXV

Limitations on Specialists

    [Sec. 11. Any individual member who is registered as a specialist 
is not permitted to maintain a book, as defined in Chapter XV, 
Specialists, Section 6, The Specialist's Book, in both Nasdaq 
securities and listed securities. Nasdaq securities must comprise a 
separate book which must be solely traded by a separate specialist. A 
specialist who is qualified under the provisions of this Chapter XXXV, 
and the provisions of Chapter XV, Specialists, Section 1, Registration, 
to trade either listed or Nasdaq securities, or both, cannot accept 
orders in, nor effect transactions in, both types of securities, at the 
same time.
    Nothing in this section shall preclude any duly qualified 
specialist from occasionally substituting for, or acting as an 
alternate for, another specialist in either listed or Nasdaq 
securities, in accordance with Article XVI of the Constitution of the 
Boston Stock Exchange, Officers and Associates, Section 7, Alternates 
for Members Absent. A specialist substituting for another specialist in 
accordance with the provisions of this section will be permitted to 
trade both Nasdaq and listed securities at the same time, during the 
period of substitution. In the case of an extended or permanent absence 
of a specialist qualified to trade Nasdaq securities, the firm from 
which the specialist is absent must promptly notify the Exchange and 
make arrangements to permanently replace the absent specialist in a 
reasonable amount of time, as determined by the Exchange. The Exchange 
reserves the right to temporarily reassign some or all of the Nasdaq 
securities comprising an absent specialist's book in the event that a 
firm does not make suitable or timely arrangements for the replacement 
of the absent specialist.]
* * * * *

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 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 Exchange proposes to eliminate the restrictions, as set forth 
in Chapter XXXV, Trading in Nasdaq Securities, Section 11, Limitations 
on Specialists. This Section precludes a BSE specialist from trading 
both Nasdaq-listed and NYSE-listed securities at the same time.
    Originally, the primary reason for the restriction was to separate 
specialists' books so that the BSE would be able to ensure that 
specialists maintained adequate levels of capital in their respective 
accounts. When the rule was first proposed,\6\ the Exchange anticipated 
that individual BSE specialists might seek to trade large numbers of 
Nasdaq-listed securities, and the Exchange was concerned that such a 
practice would lead to an undue concentration of stocks within a single 
specialist book. The Exchange was also concerned that differences in 
the marketplaces for Nasdaq-listed and NYSE-listed securities 
necessitated a requirement that a specialist concentrate on trading in 
either the Nasdaq or NYSE-listed marketplace, but not both at the same 
time.
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    \6\ See Securities Exchange Act Release No. 44476 (June 26, 
2001), 66 FR 35293 (July 3, 2001) (SR-BSE-2001-01).
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    Since the rule was approved,\7\ BSE specialist trading practices 
have gradually evolved to the point that the specialists are limiting 
their trading to a much more limited number of securities. As a result, 
the concern regarding undue concentration of stocks within a single 
specialist book has lessened considerably. Also, regardless of the 
number of stocks within a specialist's book, the Exchange consistently 
monitors all of its specialist accounts regarding proper capitalization 
and risk levels, and is confident in its ability to proactively manage 
that risk, regardless of the types of securities within an account.
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    \7\ See Securities Exchange Act Release No. 44952 (October 18, 
2001), 66 FR 54039 (October 25, 2001) (SR-BSE-2001-01).
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    Moreover, with the proposal set forth in Regulation NMS \8\ that 
all securities, regardless of listing market, be considered NMS 
securities, and the proposals to apply uniform rules (such as the 
trade-through rule proposal \9\) to all securities, the Exchange no 
longer believes that it is necessary, or prudent, to distinguish 
between Nasdaq-listed

[[Page 69963]]

and NYSE-listed securities for the purposes of restricting a 
specialist's trading activities. Recently enacted Regulation SHO \10\ 
also does not distinguish between NYSE-listed and Nasdaq-listed 
securities in its application. The BSE is seeking to proactively 
respond to the trend of treating all securities as one type, and as 
part of a single national market system.
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    \8\ See Securities Exchange Act Release No. 49325 (February 26, 
2004), 69 FR 11126 (March 9, 2004).
    \9\ Id. at 69 FR 11129-11153.
    \10\ See Securities Exchange Act Release No. 50103 (July 28, 
2004), 69 FR 48008 (August 6, 2004).
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    Most importantly, however, is that, on November 9, 2004, Nasdaq 
officially announced that it would be assuming the listing of the 
Nasdaq-100 Index Tracking Stock (the ``QQQs''), effective December 1, 
2004. Several BSE specialists currently trade the QQQs as an NYSE-
listed security. As a result of the prohibition currently set forth in 
the BSE's rules, those specialists would no longer be able to transact 
business in the QQQs on the BSE. Since the BSE is the only UTP Exchange 
that currently has this restriction in place, BSE specialists, and the 
BSE, would be placed at a severe competitive disadvantage, as a result 
of actions beyond the Exchange's control, if the BSE does not remove 
this restriction.
    Accordingly, the Exchange has asked the Commission to waive the 30-
day operative delay of the proposed rule change, to allow it to be both 
effective and operative upon filing with the Commission.
2. Statutory Basis
    The BSE believes that the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\11\ in general, and 
Section 6(b)(5)\12\ 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 is not designed to permit unfair discrimination between 
customers, brokers, or dealers, or to regulate by virtue of any 
authority matters not related to the administration of the Exchange.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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.

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 does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(6) thereunder.\14\ At any time within 60 days of the 
filing of the 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization provide the Commission 
written notice of its intent to file a proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change with the Commission. The BSE complied with this 
requirement.
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    The BSE has asked that the Commission waive the 30-day operative 
delay contained in Rule 19b-4(f)(6)(iii) under the Act.\15\ The 
Commission believes such waiver is consistent with the protection of 
investors and the public interest, for it will allow BSE specialists 
that currently trade the QQQs as a NYSE-listed security to continue to 
do so as of December 1, 2004, when Nasdaq will assume the listing of 
the QQQs. For these reasons, the Commission designates the proposal to 
be effective and operative upon filing with the Commission.\16\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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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-2004-50 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-2004-50. 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 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-
2004-50 and should be submitted on or before December 22, 2004.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3405 Filed 11-30-04; 8:45 am]
BILLING CODE 8010-01-P