[Federal Register Volume 70, Number 20 (Tuesday, February 1, 2005)]
[Notices]
[Pages 5260-5261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-361]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51069; File No. SR-BSE-2005-05]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change Relating to Position Limits and Exercise Limits on the 
Boston Options Exchange for Options on Standard and Poor's Depositary 
Receipts

January 21, 2005.
    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 January 20, 2005, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. In addition, the 
Commission is granting accelerated approval of the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 2 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Boston Options Exchange Rules 
(``BOX Rules'') to increase position limits and exercise limits for 
options on Standard and Poor's Depositary Receipts (``SPDRs''). The 
text of the proposed rule change is available on the Exchange's Web 
site (http://www.bostonstock.com), at the BSE's Office of the 
Secretary, and at the Commission's Public Reference Room.

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 had 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 BSE began trading options on SPDRs on January 10, 2005 on the 
Boston Options Exchange. Currently, under BOX Rules Chapter III Section 
7 and Section 9, position limits and exercise limits for options on 
SPDRs are 75,000 contracts on the same side of the market. The Exchange 
proposes to amend Supplementary Material .01 to Section 7 of Chapter 
III and Supplementary Material .01 to Section 9 of Chapter III of the 
BOX Rules to increase position limits and exercise limits for options 
on SPDRs to 300,000 contracts on the same side of the market.
    Given the expected institutional demand for options on SPDRs, the 
BSE believes the current equity position limit of 75,000 contracts to 
be too low and a deterrent to the successful trading of the product. 
Options on SPDRs are \1/10\th the size of options on the Standard and 
Poor's 500 Index (``SPX'').\3\ Thus, a position limit of 75,000 
contracts in SPDR options is equivalent to a 7,500 contract position 
limit in SPX options. Traders who trade SPDR options to hedge positions 
in SPX options are likely to find a position limit of 75,000 contracts 
in SPDR options too restrictive, which may adversely affect BOX's 
ability to provide liquidity in this product.
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    \3\ Options on SPX are traded on the Chicago Board Options 
Exchange.
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    Comparable products such as options on the Nasdaq-100 Index 
Tracking Stock (``QQQ'') are subject to a 300,000-contract limit.\4\ 
The BSE proposes that

[[Page 5261]]

options on SPDRs similarly be subject to position limits and exercise 
limits of 300,000 contracts. The Exchange believes that increasing 
position limits and exercise limits for SPDR options would lead to a 
more liquid and competitive market environment for SPDR options that 
would benefit customers interested in this product.
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    \4\ See Supplementary Material .01 to Section 7 of Chapter III 
and Supplementary Material .01 to Section 9 of Chapter III of the 
BOX Rules.
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    Consistent with the reporting requirement for QQQ options, the 
Exchange would require that each Options Participant \5\ that maintains 
a position on the same side of the market in excess of 10,000 contracts 
in the SPDR option class, for its own account or for the account of a 
customer, report certain information.\6\ This data would include, but 
would not be limited to, the option position, whether such position is 
hedged and if so, a description of the hedge and if applicable, the 
collateral used to carry the position. In addition, the general 
reporting requirement for customer accounts that maintain a position in 
excess of 200 contracts would remain at this level for SPDR options.\7\
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    \5\ Defined in Section 1(40) of Chapter I of the BOX Rules.
    \6\ See Section 10(b) of Chapter III of the BOX Rules.
    \7\ See Section 10(a) of Chapter III of the BOX Rules.
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2. Statutory Basis
    The Exchange believes that the proposed rule change 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 prevent fraudulent 
and manipulative acts and, in general, to 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 would 
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 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-2005-05 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-2005-05. 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. 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-2005-05 and should be submitted on or before 
February 22, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change 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)(5) 
of the Act.\11\ Specifically, the Commission finds that the proposed 
rule change should ensure that the Exchange's position limits and 
exercise limits on SPDR options provide its members with sufficient 
flexibility to participate in the market for such options in a manner 
that should provide greater depth and liquidity for all market 
participants.
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    \10\ 10 In approving this proposal, the Commission has 
considered its 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 this proposed rule 
change prior to the thirtieth day after publication of notice thereof 
in the Federal Register. Specifically, the Commission believes that 
granting accelerated approval to the proposed rule change should permit 
greater depth and liquidity in the SPDR options market that should 
benefit all market participants, including retail investors. Because 
the higher position limits and exercise limits mirror those that the 
Commission has previously approved for like products, the Commission 
believes it is consistent with Sections 6(b)(5) \12\ and 19(b)(2) \13\ 
of the Act to approve the BSE's proposed rule change on an accelerated 
basis.
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    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78s(b)(2).
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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 (SR-BSE-2005-05) is hereby 
approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).
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    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-361 Filed 1-31-05; 8:45 am]
BILLING CODE BILLING CODE 8010-01-U