[Federal Register Volume 70, Number 56 (Thursday, March 24, 2005)]
[Notices]
[Pages 15135-15137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1291]



[[Page 15135]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51388; File No. SR-BSE-2004-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendments No. 1, 2, 3 and 4 Thereto, by the Boston Stock 
Exchange, Inc. Relating to the Composition of the Board of Directors 
and Executive Committee of Boston Options Exchange Regulation LLC

March 17, 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 December 9, 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 BSE. On December 
13, 2004, the BSE filed Amendment No. 1 to the proposed rule change.\3\ 
On December 16, 2004, the BSE filed Amendment No. 2 to the proposed 
rule change.\4\ On March 8, 2005, the BSE filed Amendment No. 3 to the 
proposed rule change.\5\ On March 10, 2005, the BSE filed Amendment No. 
4 to the proposed rule change.\6\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange revised the proposed rule 
text. Amendment No. 1 replaced the BSE's original filing in its 
entirety.
    \4\ In Amendment No. 2, the Exchange withdrew its request that 
the proposed rule change become immediately effective and requested 
that the proposed rule change become effective pursuant to Section 
19(b)(2) of the Act.
    \5\ In Amendment No. 3, the Exchange revised the purpose section 
of the proposed rule change as well as the proposed rule text. 
Amendment No. 3 replaced Amendment No. 1, as amended by Amendment 
No. 2, in its entirety.
    \6\ In Amendment No. 4, the Exchange amended its filing to 
reflect that Amendment No. 3 was incorrectly filed pursuant to Rule 
19(b)(3)(A) of the Act and should have been filed pursuant to 
Section 19(b)(2) of the Act.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain sections of the By-laws of 
Boston Options Exchange Regulation LLC (``BOXR'') relating to BSE 
representation on BOXR's Board of Directors and its Executive 
Committee.
    Below is the amended text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Rules of the Boston Stock Exchange

Boston Options Exchange Regulation LLC By-Laws

    Secs. 1-2 no change.
Sec. 3
Number of Directors
    The Board shall consist of no fewer than seven nor more than 
thirteen Directors, the exact number to be determined by resolution 
adopted by the BSE Board from time to time. The BSE Board shall appoint 
directors to the BOXR Board, 50% of whom will serve until the first 
annual meeting of the BOXR Board, and 50% of whom will serve until the 
second consecutive annual meeting of the BOXR Board, in accordance with 
Section 5, below. [In accordance with Section 4, below, the Chairman of 
the BSE will be considered a member of the Board of Directors for 
voting purposes, but not for qualification percentage purposes.] The 
General Counsel of the BSE will not be considered a member of the Board 
of Directors for voting purposes or qualification percentage purposes.
Sec. 4
Qualifications
    Directors need not be Participants of BOX, or members of BSE. 
Industry Directors must be representatives of the securities industry 
as provided in Article II of the BSE Constitution. At least fifty 
percent (50%) of the Directors will be Public Directors. The Board 
shall include [the Chairman] at least one member of the BSE Board of 
Governors [, who will not be considered for the purposes of determining 
the qualification percentages for the Board set forth herein]. The 
General Counsel of the BSE shall act as an advisor to the Board for all 
legal and regulatory matters, and shall not be a member or director of 
the Board. At least twenty percent (20%) of the Directors (but no fewer 
than two (2) Directors) will be officers or directors of a firm 
approved as a BOX Option Participant. An officer or director of a 
facility of the BSE may serve on the Board of Directors. The term of 
office of a Director shall not be affected by any decrease in the 
authorized number of Directors.
    As soon as practicable, following the annual appointment of 
Directors, the Board shall elect from its members a Chair and Vice 
Chair and such other persons having such titles as it shall deem 
necessary or advisable to serve until the next annual appointment or 
until their successors are chosen and qualify. The persons so elected 
shall have such powers and duties as may be determined from time to 
time by the Board. The Board, by resolution adopted by a majority of 
Directors then in office, may remove any such person from such position 
at any time.
    Secs. 5-13 no change.
Sec. 14

Committees

    (a)-(c) no change
    (d) The Board may appoint an Executive Committee, which shall, to 
the fullest extent permitted by Delaware Law and other applicable law, 
have and be permitted to exercise all the powers and authority of the 
Board in the management of the business and affairs of BOXR between 
meetings of the Board. The Executive Committee shall consist of five 
Directors, including at least two Public Directors, and at least one 
Options Participant Director. [The Chairman of the BSE] At least one 
Governor of the BSE Board who is also a Director of the BOXR Board 
shall be a member of the Executive Committee, and the General Counsel 
of the BSE will act in advisory role to the Executive Committee on 
legal and regulatory matters. Executive Committee members shall hold 
office for a term of one year. At all meetings of the Executive 
Committee, a quorum for the transaction of business shall consist of a 
majority of the Executive Committee, including at least fifty percent 
of the Public Directors and at least one Options Participant Director.
* * * * *

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, as 
amended, and discussed any comments it received on the proposal. The 
text of these statements may be examined at the places specified in 
Item IV below. The BSE 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 purpose of the proposed rule change, as amended, is to amend 
certain sections of BOXR's By-Laws concerning the requirement that the 
Exchange's

[[Page 15136]]

Chairman be a member of the BOXR Board of Directors and Executive 
Committee.
    The BSE's Constitution permits, but does not mandate, that the 
Exchange's Chairman and chief executive officer (``CEO'') roles be 
separated so as to provide for a separation of the Exchange's 
regulatory and business functions.\7\ Presently, BOXR's By-Laws require 
that the Exchange's Chairman be a Director on the BOXR Board. BOXR is, 
as set forth in Chapter XXXVI of the Exchange's rules, in the Plan of 
Delegation of Functions and Authority by the BSE to Boston Options 
Exchange Regulation, LLC, a wholly owned subsidiary of the BSE. The 
Exchange has delegated certain functions to BOXR, so that BOXR is 
responsible for the regulatory oversight of the Boston Options 
Exchange, a facility of the BSE.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 49611 (April 12, 
2004), 69 FR 23833 (April 30, 2004) (order approving proposed rule 
change to permit the separation of the rules of Chairman and CEO).
---------------------------------------------------------------------------

    If the Exchange's Board of Governors deems it prudent to separate 
the Exchange's Chairman and CEO positions, so that the Chairman would 
be responsible for only the regulatory functions of the Exchange, then 
the mandate that the Exchange's Chairman be a member of the BOXR Board 
would be in congruence with BOXR's regulatory mandate. If, however, the 
Exchange's Board of Governors did not separate the Chairman and CEO 
roles, then the Exchange's Chairman would not be responsible for only 
the regulatory functions of the BSE, but, as CEO, for the business 
functions as well.
    Accordingly, the Exchange seeks to make BOXR's By-Laws more 
flexible to reflect the corresponding flexibility in the Exchange's 
Constitution regarding the separation of the Chairman and CEO roles. 
Rather than mandating that the Exchange's Chairman be a member of the 
BOXR Board, the BSE would change certain provisions of BOXR's By-Laws 
to provide that at least one Governor of the BSE Board of Governors be 
a member of the BOXR Board. Also, the Exchange is seeking to mandate 
that at least one Governor of the BSE Board of Governors, who is also a 
member of the BOXR Board, be a member of the BOXR Executive Committee. 
In this way, the Exchange is assuring adequate and informed 
representation on its subsidiary's Board and Executive Committee, while 
not being constrained to limit its representation on the BOXR Board and 
its Executive Committee to strictly the Exchange's Chairman. The 
Exchange believes that this approach ensures not only proper 
representation on the BOXR Board and its Executive Committee, but also 
serves to provide the Exchange a mechanism by which it can maintain an 
adequate separation of its business and regulatory functions, 
regardless of the status of the BSE's Chairman and CEO positions.
    The Exchange is also seeking to eliminate language in both Sections 
3 (Number of Directors) and 4 (Qualifications) of BOXR's By-laws, which 
explains that the BSE Chairman would not be considered a member of the 
BOXR Board for ``qualification purposes.'' The referenced qualification 
purposes are set forth in Section 4, which establishes the percentage 
of the BOXR Board that must be constituted by Industry Directors, 
Public Directors and Directors who represent BOX Options Participants. 
Pursuant to the existing rule, the BSE Chairman is not considered to be 
qualified as an Industry, Public or BOX Participant representative, and 
thus does not serve to fill either percentage requirement as set forth, 
although the Chairman is a voting member of the BOXR Board. The BSE is 
seeking to eliminate the language regarding qualification percentages 
as they relate to the BSE Chairman because by replacing the BSE's 
Chairman on the BOXR Board with a member of the BSE Board, the member 
of the BSE Board who is also a member of the BOXR Board would be 
considered for the purposes of determining the qualification 
percentages of the BOXR Board. Thus, for example, if the member of the 
BSE Board who also served on the BOXR Board was an Industry Director, 
he or she would be considered as such in determining the percentage of 
Industry Directors on the BOXR Board.
    The BSE understands that the Commission has recently proposed rules 
relating to the governance of self-regulatory organizations.\8\ If 
enacted, the Exchange represents that it is cognizant of the fact that 
certain of these proposed governance rules could mandate further 
changes to the BSE Constitution, Rules, and BOXR's By-Laws, beyond the 
scope of the changes proposed herein.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 50699 (November 18, 
2004), 69 FR 71125 (December 8, 2004).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the requirements of Section 6(b) of the Act,\9\ in 
general, and, in particular, furthers the objectives of Section 6(b)(1) 
of the Act,\10\ in that the proposal is designed so that the Exchange 
is organized and has the capacity to carry out the purposes of the Act; 
Section 6(b)(3) of the Act,\11\ in that the proposal is designed so the 
rules of the Exchange assure a fair representation of its members in 
the selection of its directors and the administration of its affairs; 
and Section 6(b)(5) of the Act,\12\ in that the proposal 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, issuer, brokers, or dealers, or to regulate by 
virtue of any authority conferred by Title I of the Act matters not 
related to the purposes or Title I of the Act or the administration of 
the Exchange.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(1).
    \11\ 15 U.S.C. 78f(b)(3).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will result in 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 neither solicited nor received written comments with 
respect to the proposed rule change, as amended.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

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:

[[Page 15137]]

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-2004-58 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-2004-58. 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, as 
amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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 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-2004-58 and should be 
submitted on or before April 14, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1291 Filed 3-23-05; 8:45 am]
BILLING CODE 8010-01-P