[Federal Register Volume 70, Number 90 (Wednesday, May 11, 2005)]
[Notices]
[Page 24848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2298]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51651; File No. SR-BSE-2005-01]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Approving Proposed Rule Change, and Amendment No. 1 Thereto, Relating 
to the Price Improvement Period Under the Rules of the Boston Options 
Exchange Facility

May 3, 2005.
    On January 4, 2005, 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 modify the rules of the Boston Options Exchange 
Facility (``BOX'') relating to the BOX's Price Improvement Period (the 
``PIP''). On March 22, 2005, the BSE filed Amendment No. 1 to the 
proposed rule change.\3\ The proposed rule change, as amended, was 
published for comment in the Federal Register on March 29, 2005.\4\ The 
Commission received no comments on the proposal. This Order approves 
the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the original filing 
in its entirety.
    \4\ See Securities Exchange Act Release No. 51418 (March 23, 
2005), 70 FR 15955.
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    The BSE proposes to amend the BOX Rules to eliminate certain 
restrictions on the ability of Order Flow Providers, Market Makers, and 
Public Customers to participate in the PIP. The proposal would allow 
Order Flow Providers to submit ``Improvement Orders'' \5\ to the PIP on 
behalf of Public Customers through any type of instruction they wish to 
accept, so long as the Improvement Order is identified as a Public 
Customer Order when it is submitted.\6\ The BSE also proposes to 
eliminate the current requirement that an Options Participant \7\ that 
is not assigned as a Market Maker in the relevant class that wishes to 
participate in a PIP must have an order on the BOX Book for its 
proprietary account equal to the best BOX price before the PIP 
commences (unless the participant submitted the Primary Improvement 
Order \8\ or holds a Customer PIP Order). In addition, the BSE proposes 
to eliminate all references to ``PIP Proprietary Orders'' because, 
under the proposal, all Options Participants (except for the Order Flow 
Provider or Market Maker that submits the relevant Primary Improvement 
Order to the PIP) would now be able to submit Improvement Orders for 
their proprietary accounts without the above restrictions, and as such, 
this separate order type would no longer be necessary.
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    \5\ Generally, an ``Improvement Order'' is an order submitted to 
the PIP to compete on the contra side for a Customer Order entered 
into the PIP under the procedures detailed in Section 18 of Chapter 
I of the BOX Rules. Improvement Orders are submitted in increments 
of one cent, as set forth with additional clarity in the proposed 
rule change.
    \6\ Currently, a public customer may participate in a PIP only 
if it has provided an Order Flow Provider with a ``Customer PIP 
Order,'' an order that includes a specific order size; a price 
stated in rounded five cent or ten cent increments, as appropriate, 
at which the order is to be placed in the BOX Book (the ``BOX Book 
Reference Price''); and a specific price stated in one cent 
increments at which the Public Customer wishes to participate in any 
PIP that may occur while his order is on the BOX Book. A Customer 
PIP Order can participate in a PIP only if the BOX Book Reference 
Price is equal to the best BOX price at the time a PIP commences. 
See further at Section 18(g) of Chapter I of the BOX Rules.
    \7\ An ``Options Participant'' is a firm or organization that is 
registered with the Exchange for purposes of participating in 
options trading on the BOX as an Order Flow Provider or Market 
Maker. See Section 1(40) of Chapter I of the BOX Rules.
    \8\ When an Options Participant submits a Customer Order to the 
PIP, the Options Participant also submits a matching contra order, 
the ``Primary Improvement Order,'' on the opposite side of the 
market than that of the Customer Order, and at a higher bid (lower 
offer) than that of the national best bid or offer (NBBO) at the 
time of the commencement of the PIP.
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    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 \9\ 
and, in particular, the requirements of Section 6(b) of the Act \10\ 
and the rules and regulations thereunder. The Commission finds 
specifically that the proposed rule change, as amended, is consistent 
with Section 6(b)(5) of the Act,\11\ which requires, among other 
things, that the rules of an exchange be 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, 
in general, to protect investors and the public interest.
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    \9\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change will increase 
opportunities for Public Customers and BOX Options Participants to 
participate in the PIP, and should thereby enhance competition and the 
possibility of price improvement for Customer Orders submitted to the 
PIP.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-BSE-2005-01), as amended, 
be, and hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2298 Filed 5-10-05; 8:45 am]
BILLING CODE 8010-01-P