[Federal Register Volume 70, Number 121 (Friday, June 24, 2005)]
[Notices]
[Pages 36673-36674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3274]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51879; File No. SR-BSE-2004-58]


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

June 20, 2005.

I. Introduction

    On December 9, 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 certain sections of the By-laws of Boston 
Options Exchange Regulation LLC (``BOXR'') relating to BSE Governor 
representation on BOXR's Board of Directors (``BOXR Board'') and 
Executive Committee. BOXR is a wholly owned subsidiary of the Exchange 
and 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    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 proposed rule 
change, as amended, was published for comment in the Federal Register 
on March 24, 2005.\7\ The

[[Page 36674]]

Commission received no comments on the proposal.
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    \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 
and rule text of the proposed rule change. 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.
    \7\ See Securities Exchange Act Release No. 51388 (March 17, 
2005), 70 FR 15135.
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II. Description of the Proposal

    The Exchange proposed the following amendments to BOXR's By-laws: 
(1) Replace the requirement in Section 4 that the BSE Chairman be a 
member of the BOXR Board with the requirement that at least one 
Governor of the BSE Board of Governors must be a member of the BOXR 
Board; (2) replace the requirement in Section 14 that the BSE Chairman 
must be a member of BOXR's Executive Committee with the requirement 
that at least one Governor of the BSE Board of Governors, who shall 
also be a member of the BOXR Board, must be a member of BOXR's 
Executive Committee; and (3) eliminate language in both Sections 3 and 
4 that provides that the BSE Chairman shall not be considered a member 
of the BOXR Board for ``qualification purposes.'' Section 4 of BOXR's 
By-laws provides that at least 50% of the Directors on the BOXR Board 
must be Public Directors \8\ and at least 20% of the Directors on the 
BOXR Board must be representatives of BOX Options Participants.\9\ 
However, currently, the BSE Chairman is not considered to be a Public 
Director, BOX Options Participant Director or Industry Director \10\ 
and is not taken into account when determining whether the composition 
of the BOXR Board complies with the composition requirements of Section 
4, although the BSE Chairman is a voting member of the BOXR Board. The 
proposed rule change, however, would require BOXR to consider the BSE 
Governor representative on the BOXR Board for the purpose of 
determining compliance with the composition requirements of Section 4, 
whether the BSE Governor representative is the BSE's Chairman or 
another member of the BSE Board of Governors.
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    \8\ See Definitions, Paragraph (p) of the BOXR By-laws.
    \9\ See Definitions, Paragraph (o) of the BOXR By-laws.
    \10\ See Article II, Section 1 of the BSE Constitution.
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III. Discussion and Commission Findings

    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 
\11\ and, in particular, the requirements of Section 6(b) of the Act 
\12\ and the rules and regulations thereunder. The Commission finds 
specifically that the proposed rule change, as amended, is consistent 
with Section 6(b)(1) of the Act,\13\ 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,\14\ 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,\15\ in 
that the proposal is designed to promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and to protect investors and 
the public interest.
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    \11\ 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).
    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(1).
    \14\ 15 U.S.C. 78f(b)(3).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposal is designed to provide the 
Exchange with greater flexibility with respect to the appointment of a 
BSE Governor to serve on the BOXR Board and Executive Committee. The 
Exchange's Constitution permits, but does not mandate, that the 
Exchange's Chairman and Chief Executive Officer (``CEO'') positions be 
separated. If the positions are in fact held by two individuals, then 
the Exchange's Chairman would be responsible for the regulatory 
functions of the Exchange and it would be consistent with BOXR's 
regulatory mandate to have the BSE Chairman be a member of the BOXR 
Board and Executive Committee. However, in the event that the positions 
are held by a single individual, then the Exchange's Board would be 
able to appoint a BSE Governor other than the BSE Chairman to the BOXR 
Board. The Commission considers it appropriate for the Exchange to have 
a BSE Governor other than the Exchange's Chairman be appointed to the 
BOXR Board and Executive Committee, particularly in light of the 
Exchange's goal to maintain an adequate separation between its business 
and regulatory functions.
    In addition, the proposal would allow the BSE Governor that serves 
on the BOXR Board to be considered for the purpose of determining the 
qualification percentages of the BOXR Board. The Commission notes that 
this provision would not alter the current requirement of the BOXR By-
laws that at least 20% of the BOXR Directors (but no fewer than two 
Directors) be officers or directors of a firm approved as a BOX Option 
Participant. Therefore, in the Commission's view, the proposal is 
consistent with the Act's requirement that the Exchange assure the fair 
representation of members in the selection of its directors and 
administration of its affairs.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BSE-2004-58), as amended, 
be, and hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    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. E5-3274 Filed 6-23-05; 8:45 am]
BILLING CODE 8010-01-P