[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45451-45452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52169; File No. SR-BSE-2005-21]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to Proposal To 
Transfer a Portion of Ownership Interest in Boston Options Exchange 
Facility

July 29, 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 July 27, 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, II 
and III below, which items have been prepared by the self-regulatory 
organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to transfer a portion of its ownership 
interest in its Boston Options Exchange facility (``BOX'') such that 
its aggregate percentage interest will fall below 20%.

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 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
    On January 13, 2004, the Commission approved four BSE proposals 
that together established BOX as a facility of the Exchange.\3\ This 
proposal relates to section 8.4(f) of the operating agreement of BOX 
LLC (the ``LLC Agreement''), which requires that any Transfer \4\ that 
would result in a reduction of BSE's aggregate Percentage Interest \5\ 
in BOX LLC to below 20% be subject to the rule filing process pursuant 
to section 19(b)(1) of the Act \6\ and Rule 19b-4 thereunder.\7\
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    \3\ See Securities Exchange Act Release Nos. 49066 (January 13, 
2004), 69 FR 2773 (January 20, 2004) (establishing a fee schedule 
for the proposed BOX facility); 49065 (January 13, 2004), 69 FR 2768 
(January 20, 2004) (creating Boston Options Exchange Regulation LLC 
to which the BSE would delegate its self regulatory functions with 
respect to the BOX facility); 49068 (January 13, 2004), 69 FR 2775 
(January 20, 2004) (approving trading rules for the BOX facility); 
and 49067 (January 13, 2004), 69 FR 2761 (January 20, 2004) 
(approving certain regulatory provisions of the operating agreement 
of BOX LLC).
    \4\ Under the terms of the LLC Agreement, a ``Transfer'' occurs 
when any LLC member would ``dispose of, sell, alienate, assign, 
exchange, participate, subparticipate, encumber, or otherwise 
transfer in any manner . . . all or any part portion of its Units'' 
(ownership interests).
    \5\ Under the terms of the LLC Agreement, ``Percentage 
Interest'' is defined as the ratio of the number of Units held by an 
LLC member to the total of all of the issued Units, expressed as a 
percentage.
    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 17 CFR 240.19b-4.
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    The BSE is proposing to Transfer a portion of its Units, which 
would result in the BSE's Percentage Interest falling below the 20% 
threshold. Any such Transfer would be subject to the various 
limitations set forth elsewhere in the LLC Agreement, throughout 
Article 8 and elsewhere, regarding suitability and other regulatory and 
business requirements.\8\ Although the BSE does not presently have a 
transferee designated, any such transferee would need to sign and be 
bound by the provisions of the LLC Agreement. The purpose of the 
Transfer would be to assist the BSE to fund its equities-related 
business interests and initiatives related thereto.
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    \8\ For example, the BSE would be prohibited, under Section 
8.1(d), from Transferring any of its Units to anyone other than a 
Member, affiliate of a Member, or IB (according the terms set forth 
in Section 8.6(d)), until after the earlier of the second 
anniversary of the Launch Date of BOX or the date on which IB's 
percentage interest has been reduced to no more than 8.00%.
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    Nothing about BSE's transfer of Units will affect additional 
provisions of the LLC Agreement that make special accommodations for 
BSE as the SRO of the BOX facility. For example, Section 4.4(a) of the 
LLC Agreement provides that BOX may not take any major action unless 
such action is approved by a majority of the BOX LLC Board, including 
the affirmative vote of all of the directors designated by the BSE. 
Section 4.1(b) of the LLC Agreement provides that, with its present 
ownership interest, BSE is entitled to maintain two seats on the Board. 
Since the BSE does not at this time anticipate that any foreseen 
Transfers would result in BSE's Percentage Interest of BOX LLC going 
below 8.00% (the threshold established in this Section to maintain at 
least two directors on the Board), then this entitlement will remain. 
Nevertheless, Section 4.1(b) also gives the BSE a perpetual right to 
designate at least one director on the BOX LLC Board regardless of 
whether it maintains any ownership interest.
    In addition, although BOX LLC itself will not carry out any 
regulatory functions, all of its activities must be consistent with the 
Act. For example, provisions set forth in Sections 4.2(a) and 5.3 of 
the LLC Agreement state that each unitholder and director of BOX 
cooperate with the Commission and the BSE in carrying out their 
regulatory responsibilities. These provisions reinforce the notion that 
BOX, as a facility of an exchange, is not solely a commercial 
enterprise; it is an integral part of an SRO registered pursuant to the 
Act, and is subject to the obligations imposed by the Act. These 
obligations endure so long as BOX is a facility of the Exchange, 
regardless of the size of BSE's ownership interest in BOX LLC.
    The Commission has stated, in a similar case involving the 
establishment of ArcaEx as a facility of the Pacific Exchange 
(``PCX''), that a national securities exchange need not have a 
significant ownership interest in the

[[Page 45452]]

operator of one of its facilities.\9\ In fact, the Act does not require 
that an SRO have any ownership interest in the operator of one of its 
facilities. Nevertheless, the BSE intends to maintain an ongoing 
ownership interest in BOX LLC, the operator of its BOX facility. 
However, regardless of this intention, the BSE is the SRO for the BOX 
facility, and the BSE will, independent of its ownership interest, 
ensure that BOX LLC will conduct the facility's business in a manner 
consistent with the regulatory and oversight responsibilities of the 
BSE and with the Act.
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    \9\ See Securities Exchange Act Release No. 44983 (October 25, 
2001), 66 FR 55225, 55229-30 (November 1, 2001) (approving SR-PCX-
00-25). ArcaEx is operated by Archipelago Exchange LLC (``Arca 
LLC''). At the time of its approval, PCX's ownership interest in 
Arca LLC consisted solely of a 10% interest in Archipelago Holdings 
LLC, the parent company of Arca LLC. See 66 FR at 55225.
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    Moreover, nothing in the Exchange's proposal will alter or modify 
in any way the terms or the enforcement of the LLC Agreement. In 
addition, the actual transfer of any BSE units will not alter or modify 
the terms or the enforcement of the LLC Agreement. The BSE also 
represents that, should there be any changes in the terms of the LLC 
Agreement between the date of the publication of this proposal and the 
transfer of BSE's Units which would result in the BSE's Percentage 
Interest falling below the 20% threshold, then the Exchange will 
resubmit this filing in order for the Commission to consider the 
transfer of Units in light of any changes made to the LLC Agreement.
2. Statutory Basis
    The Exchange believes that this filing is consistent with section 
6(b)\10\ of the Act, in general, and furthers the objectives of section 
6(b)(1),\11\ in particular, in that it ensures that the Exchange is so 
organized and has the capacity to carry out the purposes of the Act and 
to comply and to enforce compliance by the Exchange's members with the 
Act, the rules and regulations of the Act, and the rules of the 
Exchange; and section 6(b)(5),\12\ in particular, in that it is 
designed to facilitate transactions in securities; to prevent 
fraudulent and manipulative acts and practices; to promote just and 
equitable principles of trade; to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities; 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(1)
    \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 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

    No written comments were either solicited or received.

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 self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change 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:

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-2005-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-BSE-2005-21. 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 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-2005-21 and should be submitted on or before August 
26, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4194 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P