[Federal Register Volume 70, Number 153 (Wednesday, August 10, 2005)]
[Notices]
[Pages 46551-46553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4310]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52205; File No. SR-BSE-2005-29]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to Amendments to the 
Exchange's Trade-Through and Locked Markets Rules

August 4, 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 August 1, 2005, the Boston Stock Exchange, Inc. (``BSE'') 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. 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 BSE is proposing to amend its rules governing the operation of 
the intermarket option linkage (``Linkage'') on the Boston Options 
Exchange (``BOX''). The BSE is proposing to amend the trade-through and 
locked markets rules to allow a market maker to ``trade and ship'' or 
``book and ship'' an order. The text of the proposed rule change is 
available on the BSE's Web site (http://www.bostonstock.com), at

[[Page 46552]]

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 BSE 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 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 BSE proposes to amend its rules governing Linkage trading with 
respect to trade-throughs and locked markets. The amendment will 
provide that BOX Options Participants may: (i) Trade an order at a 
price that is one minimum quoting increment inferior to the national 
best bid or offer (``NBBO'') if the Options Participant 
contemporaneously transmits to the market(s) disseminating the NBBO 
Linkage Orders \3\ to satisfy all interest at the NBBO price (``trade 
and ship''); and (ii) place on the BOX book an order that would lock 
another exchange if the Options Participant contemporaneously sends a 
Linkage Order to such other exchange to satisfy all interest at the 
lock price (``book and ship''). Under the trade and ship proposal, 
pursuant to agency obligations, any execution the Options Participant 
receives from the market disseminating the NBBO must be reassigned to 
any customer order underlying the Linkage Order that was transmitted to 
trade against the market disseminating the NBBO. Below are examples 
illustrating the applications of these concepts:
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    \3\ The BSE defines ``Linkage Order'' in Section 1, subsection 
(j) of Chapter XII of BOX Rules.
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     (Trade and Ship Example--BOX is disseminating an offer of 
$2.00 for 100 contracts. Exchange B is disseminating the national best 
offer of $1.95 for 10 contracts. No other market is at $1.95. A BOX 
market maker receives a 100 contract customer buy order to pay $2.00. 
Under this proposal, the BOX market maker could execute 90 contracts 
(or 100 contracts) of the customer order at $2.00 provided the BOX 
market maker contemporaneously transmits a 10 contract P/A Order \4\ to 
Exchange B to pay $1.95. Assuming an execution is obtained from 
Exchange B, the customer would receive the 10 contract fill at $1.95 
and 90 contracts at $2.00 (if the customer order was originally filled 
in its entirety at $2.00, an adjustment would be required to provide 
the customer with the $1.95 price for 10 contracts reflecting the P/A 
Order execution). As proposed, this would not be deemed a Trade-
Through.
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    \4\ The BSE defines ``Principal Acting as Agent (``P/A'') 
Order'' in Section 1, subsection (j)(i) of Chapter XII of BOX rules.
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     (Book and Ship Example--BOX is disseminating a $1.85-$2.00 
market. Exchange B is disseminating a $1.80-$1.95 market. The $1.95 
offer is for 10 contracts. No other market is at $1.95. A BOX market 
maker receives a customer order to buy 100 contracts at $1.95. Under 
this proposal, the BOX market maker could book 90 contracts of the 
customer buy order at $1.95 provided the BOX market maker 
contemporaneously transmits a 10 contract P/A Order to Exchange B to 
pay $1.95. Assuming an execution is obtained from Exchange B, the 
customer would receive the 10 contract fill and the rest of the 
customer's order will be displayed as a $1.95 bid on the BOX. The 
national best offer would likely be $2.00. As proposed, this would not 
be deemed a ``locked'' market for purposes of the Intermarket Option 
Linkage Plan.
2. Statutory Basis
    The BSE believes that the basis under the Act for this proposed 
rule change is the requirement under section 6(b)(5) \5\ that an 
exchange have rules that are designed 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. In particular, the proposed 
rule change will provide greater automatic execution of orders through 
Linkage and facilitate the ability of market makers to execute or book 
their customer orders.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The BSE does not believe the proposed rule change will 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 BSE has neither solicited nor received comments on the proposed 
rule change.

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 BSE 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 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 shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-BSE-2005-29 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-2005-29. 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 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

[[Page 46553]]

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 the 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-
2005-29 and should be submitted on or before August 31, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-4310 Filed 8-9-05; 8:45 am]
BILLING CODE 8010-01-P