[Federal Register Volume 71, Number 133 (Wednesday, July 12, 2006)]
[Notices]
[Pages 39376-39378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-10922]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54105; File No. SR-BSE-2006-12]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Changes to the Minimum Activity 
Charge

July 6, 2006.
    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 June 23, 2006, 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 Exchange. On June 
30, 2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange filed the proposal pursuant to Section 
19(b)(3)(A)(ii) of the Act \4\ and Rule 19b-4(f)(2) thereunder,\5\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange (a) clarified in the 
proposed rule text that all Boston Options Exchange (``BOX'') Market 
Makers would be continually subject to the standard per contract 
charge, (b) made non-substantive, formatting changes to conform the 
proposed rule text with the current provisions of the Fee Schedule, 
and (c) clarified the purpose and scope of the proposed rule change.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    With respect to the BOX Fee Schedule, the Exchange proposes to (a) 
amend the Minimum Activity Charge (``MAC'') for certain classes of 
options, (b) exempt new BOX Market Makers from the MAC for the first 
three months as a BOX participant, (c) change the frequency at which 
the MAC classifications will be adjusted annually, and (d) change the 
indexing of the MAC Applicable Rates from overall market share to 
class-by-class market share. The text of the proposed rule change is 
below. Proposed new language is in italics; proposed deletions are in 
[brackets].

Boston Options Exchange Facility

Fee Schedule

(as of July 2006)
    Sec. 1 through Sec. 2 No Change.
    Sec. 3 Market Maker Trading Fees
    a. No Change.
    b. Minimum Activity Charge (``MAC'')
    The ``notional MAC'' per options class (see table below) is the 
building block for the determination of the BOX Market Maker's monthly 
total MAC which is payable at the end of each month if the per contract 
fee of $ 0.20 per contract traded, when multiplied by the Market 
Maker's actual trade executions for the month, does not result in a 
total trading fee payable to BOX at least equal to the monthly total 
MAC.
    New Market Maker's activity will be subject to the standard Market 
Maker per contract charge. However, new Market Makers to BOX will be 
exempt from the MAC during the first three months as a BOX market 
participant.
    The MAC is totaled across all classes assigned to a Market Maker so 
that volume for one class is fungible against other classes for that 
Market Maker. As a result, although the volume on a given class needed 
to reach an implicit cost of $0.20 a contract may not be achieved, this 
can be compensated by volume in excess of the MAC on another class.
1. MAC ``Levels''
    a. For Classes that have been trading on any options exchange for 
at least six calendar months.
    The table below provides the MAC for each of the six ``categories'' 
of options classes listed by BOX. The category for each class is 
determined by its total trading volume across all U.S. options 
exchanges as determined by OCC data. The classifications will be 
adjusted at least [twice] annually (in January [and July], based on the 
average daily volume for the preceding [six month period] year).

----------------------------------------------------------------------------------------------------------------
                                          OCC average daily volume     MAC per Market Maker per appointment per
                Class                      (number of contracts)                         month
----------------------------------------------------------------------------------------------------------------
Category:
    A................................  >100,000.....................  [$15,000] $10,000
    B................................  50,000 to 99,999.............  [$3,000] $3,500
    C................................  25,000 to 49,999.............  [$2,000] $2,500
    D................................  10,000 to 24,999.............  $750
    E................................  5,000 to 9,999...............  $250

[[Page 39377]]

 
    F................................  Less than 5,000..............  $100
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    b. For classes that have not been trading on any options exchange 
for at least six calendar months.
    A class will not be placed into a MAC category until a class has 
been trading on any options exchange for a full calendar month. After a 
class has been trading for a full calendar month, the MAC category for 
such class will be determined, applying the criteria set forth in the 
table above, based on the average daily volume for such full calendar 
month across all U.S. options exchanges as determined by OCC data. The 
classification will be adjusted at the beginning of each new calendar 
month thereafter based on the average daily trading volume for the 
previous calendar months in which the options class was traded for the 
entire month, until the class has been trading for six full calendar 
months. Thereafter, the classification will be adjusted at least 
[twice] annually (in January [and July], based on the average daily 
volume for the preceding [six month period] year) as set forth in 
subsection 1.a. above. Until an options class is placed in a MAC 
category, only per contract trade execution fees will apply to trades 
in that class.
2. MAC ``Adjustments''
    With respect to market makers appointed to classes traded by BOX 
Market Makers on the date of such appointment, if the market maker is 
not already a BOX Market Maker in at least one other class, the MAC 
will be applied the earlier of either (i) the date the Market Maker 
commences quoting the class, or (ii) three months after the date of 
such appointment. However, if the market maker is already a BOX Market 
Maker in at least one other class, the MAC will not be applied until 
the earlier of either (i) the date the Market Maker commences quoting 
the class, or (ii) the eleventh trading day after the date of such 
appointment.
    With respect to market makers appointed to classes not traded by 
BOX Market Makers on the date of such appointment, if the market maker 
is not already a BOX Market Maker in at least one other class, the MAC 
will be applied [the earlier of either (i) the date the Market Maker 
commences quoting the class, or (ii)] three months after the date of 
such appointment. However, if the market maker is already a BOX Market 
Maker in at least one other class, the MAC will be applied the date the 
class is listed on BOX.
    Any MAC that becomes applicable on a day other than the first 
trading day of a calendar month is applied on a pro rata basis based on 
the number of trading days in that month for which the class was traded 
on BOX.
    Furthermore, the MAC will be ``indexed'' to BOX's [overall] market 
share as determined by OCC clearing volumes on a class-by-class basis. 
At the beginning of each calendar month, BOX will calculate its market 
share for the previous month (market share equals total BOX traded 
volume divided by the total OCC cleared volume for the classes that BOX 
has listed). If BOX's [overall] market share in that particular class 
is less than 10%, BOX will reduce the MAC applicable for each Market 
Maker according to the following table.

------------------------------------------------------------------------
            [BOX market share]                  [MAC applicable rate]
------------------------------------------------------------------------
[0% to 4.99%].............................  [33.3%]
[5% to 9.99%].............................  [66.7%]
[10% and more]............................  [Full MAC]
------------------------------------------------------------------------


------------------------------------------------------------------------
               Market share                      MAC applicable rate
------------------------------------------------------------------------
0% to 1.99%...............................  $.20 per contract
2% to 3.99%...............................  20%
4% to 4.99%...............................  40%
5% to 5.99%...............................  40%
6% to 7.99%...............................  60%
8% to 9.99%...............................  80%
10%+......................................  100%
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    These adjustments are subject to subsection 1.b. above.
* * * * *

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 IV 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
    BOX levies a monthly fixed fee to its participant Market Makers for 
each option class traded by such participants. BOX classifies its 
traded classes into six categories (A through F), and the fee for each 
category is determined by overall OCC cleared volume. For example, 
classes trading less than 5,000 average daily OCC cleared contracts are 
assigned to category F, classes trading between 5,000 and 9,999 average 
daily OCC cleared contracts are assigned to category E, etc. The MAC 
amounts increase with higher traded volumes and range from $100 per 
month for Category F to $15,000 per month for Category A. Monthly 
discounts are subsequently applied to each firm's MAC based on overall 
OCC market share that BOX achieves on a monthly basis. The following 
are proposed changes to the MAC:
    (a) Changes to the Activity Levels:
    BSE proposes to amend BOX's Fee Schedule to account for the effect 
that current market conditions have had on the MAC. Recent increases in 
options trading have resulted in many BOX listed classes to be 
reclassified into higher MAC categories. BOX therefore seeks to amend 
its existing MAC program to modify the MAC for certain classes of 
options and provide uniform fee adjustments to BOX's participants. No 
changes are being sought to alter the fundamental structure of the 
existing MAC program.
    (b) Exemption for New Market Makers:
    BSE proposes to exempt new Market Makers from the MAC for the first 
three months as a BOX participant. BSE believes that it would be more 
equitable to allow new Market Maker participants to become familiar 
with BOX before imposing a fee based on a minimum level of activity.
    (c) Changing the Frequency of MAC Reclassifications:
    BSE proposes to change the frequency of MAC reclassifications from 
at least twice annually to at least once annually. BSE believes that 
this change would lessen the impact that market volatility has on BOX 
market participants.
    (d) Indexing the MAC on a Class-by-Class Basis:

[[Page 39378]]

    BSE proposes to change the indexing of the MAC from overall market 
share to class-by-class market share. BSE believes that this new 
structure would be more equitable and that Market Makers should pay for 
the level of liquidity in each class in which they trade.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\7\ in 
particular, because it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among members of 
the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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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

    The Exchange 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

    The foregoing proposed rule change, which has been designated as a 
fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and Rule 
19b-4(f)(2) \9\ thereunder, is effective upon filing with the 
Commission. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
    \10\ The effective date of the original proposed rule change is 
June 23, 2006, and the effective date of Amendment No. 1 is June 30, 
2006. For purposes of calculating the 60-day period within which the 
Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers such period 
to commence on June 30, 2006, the date on which the Exchange filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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 No. SR-BSE-2006-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-BSE-2006-12. 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 will also be available for inspection and copying at the 
principal office of the Exchange. 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 No. SR-BSE-2006-12 and should be submitted on or before August 2, 
2006.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-10922 Filed 7-11-06; 8:45 am]
BILLING CODE 8010-01-P