[Federal Register: August 1, 2003 (Volume 68, Number 148)]
[Notices]
[Page 45284-45298]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au03-110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48229; File No. SR-BSE-2003-04]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Boston Stock Exchange, Inc. Relating to the Creation of
Boston Option Exchange Regulation, L.L.C.
July 25, 2003.
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 17, 2003, 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 July
25, 2003, the Exchange amended the proposed rule change.\3\ 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\ See facsimile from John Boese, Vice President, Legal and
Compliance, Exchange, to Deborah Flynn, Assistant Director, Division
of Market Regulation, Commission, dated July 25, 2003 (``Amendment
No. 1''). Amendment No. 1 supersedes and replaces the proposed rule
change in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to create a new options regulatory
subsidiary, Boston Option Exchange Regulation, L.L.C. (``BOXR''). The
text of the proposed rule change is set forth below. Proposed new
language is in italics.
* * * * *
Rules of the Board of Governors
* * * * *
Chapter XXXVI
SEC. 1 Delegation, Authority and Access
(a) The Boston Stock Exchange, Inc., delegates to its subsidiary
(Boston Options Exchange Regulation, L.L.C,
[[Page 45285]]
hereinafter ``BOXR'') the authority to act on behalf of the Exchange as
set forth in a Plan of Allocation and Delegation adopted by the Board
of Governors and approved by the Securities and Exchange Commission
pursuant to its authority under the Securities Exchange Act of 1934
(``Act'').
(b) Notwithstanding any delegation of authority to BOXR pursuant to
this rule, the staff, books, records and premises of BOXR are the
staff, books, records and premises of the Exchange subject to oversight
pursuant to the Act, and all officers, directors, employees and agents
of BOXR are the officers, directors, employees and agents of the
Exchange for purposes of the Act.
SEC. 2 Plan of Delegation of Functions and Authority by the Boston
Stock Exchange, Inc., to Boston Options Exchange Regulation, LLC
The Boston Stock Exchange, Inc. (``BSE'' or ``Exchange''), the
registered national securities exchange pursuant to Section 6 of the
Act, is the parent company of the wholly-owned subsidiary BOXR. The
Boston Options Exchange (``BOX'') is a facility of the BSE pursuant to
Section 3(a) of the Act operated by Boston Options Exchange Group,
L.L.C. (``BOX LLC'')
A. Functions and Authority of the BSE
The BSE shall have ultimate responsibility for the rules and
regulations of the Exchange and its operation and administration. As
set forth below, the BSE has delegated certain authority and functions
to its subsidiary, BOXR. Actions taken pursuant to delegated authority,
however, remain subject to review, ratification or rejection by the BSE
Board of Governors in accordance with procedures established by that
Board. Any function or responsibility of the BSE as a registered
national securities exchange under the Act, or as set forth in the
Certificate of Incorporation of the Exchange, the Constitution, the By-
laws, the BSE Rules, or the L.L.C. Agreement of Boston Options Exchange
Group, is hereby reserved, except as expressly delegated to BOXR. In
addition, the BSE expressly retains the following authority and
functions:
1. To exercise overall responsibility for ensuring that BSE's
statutory and self-regulatory obligations and functions are fulfilled.
2. To delegate authority to BOXR to take actions on behalf of the
Exchange.
3. To appoint the BOXR Options Officials (an ``Options Official''
is ``an officer of BOXR vested by the BOXR Board with certain authority
to supervise option trading on BOX.'' See Rules of the Boston Options
Exchange Facility, Chapter I, Section 1).
4. To review the rulemaking and disciplinary decisions of BOXR.
5. To coordinate actions of BOXR and BOX as necessary.
6. To resolve any regulatory disputes among BOXR and BOX LLC.
7. To administer common overhead and technology of BOXR and BSE.
8. To administer internal reviews of BOX LLC and BOXR as deemed
necessary.
9. To manage external BSE relations on major regulatory policy and/
or surveillance issues regarding the BOX options market.
10. To direct BOXR and BOX LLC to take action necessary to
effectuate the purposes and functions of BOX as a facility of the
Exchange.
11. In the BSE's role as the sole owner of BOXR, to incorporate in
its Board of Governors and Nominating Committee responsibilities, a
process to elect the Board of Directors of BOXR (``BOXR Board'')
pursuant to the BOXR L.L.C. Agreement and BOXR By-Laws.
12. To take action in an area of responsibility delegated to BOXR
below.
B. Access to and Status of Books, Records, Premises, Officers,
Directors, Agents and Employees of BOX LLC.
1. Notwithstanding the delegation of authority to BOXR, as set
forth below, the books, records, premises, officers, directors, agents
and employees of BOX LLC shall be the books, records, premises,
officers, directors, agents and employees of BSE for purposes of and
subject to oversight pursuant to the Securities Exchange Act. The books
and records of BOX LLC shall be subject at all times to inspection and
copying by the BSE, BOXR and the Securities and Exchange Commission
(``Commission'').
2. BOX LLC is required to maintain all books and records related to
BOX within the United States.
3. Paragraph (1) above shall not create any rights or benefits for
any person or entity other than the Commission, the BSE and BOXR.
C. Delegation of Responsibilities and Functions
Subject to Section A(12) above and the review, ratification, or
rejection by the BSE Board, the BSE hereby delegates to BOXR and BOXR
assumes the following responsibilities and functions with respect to
the options business of the Exchange:
1. To interpret rules and regulations including, but not limited
to, trading rules, fees, access to and use of system facilities and
participation requirements.
2. To determine regulatory and trading policies, including
developing and recommending necessary or appropriate rule changes to
the BSE Board, relating to the business conduct, trading activities and
sales practices of BOX Participants and associated persons with respect
to, but not limited to, (i) financial responsibility, (ii)
qualifications for BOX participation and association with BOX
Participants, (iii) clearance and settlement of securities transactions
and other financial responsibility and operational matters affecting
BOX Participants in general and the securities listed on BOX, (iv) BOX
Participant advertising practices, (v) administration, interpretation
and enforcement of the Rules of the Boston Options Exchange Facility
(``BOX Rules''), including determination of appropriate exemptions for
BOX Participants (vi) administration and enforcement of the Options
Clearing Corporation (``OCC'') rules, the federal securities laws, and
other laws, rules and regulations that the BSE has the authority to
administer or enforce and (vii) standards of proof for violations and
sanctions imposed on BOX Participants and associated persons in
connection with disciplinary actions.
3. To take necessary or appropriate action to assure compliance
with BSE and BOX policies and rules, the federal securities laws, and
other laws, rules and regulations that the BSE has the authority to
administer or enforce, through examination, surveillance,
investigation, enforcement, disciplinary, and other programs.
4. To administer programs and systems for the surveillance and
enforcement of rules governing BOX Participants' conduct and trading
activities in BOX.
5. To examine and investigate BOX Participants and associated
persons to determine if they have violated BSE or BOX rules, the
federal securities laws, and other laws, rules, and regulations that
the BSE has the authority to administer, interpret, or enforce.
6. To administer the BOXR's enforcement and disciplinary programs
regarding BOX Participants, including investigations, adjudication of
cases, and the imposition of fines and other sanctions.
7. To conduct qualification examinations and continuing education
programs.
8. To determine whether applicants for BOX participation have met
the requirements for participation established by the BSE.
9. To place restrictions on the business activities of BOX
Participants consistent with the public interest, the
[[Page 45286]]
protection of investors, and the federal securities laws.
10. To determine whether persons seeking to register as BOX
Participants have met such qualifications for participation as may be
established by the BSE, including whether statutorily disqualified
persons will be permitted to associate with particular BOX Participants
and the conditions of such association.
11. To oversee all trading activities on BOX.
12. To propose and assess fees and other charges on BOX
Participants, associated persons and others using the products,
services or facilities of the Exchange.
13. To develop, administer and enforce policies and rules of BOX
governing listing standards applicable to securities traded on BOX.
14. To establish the annual budget and business plan for BOXR.
15. To determine allocation of BOXR resources.
16. To administer the Exchange's involvement in National Market
System Plans related to BOX.
17. To manage external relations on enforcement, regulatory, and
other policy issues regarding BOX and BOX Participants with Congress,
the Commission, state regulators, other self-regulatory organizations,
business groups, and the public.
18. To establish internal procedures for considering complaints by
Participants, associated persons, and members of the public who request
an investigation or disciplinary action by BOXR.
D. Rule Filings
The BSE Board shall review and ratify a rule change recommended by
the BOXR Board before the rule change becomes a final action of the
Exchange.
E. Supplemental Delegation Regarding Management and Committees
The BOXR Board may designate the Chief Executive Officer, another
designated officer or one or more committees and delegate to such
person or committee such powers and authority, as necessary and
appropriate, to act on behalf of the BOXR Board in carrying out the
functions and authority delegated to BOXR by the BSE. Such delegations
shall be in conformance with law and the By-laws of BOXR and the BOX
Rules. Any action taken by a BOXR officer or committee pursuant to
delegated authority shall be subject to review, ratification or
rejection by the BOXR Board in accordance with procedures established
by the BOXR Board.
* * * * *
Boston Options Exchange Regulation, L.L.C.
By-Laws
Definitions
When used in these By-Laws, unless the context otherwise requires,
the term.
(a) ``Act'' shall mean the Securities Exchange Act of 1934, as
amended;
(b) ``Associated person'' means a person who is a partner, officer,
director, or employee of a Participant, or any person directly or
indirectly controlling, controlled by or under common control with a
Participant.
(c) ``Board'' means the Board of Directors of Boston Options
Exchange Regulation, L.L.C.;
(d) ``BOX'' means the Boston Options Exchange Facility;
(e) ``BOXR'' means the Boston Options Exchange Regulation, L.L.C.;
(f) ``BOX Rules'' means the Rules of the Boston Options Exchange
Facility;
(g) ``broker'' shall have the same meaning as in Section 3(a)(4) of
the Act;
(h) ``BSE Rules'' means the Constitution and the Rules of the Board
of Governors of the Boston Stock Exchange, Inc;
(i) ``Commission'' means the Securities and Exchange Commission;
(j) ``day'' means calendar day;
(k) ``dealer'' shall have the same meaning as in Section 3(a)(5) of
the Act;
(l) ``Delegation Plan'' means the ``Plan of Delegation of Functions
and Authority by the Boston Stock Exchange, Inc. to Boston Options
Exchange Regulation, L.L.C.'' as approved by the Commission and amended
from time to time;
(m) ``Director'' means a member of the Board;
(n) ``L.L.C. Agreement'' means the ``Boston Options Exchange Group
L.L.C. Operating Agreement'';
(o) ``Options Participant'' or ``Participant'' means a firm, or
organization that is registered with the Exchange pursuant to Chapter
II of the BOX Rules for purposes of participating in options trading on
BOX as an ``Order Flow Provider'' and/or ``Market Maker''.
(p) ``Public Director'' means a director who has no material
business relationship with a broker, dealer, the BSE, BOX or BOXR.
(q) ``Regulatory Services Agreement'' means the Regulatory Services
Agreement entered into between BSE and Boston Options Exchange Group,
L.L.C.;
Location
SEC. 1 Boston Options Exchange Regulation, L.L.C., shall maintain a
registered office in the State of Delaware as required by law. BOXR may
also have offices and/or trading facilities at other places, within or
without the State of Delaware, as the Board of Directors may from time
to time determine or as the business of BOXR may require.
General Powers
SEC. 2 The property, business and affairs of BOXR shall be managed
by or under the direction of the Board. The Board may exercise all such
powers of BOXR and have the authority to perform all such lawful acts
as are permitted by law, the L.L.C. Agreement, the Regulatory Services
Agreement, these By-Laws, or the Delegation Plan to assist the BSE in
fulfilling its self regulatory responsibilities as set forth in Section
6(b) of the Act, and to support such other initiatives as the Board may
deem appropriate. To the fullest extent permitted by applicable law,
the L.L.C. Agreement, the Regulatory Services Agreement, and these By-
Laws, the Board may delegate any of its powers to a committee appointed
pursuant to Section 14 of the By-Laws, or to the BOXR staff in a manner
not inconsistent with the Delegation Plan.
Number of Directors
SEC. 3 The Board shall consist of no fewer than seven nor more than
thirteen Directors, the exact number to be determined by resolution
adopted by the BSE Board from time to time. The BSE Board shall appoint
directors to the BOXR Board, 50% of whom will serve until the first
annual meeting of the BOXR Board, and 50% of whom will serve until the
second consecutive annual meeting of the BOXR Board, in accordance with
Section 5, below. In accordance with Section 4, below, the Chief
Executive Officer of the BSE will be considered a member of the Board
of Directors for voting purposes, but not for qualification percentage
purposes. The General Counsel of the BSE will not be considered a
member of the Board of Directors for voting purposes or qualification
percentage purposes.
Qualifications
SEC. 4 Directors need not be Participants of BOX, or members of
BSE. Industry Directors must be representatives of the securities
industry as provided in Article II of the BSE Constitution. At least
fifty percent (50%) of the Directors will be Public Directors. The
Board shall include the Chief Executive Officer of the BSE, who will
not be considered for the purposes of
[[Page 45287]]
determining the qualification percentages for the Board set forth
herein. The General Counsel of the BSE shall act as an advisor to the
Board for all legal and regulatory matters, and shall not be a member
or director of the Board. At least twenty percent (20%) of the
Directors (but no fewer than two (2) Directors) will be officers or
directors of a firm approved as a BOX Option Participant. An officer or
director of a facility of the BSE may serve on the Board of Directors.
The term of office of a Director shall not be affected by any decrease
in the authorized number of Directors.
As soon as practicable, following the annual appointment of
Directors, the Board shall elect from its members a Chair and Vice
Chair and such other persons having such titles as it shall deem
necessary or advisable to serve until the next annual appointment or
until their successors are chosen and qualify. The persons so elected
shall have such powers and duties as may be determined from time to
time by the Board. The Board, by resolution adopted by a majority of
Directors then in office, may remove any such person from such position
at any time.
Appointment and Term of Directors
SEC. 5 Directors of BOXR shall be appointed, as necessary, each
year by the BSE Board, at its next annual meeting after the BOXR
Nominating Committee presents its candidates for the two BOX
representatives on the BOXR Board each October. Directors shall be
appointed for no more than four consecutive two-year terms, with the
exception of the initial Board of Directors, 50% of whom will be
appointed by the BSE Board to one year terms, and 50% of whom will be
appointed by the BSE Board to two year terms, with the percentages of
each apportioned as evenly as practicable between Public Directors and
non-Public Directors in accordance with Section 4, above.
Resignation
SEC. 6 Any Director may resign at any time either upon written
notice of resignation to the Chairman of the Board, the President, or
the Secretary. Any such resignation shall take effect at the time
specified therein or, if the time is not specified, upon receipt
thereof, and the acceptance of such resignation, unless required by the
terms thereof, shall not be necessary to make such resignation
effective.
Removal
SEC. 7 Unless otherwise restricted by the L.L.C. Agreement, these
By-Laws, the BSE Rules or the BOX Rules, any or all of the Directors
may be removed from office at any time, with cause, only if a
determination is reasonably and promptly made by the BSE Board by a
majority vote, that, based upon the facts known to the BSE Board at the
time such determination is made that the Director sought to be removed
(i) acted in bad faith; or (ii) did not act in a manner in the best
interests of BOXR; or (iii) engaged in conduct which was unlawful; or
(iv) deliberately breached his or her duty to BOXR.
Disqualification
SEC. 8 The term of office of a Director shall terminate immediately
upon a determination by the Board, by a majority vote of the remaining
Directors, that: (a) the Director no longer satisfies classification
for which the Director was elected; and (b) the Director's continued
service as such would violate the compositional requirements of the
Board as set forth in Section 4 of these By-Laws. If the term of office
of a Director terminates under this section, and the remaining term of
office of such Director at the time of termination is not more than six
months, during the term of vacancy the Board shall not be deemed to be
in violation of Section 4 by virtue of such vacancy.
Filling of Vacancies
SEC. 9 If a Director position becomes vacant for any reason, the
BSE Board or Executive Committee shall appoint a person to satisfy the
classification (e.g. Industry or Public) for the directorship, except
that if the remaining term of office for the vacant Director position
is not more than six months, no replacement shall be required.
Quorum and Voting
SEC. 10 At all meetings of the Board, unless otherwise set forth in
these By-Laws or required by law, a quorum for the transaction of
business shall consist of the presence of a majority of the number of
Directors fixed by Section 3. In the absence of a quorum, a majority of
the Directors present may adjourn the meeting until a quorum is
present. The vote of a majority of the Directors present at a meeting
at which a quorum is present shall be the act of the Board.
Regulation
SEC. 11 The Board may adopt such rules, regulations, and
requirements for the conduct of the business and management of BOXR not
inconsistent with the law, BSE and BOX Rules, L.L.C. Agreement,
Regulatory Services Agreement, or these By-Laws, as the Board may deem
proper. A Director shall, in the performance of such Director's duties,
be fully protected in relying in good faith upon the books of accounts
or reports made to BOXR by any of its officers, by an independent
professional (e.g. attorney, certified public accountant, business
consultant) or in relying in good faith upon other records of BOXR.
Meetings
SEC. 12 (a) An annual meeting of the Board shall be held for the
purpose of organization, election of officers, and transaction of any
other business. The annual meeting of the Board shall be held
immediately following the BSE Board's first regularly scheduled meeting
following October 1 of each year or any adjournment thereof, at the
place where the BSE Board's regularly scheduled meeting following
October 1 of each year was held or at such other time and place as a
majority of the Directors determine. If a quorum is then present, no
notice of the meeting shall be necessary. If the annual meeting is not
so held, it shall be called and held in the manner provided herein for
special meetings of the Board.
(b) Regular meetings of the Board, other than the annual meeting,
may be held without notice at such time and place, within or without
the State of Delaware, as determined from time to time by the Board.
(c) Special meetings of the Board may be called by the Chairman of
the Board, by the President, or by at least one-third of the Directors
then in office. Adequate notice shall be provided to all Board members
of the time and place of any Special Meetings.
(d) A Director or member of any committee appointed by the Board
may participate in a meeting of the Board or of such committee through
the use of a telephone or similar communications equipment by means of
which all persons participating in the meeting may hear one another,
and such participation shall constitute presence in person at such
meeting for all purposes.
Notice of Meetings; Waiver of Notice
SEC. 13 (a) Notice of any meeting of the Board shall be deemed to
be duly given to a Director if (i) mailed to the address last made
known in writing to BOXR by such Director as the address to which such
notices are to be sent, at least seven days before the day on which
such meeting is to be held; (ii) sent to the Director at such address
by telegraph, telefax, cable, radio, or wireless, not later than the
day before
[[Page 45288]]
the day on which such meeting is to be held; or (iii) delivered to the
Director personally or orally, by telephone or otherwise, not later
than the day before the day on which such meeting is to be held. Each
notice shall state the time and place of the meeting and the purpose(s)
thereof.
(b) Notice of any meeting of the Board need not be given to any
Director if waived by that Director in writing whether before or after
the holding of such meeting, or if such Director is present at such
meeting.
(c) Any meeting of the Board shall be a legal meeting without any
prior notice if all Directors then in office shall be present.
Committees
SEC. 14 (a) The Board may, by resolution or resolutions adopted by
a majority of the whole Board, appoint one or more committees. Each
committee shall include one or more Public Directors; provided that
there are Public Directors who are both willing to accept appointment
to such committee and are not otherwise an interested director with
respect to the responsibilities of such committee. Except as herein
provided, vacancies in membership of any committee shall be filled by
the vote of a majority of the whole Board. The Board may designate one
or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another Director to act at
the meeting in the place of any such absent or disqualified member.
Members of a committee shall hold office for such period as may be
fixed by a resolution adopted by a majority of the whole Board. Any
member of a committee may be removed from such committee only after a
majority vote of the whole Board, after appropriate notice, for
refusal, failure, neglect, or inability to discharge such member's
duties.
(b) The Board may, by resolution or resolutions adopted by a
majority of the whole Board, delegate to one or more committees the
power and authority to act on behalf of the Board in carrying out the
functions and authority delegated to BOXR by the BSE under the
Delegation Plan. Such delegation shall be in accordance with applicable
law, the L.L.C. Agreement, the Regulatory Services Agreement, and the
Delegation Plan. Action taken by a committee pursuant to such delegated
authority shall be subject to review, ratification, or rejection by the
Board. In all other matters, the Board may, by resolution or
resolutions adopted by a majority of the whole Board, delegate to one
or more committees that consist solely of one or more Directors the
power and authority to act on behalf of the Board in the management of
the business and affairs of BOXR to the extent permitted by law and not
inconsistent with the Delegation Plan.
(c) Unless otherwise provided by these By-Laws, a majority of a
committee shall constitute a quorum for the transaction of business,
and the vote of a majority of the members of such committee present at
a meeting at which a quorum is present shall be an act of such
committee.
(d) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware Law and other applicable law,
have and be permitted to exercise all the powers and authority of the
Board in the management of the business and affairs of BOXR between
meetings of the Board. The Executive Committee shall consist of five
Directors, including at least two Public Directors, and at least one
Options Participant Director. The Chief Executive Officer of the BSE
shall be a member of the Executive Committee, and the General Counsel
of the BSE will act in advisory role to the Executive Committee on
legal and regulatory matters. Executive Committee members shall hold
office for a term of one year. At all meetings of the Executive
Committee, a quorum for the transaction of business shall consist of a
majority of the Executive Committee, including at least fifty percent
of the Public Directors and at least one Options Participant Director.
(e) Nominating Committee. The Nominating Committee shall nominate
Participant representatives to the BOXR Board and the BSE Board of
Governors and members for each vacant position on the Nominating
Committee.
(i) Composition of Nominating Committee. There shall be elected by
ballot six persons to serve on the BOXR Nominating Committee which
shall consist of a total of seven persons, five of whom shall represent
broker-dealer Participant organizations of BOX (at least one of which
shall be a BOX Market Maker), and two of whom shall be public
representatives (one of whom will be a ``Public Director'' of the BOXR
Board, and appointed to the Nominating Committee by the BOXR Board, as
set forth in Paragraph (a) of this Section 14).
(ii) Nomination, Appointment, and Election of Nominating Committee
Members. All members of the Committee shall serve a term of two years.
The terms of Nominating Committee members shall be staggered, so that
each year elections will be held for three open positions on the
Nominating Committee, as well as to fill any vacancies on the
Committee. No member of the Committee shall be eligible to serve two
consecutive terms, and any vacancy on the Committee may be filled until
the next annual election by a majority vote of the remaining members.
The Committee shall elect its own Chairman, and shall be broadly
representative of the Participants of BOX.
(A) Meeting of Nominating Committee. The Nominating Committee shall
hold at least one meeting, prior to or in the month of June, at which
time the committee shall elect its own Chairman. The Chairman shall
designate a date in the month of July, due notice of which shall be
posted electronically to Participants, inviting them to attend said
meeting for the purpose of suggesting one nominee to fill each open
position during the next term of the Nominating Committee. Such
Committee shall notify the Secretary of the Exchange (or in his absence
an Officer appointed by the Chairman), on or before the last Monday in
August, of the nominees for such open positions on the Nominating
Committee. The names of nominees shall be posted forthwith
electronically to Participants. The Secretary shall prepare ballots
reflecting such nominees for use in the annual election.
(B) Independent nominations. On the written and signed petition of
five Participants of BOX, additional nominations may be made for the
open positions on the Nominating Committee to be elected at the annual
election. These nominations shall be filed with the Secretary of the
Exchange (or in his absence an Officer appointed by the Chairman) on or
before the third Monday in September and forthwith posted to
Participants. The ballots as prepared by the Secretary shall include
such nominations.
(C) No person shall be a candidate for election to the Nominating
Committee at the annual election who is not nominated in accordance
with the provisions of this Section.
(D) Notice of annual election. Notice of the annual election of
Participants shall be mailed or delivered to each Participant of BOX at
his business address registered with the Exchange by the Secretary (or
in his absence by an Officer appointed by the Chairman) not
[[Page 45289]]
more than twenty-five nor less than twenty days before the date of the
election, which shall occur no later than the last day of October. Such
notice shall specify the time and date of the election, and the persons
nominated (both by the Nominating Committee and by petition of
Participants).
(E) Annual Election. Voting by Participants shall be by secret
ballot, which may be delivered in person or by electronic or physical
mail to the Secretary (or in his absence to an Officer appointed by the
Chairman). The Secretary (or in his absence an Officer appointed by the
Chairman) shall collect all ballots and tally all votes for the
specified nominee. The nominees receiving the highest number of votes
for the open positions on the Nominating Committee shall be declared
elected thereto. Tie votes shall be decided by the BOXR Board at its
first meeting following the election.
(F) The terms of office will begin on January 1 of each year.
(iii) Nomination, Appointment, and Election of Representatives to
the BSE Board of Governors and the BOXR Board.
(A) Meeting of Nominating Committee. The Nominating Committee
Chairman shall designate a date in the month of July, due notice of
which shall be posted electronically to Participants, inviting them to
attend said meeting for the purpose of suggesting one nominee for each
open position for BOX participant representatives for the BOXR Board
and the one nominee for the BSE Board of Governors that are to be
filled at the annual election. The Nominating Committee shall notify
the Secretary of the Exchange (or in his absence an Officer appointed
by the Chairman), on or before the last Monday in August, of the
nominees for such offices. The names of nominees shall be posted
forthwith electronically to Participants. The Secretary shall prepare
ballots reflecting such nominees for use in the annual election.
(B) Independent nominations. On the written and signed petition of
five Participants of BOX, additional nominations may be made for the
two positions on the BOXR Board reserved for representatives of
Participants and the Participant representative on the Board of
Governors. These nominations shall be filed with the Secretary of the
Exchange (or in his absence an Officer appointed by the Chairman) on or
before the third Monday in September and forthwith posted to
Participants. The ballots as prepared by the Secretary shall include
such nominations.
(C) No person shall be a candidate for election to any office at
the annual election who is not nominated in accordance with the
provisions of this Section.
(D) Notice of annual election. Notice of the annual election of
Participants shall be mailed or delivered to each Participant of BOX at
his business address registered with the Exchange by the Secretary (or
in his absence by an Officer appointed by the Chairman) not more than
twenty-five nor less than twenty days before the date of the election,
which shall occur no later than the last day of October. Such notice
shall specify the time and date of the election, and the persons
nominated (both by the Nominating Committee and by petition of
Participants).
(E) Annual Election. Voting by Participants shall be by secret
ballot, which may be delivered in person or by electronic or physical
mail to the Secretary (or in his absence to an Officer appointed by the
Chairman). The Secretary (or in his absence an Officer appointed by the
Chairman) shall collect all ballots and tally all votes for the
specified nominee. In each case, the two nominees receiving the highest
number of votes for the BOXR Board and the one nominee receiving the
highest number of votes for the BSE Board of Governors shall be
declared elected thereto. Tie votes shall be decided by the respective
Board at its first meeting following the election.
(F) At the conclusion of the election, the successful candidates
thereof for the two positions on the BOXR Board reserved for
representatives of Participants and the Participant representative on
the Board of Governors shall be presented to the BSE Board for
appointment, in accordance with Article II, Section 4, of the BSE
Constitution. Such presentation to the BSE Board shall be administered
by the Chairman of the BOXR Nominating Committee and shall occur prior
to or during the next regularly scheduled annual meeting of the BSE
Board of Governors.
(G) The terms of office will begin on January 1 of each year.
(f) Hearing Committee. Promptly after the annual meeting of BOXR,
the Chairman of the Board of BOXR, shall appoint a Hearing Committee
composed of such number of Participants and non-Participants as the
Chairman of BOXR shall deem necessary, none of whom shall be members of
the BOXR Board of Directors or the BSE Board of Governors. This
Committee or any panel thereof shall have at least one Options
Participant member and shall have exclusive jurisdiction to conduct
hearings on disciplinary proceedings brought by BOXR against any
Participant, or any person employed by or associated with any
Participant for any alleged violation of the Securities Exchange Act of
1934, the Rules and Regulations thereunder, the Constitution or Rules
of the Board of Governors of the Boston Stock Exchange, Inc., the Rules
of Boston Options Exchange, LLC, the By-Laws of Boston Options Exchange
Regulation, or the interpretations and stated policies of either the
BSE Board of Governors or the Board of Directors of BOXR.
(i) If a Participant, or person employed by or associated with a
Participant is adjudged guilty in any disciplinary proceeding, the
Committee or any panel thereof shall be empowered to impose one or more
of the following disciplinary sanctions: fine, censure, suspension,
expulsion, limitation or termination as to activities, functions,
operations or association with a BSE member or Participant, or any
other appropriate sanction with respect to each charge as to which
guilt is determined. Any Participant or person adjudged guilty in any
disciplinary proceeding by the Committee or any panel thereof shall
have the right to appeal such decision to the BOXR Board. Any decision
of the BOXR Board may subsequently be appealed to the BSE Board of
Governors, which shall have the discretion whether to hear such appeal.
If the BSE Board of Governors does not order review of a decision of
the BOXR Board, or, in its discretion, elects not to hear an appeal of
a decision of the BOXR Board, then the decision of the BOXR Board shall
be deemed to be the final action of the Exchange. Any decision of the
BSE Board of Governors, or the BOXR Board (in cases where the BSE Board
in its discretion has elected not to hear the appeal) may be ultimately
appealed to the Commission.
(ii) The foregoing jurisdiction, function and powers shall be
exercised by the Committee in accordance with the provision of the
Rules of the Board of Governors of the BSE, as set forth in Chapter XXX
therein. With respect to the reference to ``members'', ``member
organizations'', ``membership'' or similar terms in the BSE Rules, the
applicability of the relevant sections inures to BOX ``Participants''.
(iii) Appellate Review of the Committee's Decision by the BOXR
Board. The decision of the Committee or any panel thereof shall be
subject to appellate review by the BOXR Board, either on the BOXR
Board's own motion within thirty days after issuance (or within thirty
days of when the BOXR Board receives written notice from the Committee
of such decision of the
[[Page 45290]]
Committee), or upon written petition of any party to the Proceeding
filed within fifteen business days after issuance. The following
procedures shall apply to reviews by the BOXR Board:
Procedure Following Petition for Appellate Review by the BOXR
Board.
(A) Additional Submissions and Appointment of the Appellate Review
Panel. Petitions for appellate review of Hearing Committee decisions
shall be referred to the BOXR Board which shall be furnished with all
material considered by the Committee or panel thereof. Parties may
submit a written statement to the BOXR Board and may request an
opportunity to make an oral presentation before the BOXR Board; the
BOXR Board, in its discretion, may grant or deny the request for oral
presentation. In the absence of a request for such a presentation, or
at any time, the BOXR Board may require an oral presentation. Whether
appellate review is conducted by hearing or by review on the papers
alone, the matter shall be referred to an appropriate Appellate Review
Panel appointed by the BOXR Board. A transcript shall be made of any
oral presentation and shall become part of the record.
(B) Decision of the BOXR Appellate Review Panel. Appellate Review
by the BOXR Board pursuant to paragraph (f)(iii) shall be made upon the
material furnished it by the Committee or panel thereof as well as by
the parties, and shall be made after such further proceedings as the
BOXR Board shall order. The BOXR Board may confirm, reverse or modify
in whole or in part the decision of the Committee or panel thereof and
may make any findings or conclusions which in its judgment are proper.
The decision of the BOXR Board shall be in writing, shall contain a
concise statement of the findings and conclusions of the BOXR Board and
the reasons in support thereof, and shall be sent to the parties to the
Proceedings.
(iv) Appellate Review of the BOXR Board's Decision by the BSE
Board. The decision of the BOXR Board or any panel thereof, shall be
subject to appellate review by the BSE Board, either on the BSE Board's
own motion within thirty days after issuance (or within thirty days of
when the BSE Board receives written notice from the BOXR Board of such
decision of the BOXR Board), or upon written petition of any party to
the Proceeding filed within fifteen business days after issuance. If
the BSE Board does not order review of a decision of the BOXR Board,
or, in its discretion, elects not to hear an appeal of a decision of
the BOXR Board, then the decision of the BOXR Board shall be deemed to
be the final action of the Exchange. The following procedures shall
apply to reviews by the BSE Board:
Procedure Following Petition for Appellate Review by the BSE Board.
(A) Additional Submissions and Appointment of the BSE Board
Appellate Review Panel. Petitions for appellate review of BOXR Board
decisions shall be referred to the BSE Board which shall be furnished
with all material considered by the BOXR Board or panel thereof.
Parties may submit a written statement to the BSE Board and may request
an opportunity to make an oral presentation before the BSE Board; the
BSE Board, in its discretion, may grant or deny the request for oral
presentation. In the absence of a request for such a presentation, or
at any time, the BSE Board may require an oral presentation. Whether
appellate review is conducted by hearing or by review on the papers
alone, the matter shall be referred to an appropriate Appellate Review
Panel appointed by the BSE Board. A transcript shall be made of any
oral presentation and shall become part of the record.
(B) Decision of the BSE Board Appellate Review Panel. Appellate
Review by the BSE Board pursuant to paragraph (f)(iv) shall be made
upon the material furnished it by the BOXR Board or panel thereof as
well as by the parties, and shall be made after such further
proceedings as the BSE Board shall order. The BSE Board may confirm,
reverse or modify in whole or in part the decision of the BOXR Board or
panel thereof and may make any findings or conclusions which in its
judgment are proper. The decision of the BSE Board shall be in writing,
shall contain a concise statement of the findings and conclusions of
the BSE Board and the reasons in support thereof, and shall be sent to
the parties to the Proceedings.
Action Without Meeting
SEC. 15 Any action required or permitted to be taken at a meeting
of the Board or of a committee may be taken with or without a meeting
if all Directors or all members of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or the committee.
Expenses
SEC. 16 Funds to meet the regular expense of each committee shall
be provided by the Board, and all such expenses shall be subject to the
approval of the Board.
Officers
SEC. 17 (a) The Board shall elect the officers of BOXR, which may
include a President, a Secretary, and such other executive or
administrative officers as it shall deem necessary or advisable,
including a Chief Regulatory Officer. All officers shall have such
titles, powers, and duties, and shall be entitled to such compensation,
as shall be determined from time to time by the Board. The terms of
office of such officers shall be at the pleasure of the Board, which by
affirmative vote of a majority of the Board, may remove any such
officer at any time. One person may hold the offices and perform the
duties of any two or more of such offices, except the offices and
duties of President and any other office or duties. None of the
officers, except the President, need be Directors of BOXR.
(b) The Chairman of the Board of the BSE or the President of BOXR
may be the Chief Executive Officer of BOXR, as the Board of Directors
may from time to time determine. Subject to the control of the Board,
the Chief Executive Officer, or such other officer or officers as may
be designated by the Board, shall have general executive charge,
management and control of the properties, business and operations of
BOXR with all such powers as may be reasonably incident to such
responsibilities; may agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the
Company; and shall have such other powers and duties as designated in
accordance with these By-Laws and as from time to time be assigned by
the Board.
Absence of the President
SEC. 18 In the case of the absence or inability to act of the
President of BOXR, or in the case of a vacancy in such office, the
Board may appoint its Chairman or such other person as it may designate
to act as such officer pro tem, who shall assume all the functions and
discharge all the duties of the President.
Agents and Employees
SEC. 19 In addition to the officers, BOXR may employ such agents
and employees as the Board may deem necessary or advisable, each of
whom shall hold office for such period and exercise such authority and
perform such duties as the Board, the President, or any officer
designated by the Board from time to time determine. Agents and
employees of BOXR shall be under the supervision and control of the
officers of BOXR, unless the Board, by resolution, provides that an
agent or employee shall
[[Page 45291]]
be under the supervision and control of the Board.
Delegation of Duties of Officers
SEC. 20 The Board may delegate the duties and powers of any officer
of BOXR to any other officer or to any Director for a specified period
of time and for any reason that the Board may deem sufficient.
Resignation and Removal of Officers
SEC. 21 (a) Any officer may resign at any time upon written notice
of resignation to the Board or the President. Any such resignation
shall take effect upon receipt of such notice or at any later time
specified therein. The acceptance of a resignation shall not be
necessary to make the resignation effective.
(b) Any officer of BOXR may be removed, with or without cause, by
resolution adopted by a majority of the Directors then in office at any
regular or special meeting of the Board or by a written consent signed
by all of the Directors then in office. Such removal shall be without
prejudice to the contractual rights of the affected officer, if any,
with BOXR.
Bond
SEC. 22 BOXR may secure the fidelity of any or all of its officers,
agents, or employees by bond or otherwise.
Compensation of Board and Committee Members
SEC. 23 The Board may provide for reasonable compensation of the
Chairman of the Board, the Directors, and the members of any committee
of the Board. The Board may also provide for reimbursement of
reasonable expenses incurred by such persons in connection with the
business of BOXR.
Indemnification of Directors, Officers, Employees, Agents, and
Committee Members
SEC. 24 (a) BOXR shall indemnify, and hold harmless, to the fullest
extent permitted by Delaware law as it presently exists or may
thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or
she is or was a Director, officer, or employee of BOXR, or committee
member, or is or was a Director, officer, or employee of BOXR who is or
was serving at the request of BOXR as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust,
enterprise, or non-profit entity, including service with respect to
employee benefit plans, is or was a party, or is threatened to be made
a party to:
(i) any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative,
against expenses (including attorneys' fees and disbursements),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with any such action,
suit, or proceeding; or
(ii) any threatened, pending, or completed action or suit by or in
the right of BOXR to procure a judgment in its favor against expenses
(including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection with the defense or settlement of
such action or suit.
(b) BOXR shall advance expenses (including attorneys' fees and
disbursements) to persons described in subsection (a); provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.
(c) BOXR may, in its discretion, indemnify and hold harmless, to
the fullest extent permitted by Delaware law as it presently exists or
may thereafter be amended, any person (and the heirs, executors, and
administrators of such persons) who, by reason of the fact that he or
she is or was an agent of BOXR or is or was an agent of BOXR who is or
was serving at the request of BOXR as a director, officer, employee, or
agent of another corporation, partnership, trust, enterprise, or non-
profit entity, including service with respect to employee benefit
plans, was or is a party, or is threatened to be made a party to any
action or proceeding described in subsection (a).
(d) BOXR may, in its discretion, pay the expenses (including
attorneys' fees and disbursements) reasonably and actually incurred by
an agent in defending any action, suit, or proceeding in advance of its
final disposition; provided, however, that the payment of expenses
incurred by such person in advance of the final disposition of the
matter shall be conditioned upon receipt of a written undertaking by
that person to repay all amounts advanced if it should be ultimately
determined that the person is not entitled to be indemnified under this
Section or otherwise.
(e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by BOXR to an agent or non-officer
employee if a determination is reasonably and promptly made by the
Board by a majority vote of those Directors who have not been named
parties to the action, even though less than a quorum, or, if there are
no such Directors or if such Directors so direct, by independent legal
counsel, that, based upon the facts known to the Board or such counsel
at the time such determination is made: (1) the person seeking
advancement of expenses (i) acted in bad faith, or (ii) did not act in
a manner that he or she reasonably believed to be in or not opposed to
the best interests of BOXR; (2) with respect to any criminal
proceeding, such person believed or had reasonable cause to believe
that his or her conduct was unlawful; or (3) such person deliberately
breached his or her duty to BOXR.
(f) The indemnification provided by this Section in a specific case
shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled, both as to action in his or
her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a Director, officer, or committee member, employee, or agent and
shall inure to the benefit of such person's heirs, executors, and
administrators.
(g) Notwithstanding the foregoing, but subject to subsection (j),
BOXR shall be required to indemnify any person identified in subsection
(a) in connection with a proceeding (or part thereof) initiated by such
person only if the initiation of such proceeding (or part thereof) by
such person was authorized by the Board.
(h) BOXR's obligation, if any, to indemnify or advance expenses to
any person who is or was serving at its request as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, enterprise, or non-profit entity shall be reduced by any amount
such person may collect as indemnification or advancement from such
other corporation, partnership, joint venture, trust, enterprise, or
non-profit entity.
(i) Any repeal or modification of the foregoing provisions of this
Section shall not adversely affect any right or protection hereunder of
any person respecting any act or omission occurring prior to the time
of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article is not paid in full within 60 days
[[Page 45292]]
after a written claim therefor by an indemnified person has been
received by BOXR, the indemnified person may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In
any such action, BOXR shall have the burden of proving that the
indemnified person is not entitled to the requested indemnification or
advancement of expenses under Delaware law.
Indemnification Insurance
SEC. 25 BOXR shall have the power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, or
committee member, employee or agent of BOXR, or who is or was serving
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as
such, whether or not BOXR would have the power to indemnify such person
against such liability hereunder.
Fiscal Year
SEC. 26 The fiscal year of BOXR shall begin on the first day of
October in each year, or such other month as the BSE Board may
determine by resolution.
Waiver of Notice
SEC. 27 (a) Whenever notice is required to be given by law, or
these By-Laws, a written waiver thereof, signed by the person or
persons entitles to such notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Neither the
business to be transacted at, nor the purpose of, any regular or
special meeting of the Directors, or members of a committee of a
Directors need be specified in any written waiver of notice.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for
the purposes of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called
or convened.
Execution of Instruments, Contracts, etc.
SEC. 28 (a) All checks, drafts, bills of exchange, notes, or other
obligations or orders for the payment of money shall be signed in the
name of BOXR by such officer or officers or person or persons as the
Board, or a duly authorized committee thereof, may from time to time
designate. Except as otherwise provided by law, the Board, any
committee given specific authority in the premises by the Board, or any
committee given authority to exercise generally the powers of the Board
during intervals between meetings of the Board, may authorize any
officer, employee, or agent, in the name of and on behalf of BOXR, to
enter into or execute and deliver deeds, bonds, mortgages, contracts,
and other obligations or instruments, and such authority may be general
or confined to specific instances.
(b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name
of BOXR by any principal officer or subordinate officer of BOXR, or, to
the extent designated for such purpose from time to time by the Board,
by an employee or agent of BOXR. Such designation may contain the power
to substitute, in the discretion of the person named, one or more other
persons.
Form of Records
SEC. 29 Any records maintained by BOXR in the regular course of
business, including its books of account and minute books, may be kept
on, or be in the form of, magnetic tape, computer disk, or any other
information storage device, provided that the records so kept can be
converted into clearly legible form within a reasonable time.
Alteration of By-Laws by Directors
SEC. 30 To the extent permitted by law, these By-Laws, BSE Rules,
BOX Rules, the L.L.C. Agreement or the Regulatory Services Agreement,
these By-Laws may be altered, amended, repealed, or new By-Laws adopted
by approval of a majority of the BSE Board at any regular or special
meeting of the BSE Board.
Emergency By-Laws
SEC. 31 The Board may adopt emergency By-Laws subject to repeal or
change by action of the BSE Board that shall, notwithstanding any
different provision of law, the L.L.C. Agreement, the Regulatory
Services Agreement, or these By-Laws, be operative during any emergency
resulting from any nuclear or atomic disaster, an attack on the United
States or on a locality in which BOXR conducts its business or
customarily holds meetings of the Board, any catastrophe, or other
emergency condition, as a result of which a quorum of the Board or a
committee thereof cannot readily be convened for action. Such emergency
By-Laws may make any provision that may be practicable and necessary
under the circumstances of the emergency.
* * * * *
Boston Stock Exchange, Inc. Constitution
* * * * *
Article II
* * * * *
Board of Governors
* * * * *
Composition of the Board
SEC. 1. The government of the Exchange shall be vested in a Board
of Governors composed of the Chairman, Vice Chairman and twenty others,
ten of whom shall be representatives from the securities industry and
ten of whom shall be representatives of the public. Of the ten
securities industry representatives, all must represent broker-dealer
members of the Exchange, at least one shall represent BOX Participants,
and at least five shall represent firms active on the trading floor
(each of whom may satisfy more than one of these criteria). Of the
floor representation, two must be active as specialists. Of the ten
representatives of the public, at least five shall be from financial
institutions not directly associated with a member organization or
broker-dealer, and at least one shall be an officer or director of a
company which has a class of stock listed on the Exchange.
The Chairman shall be appointed by the Board of Governors to serve
at its pleasure. The Vice Chairman shall be a representative from a
member organization and shall be elected to serve a one-year term.
Neither the Chairman nor the listed company representative shall be
associated with a member of the Exchange or a broker or dealer. All are
to be elected in the manner hereinafter provided, except no governor
other than the Chairman and the Vice Chairman may serve more than four
consecutive terms.
* * * * *
Specific Powers
SEC. 4. The Board of Governors, in furtherance of its powers
specified in Section 1 of this Article, shall entertain appeals from
the decisions of the Market Performance Committee and may hold hearings
on any such appeal; shall have the entire control of the property and
finances of the Exchange; including the authority to purchase and
cancel memberships in the Exchange, shall fix the amount of fees and
compensation, if any, to be paid to any member of the
[[Page 45293]]
Board or of any other committee; and shall fix dues, fees, assessments
and other charges to be paid by members, allied members, member firms
and member corporations. It shall regulate the making and performance
of Exchange contracts; transactions on the Exchange; access to and
conduct upon the floor of the Exchange and the use of Exchange
facilities; the formation, continuance and interests of members in
member firms and corporations; business conduct; capital requirements
and insolvency of members, member firms and member corporations;
arbitration procedures; transfers of memberships and disposition of the
proceeds of the sale of such memberships; the listing and delisting of
and the suspension of trading in securities on the Exchange; activities
of specialists and odd lot dealers; matters relating to quotations and
price reports; use of ticker services; and means of communication with
non-members. It may examine the financial condition and business
conduct of members, member firms and member corporations and business
conduct of allied members and may require any member, allied member or
officer or employee of any member firm or corporation to appear before
it to testify as to such financial condition or business conduct; may
require that transactions in securities admitted to dealing on the
Exchange be executed on the Exchange; may credit a portion of the
income of the Exchange for any current year to the members
proportionately in settlement of the contribution which members are
obligated to make in connection with the Gratuity Fund of the Exchange;
and may require that officers, appointees or employees of the Exchange
give good and sufficient bonds for the faithful performance of their
duties.
At the Board of Governors' next meeting after the BOXR Nominating
Committee presents its candidates for the two positions reserved on the
BOXR Board for representatives of BOX Participants, and its candidate
for the position on the BSE Board of Governors reserved for a
representative of BOX Participants, in October of each year, the Board
of Governors shall select and appoint the Board of Directors of BOXR
for the following year, as set forth in the Plan of Delegation of
Functions and Authority by the Boston Stock Exchange, Inc. to Boston
Options Exchange Regulation, L.L.C., and in accordance with the
qualification provisions set forth in Section 4 of the By-Laws of
Boston Options Exchange Regulation, L.L.C., including the appointment
of the candidates presented by the BOXR Nominating Committee for the
two BOXR Board positions reserved for representatives of BOX
Participants. The Board of Governors shall also select and appoint as
Governor the candidate put forth by the BOXR Nominating Committee for
the position on the Board of Governors reserved for a representative of
BOX Participants. Additionally, the Board of Governors shall appoint
the initial Board of Directors of BOXR, in accordance with the term
provisions set forth in Section 5 of the By-Laws of Boston Options
Exchange Regulation, L.L.C., and the number of Directors provisions set
forth in Section 3 of the By-Laws of Boston Options Exchange
Regulation, L.L.C.
* * * * *
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
In order to create a new options regulatory subsidiary, the BSE
proposes to transfer to BOXR, a Delaware limited liability company and
a wholly-owned subsidiary of the BSE, all of the assets and liabilities
that solely support the regulation of the standardized equity options
trading business of the BSE. Upon this transfer, however, the BSE would
continue to be the self-regulatory organization (``SRO'') for BOXR and
the Boston Options Exchange (``BOX''), the BSE's proposed new exchange
facility for the trading of standardized equity options securities.\4\
BOX would provide automatic order execution capabilities to BOX Options
Participants (``Options Participants'') for standardized equity options
securities listed or traded on the BSE. BOX would be operated by Boston
Options Exchange Group, L.L.C. (``BOX LLC''). The proposed rule change
for implementing the creation of BOXR includes: (i) Changes to the BSE
Rules of the Board of Governors; (ii) the proposed Plan of Delegation
of Functions and Authority by the Boston Stock Exchange, Inc., to
Boston Options Exchange Regulation, L.L.C. (``Delegation Plan''); (iii)
proposed By-Laws for BOXR; and (iv) amendments to the BSE Constitution.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 47186 (Jan. 14,
2003), 68 FR 3062 (Jan. 22, 2003) (SR-BSE-2002-15) (``BOX Proposing
Release'').
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(I) Delegation Plan
(A) Relationship of BSE, BOXR and BOX LLC
The BSE is a founding and controlling member of BOX LLC. Pursuant
to contractual agreement, the BSE has the right to appoint two
representatives to the board of BOX LLC. In addition to its ownership
stake in BOX LLC, the BSE has entered into various agreements with BOX
LLC under which BOX LLC would operate BOX as a facility of the BSE.\5\
Pursuant to these agreements, the BSE, through BOXR, would maintain
responsibility for all regulatory functions related to the facility,
and BOX LLC would be responsible for the business operations of the
facility to the extent those activities are not inconsistent with the
regulatory and oversight functions of the BSE and BOXR. This means that
BOX LLC would not interfere with the BSE's self-regulatory
responsibilities or those delegated to BOXR.
---------------------------------------------------------------------------
\5\ Under the Act, ``the term `facility' when used with respect
to an exchange includes its premises, tangible or intangible
property whether on the premises or not, any right to the use of
such premises or property or any service thereof for the purpose of
effecting or reporting a transaction on an exchange (including,
among other things, any system of communication to or from the
exchange, by ticker or otherwise, maintained by or with the consent
of the exchange), and any right of the exchange to the use of any
property or service.'' See 15 U.S.C. 78c(a)(2).
---------------------------------------------------------------------------
The BSE wholly owns BOXR as a subsidiary of the Exchange and
proposes to delegate certain regulatory authority to BOXR for oversight
of the BOX market. Under the proposal, BOXR would use its own
regulatory staff, and not the employees of BOX LLC, to perform its
regulatory oversight duties. In addition, BOXR would conduct all
necessary surveillance of the trading effected through the BOX facility
as well as enforcement of the BOX Rules, applicable BSE Rules and the
federal securities laws and the rules thereunder.\6\ Pursuant to the
proposed Delegation Plan and contractual agreements, BOXR would have
regulatory oversight authority over BOX LLC and its officers,
directors, agents and employees, each of whom would be
[[Page 45294]]
required to cooperate with BOXR in the fulfillment of its regulatory
obligations.
---------------------------------------------------------------------------
\6\ See BOX Proposing Release.
---------------------------------------------------------------------------
The relationship between the BSE, BOXR, BOX LLC and BOX is
explained further in the Delegation Plan.\7\ The BSE is proposing to
adopt the Delegation Plan which sets forth the purpose, function,
governance, procedures and responsibilities of the BSE and BOXR
following approval of the Delegation Plan. The Delegation Plan
describes the options regulatory subsidiary, BOXR; sets forth the
delegation of authority to BOXR by the BSE; and describes the purpose,
function, authority and responsibilities of BOXR, including the
procedures for proposed rule change recommendations in regard to BOX
and BOXR.
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\7\ The BSE notes that the Delegation Plan is based on PCX
Equities Rule 14.3 of the PCX Plan of Delegation and the NASD's Plan
of Allocation and Delegation of Functions by NASD to Subsidiaries.
---------------------------------------------------------------------------
Through the adoption of new Chapter XXXVI and the Delegation Plan,
BOXR and BOX LLC would also be subject to Commission oversight and
examination. The Commission would oversee the premises, personnel, and
records of BOXR and BOX LLC to the same extent that it currently
oversees the premises, personnel, and records of the BSE. Under section
1(b) and section 2(B)(1) of the proposed Delegation Plan, the books,
records, premises, officers, directors, agents and employees of BOXR
and BOX LLC would be the books, records, premises, officers, directors,
agents and employees of the BSE for purposes of, and subject to,
oversight pursuant to the Act. The books and records of BOXR and BOX
LLC would be subject at all times to inspection and copying by the BSE
and the Commission. BOXR and BOX LLC would be required to maintain all
books and records related to BOX within the United States. Also, by
delegated authority, the books and records of BOX LLC would be subject
at all times to inspection and copying by BOXR. However, as set forth
in the proposed Section 2(B)(3) of the Delegation Plan, proposed
section 2(B)(1) would not create any rights or benefits for any person
or entity other than the BSE, BOXR and the Commission. The Commission
and the BSE's access to and oversight of BOX LLC as the operating
company of BOX is further solidified in the private contracts related
to BOX. The text of Section 2(B) of the Delegation Plan is included in
various contractual agreements between the BSE and BOX LLC. Therefore,
BOX LLC has not only a regulatory obligation to abide by the Delegation
Plan, but a private contractual obligation as well.
(B) BOXR
(1) Corporate Status
BOXR would be operated as a Delaware limited liability company. All
of the issued shares of stock of BOXR would be owned by the BSE.
Current BSE members would retain their memberships, and thus, their
ownership interests in the BSE.
(2) Governing Documents and Rules
BOXR's By-Laws, the BOX Rules and the applicable BSE Rules would
govern its activities. The BOX Rules and the BOXR By-Laws would reflect
the status of BOXR as a wholly-owned subsidiary of BSE, under
management of the BOXR Board of Directors (``BOXR Board'') and its
designated officers, ultimately subject to the self-regulatory
authority of the BSE.
(3) Regulation of BOXR
BOXR would operate as a subsidiary of BSE, which is a national
securities exchange registered under section 6 of the Act.\8\ The BSE,
as the SRO, retains ultimate responsibility for compliance by its
members with the provisions of the Act and the rules and regulations
thereunder. As set forth in the proposed BOX Rules, Options
Participants are required to comply with all the BOX Rules as well as
those BSE Board of Governors Rules specifically cross-referenced and
incorporated by reference in the BOX Rules. For such purposes of cross-
referencing, interpreting and applying the Rules of the BSE to Options
Participants, any reference to ``member'' of the BSE in such cross-
referenced rules is to be read as a synonym for ``Participant'' on BOX,
whether OFP, Market Maker or both.\9\ For this reason, BOX Options
Participants would be statutory ``members'' of BSE. Pursuant to the
proposed BOX Rules, Options Participants are granted trading rights for
options listed on the Exchange and traded on BOX.\10\ Options
Participant status does not confer on the Options Participant any right
to participate in trading on the BSE other than options trading on BOX,
nor shall Options Participants be entitled to all the rights and
responsibilities regarding the governance of the BSE as other BSE
Members.\11\ They do not have ownership interests in the BSE, however,
as discussed more fully below, they would have certain voting and
representations rights.\12\
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\8\ 15 U.S.C. 78f.
\9\ See Chapter I, Section 2(c) of the Proposed BOX Rules in the
BOX Proposing Release.
\10\ See BOX Proposing Release Chapter II, Section 1(a).
\11\ See BOX Proposing Release Chapter II, Section 1(e).
\12\ Under section 6(b)(3) of the Act, the rules of an exchange
must assure that its members are fairly represented in the selection
of its directors and administration of its affairs. 15 U.S.C.
78f(b)(3).
---------------------------------------------------------------------------
The BSE Board is currently composed of the BSE Chairman, Vice
Chairman and 20 governors. The composition of the BSE Board would be
modified as part of the restructuring to include one governor
representing Options Participants to provide input on the BSE Board.
This governor (``Options Participant Governor'') would be nominated by
the BOXR Nominating Committee and must be either an officer or director
of an Options Participant.\13\ Pursuant to the proposed amendments to
the BSE Constitution, the BSE Board would be required to appoint the
candidate presented by the BOXR Nominating Committee.\14\
---------------------------------------------------------------------------
\13\ See discussion of the proposed BOXR Nominating Committee
below.
\14\ See discussion of the proposed amendments to the BSE
Constitution below.
---------------------------------------------------------------------------
As a registered national securities exchange and the parent company
of BOXR, the BSE would continue to carry out its statutory
responsibilities to enforce compliance by Options Participants with the
provisions of the federal securities laws and rules thereunder, as well
as the BSE and BOX Rules, and to govern the administration of BOXR. In
particular, to be effective, any changes to the BOX Rules and governing
documents of BOXR must be ultimately approved by the BSE. The Exchange
proposes that the Delegation Plan become part of the Rules of the BSE
and, thus, may only be amended upon Commission approval. Moreover,
changes to the BOXR By-Laws and the BOX Rules must be filed with the
Commission pursuant to Section 19(b) of the Act \15\ and Rule 19b-4\16\
thereunder and must be submitted by the BSE.\17\
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\15\ 15 U.S.C. 78s(b).
\16\ 17 CFR 240.19b-4.
\17\ The BSE Board must review and ratify all BOXR proposed rule
changes before they are submitted to the Commission. See Section 2D
of the Delegation Plan.
---------------------------------------------------------------------------
While ultimately responsible, the BSE proposes to delegate specific
self-regulatory responsibilities to BOXR, pursuant to a Delegation
Plan. Specifically, BOXR would assume responsibility with respect to
the options business of the Exchange for, among other things: (i)
Establishing and interpreting rules governing the activities of Options
Participants: (ii) determining regulatory and trading policies relating
to the business activities of Options Participants; (iii) assuring
compliance with BOX Rules
[[Page 45295]]
and the federal securities laws; (iv) administering surveillance
programs and systems for enforcing rules governing the conduct and
trading activities of Options Participants and their associated persons
on BOX; (v) examining and investigating Options Participants and their
associated persons to determine if they have violated the BOX Rules or
the federal securities laws; (vi) administering the BOXR disciplinary
programs; (vii) determining whether applicants meet the requirements
for an Options Participant; (viii) placing restrictions on the business
activities of Options Participants and their associated persons
consistent with the public interest, the protection of investors and
the federal securities laws; (ix) proposing fees and charges; (x)
overseeing the operation of the BOX trading facilities; (xi) collecting
and consolidating information for the surveillance audit trail; (xii)
developing rule changes for the collection, processing and
dissemination of quote and transaction information; (xiii) developing
and adopting rules, interpretations and policies to maintain and
enhance the integrity, fairness, efficiency and competitiveness of BOX;
(xiv) administering the Exchange's involvement in the national market
system (``NMS'') plans for options; and (xv) developing, administering
and enforcing listing standards for securities traded on BOX.
While BOXR would have extensive delegated authority to regulate and
oversee the options trading business, the BSE would retain the ultimate
responsibility for the Rules and regulations of BOX, as well as for the
operation and administration of its subsidiary, BOXR. As part of its
self-regulatory responsibilities, the BSE would review rulemaking and
disciplinary decisions of BOXR and direct BOXR to take action that may
be necessary to effectuate the purposes and functions of the Act. The
BSE believes that these types of checks and balances should ensure that
the BSE remains aware of the affairs of its options business conducted
through BOXR, and that its options business is conducted in a manner
consistent with the Act. Thus, while BOXR would be a separate entity,
it would still remain under the self-regulatory authority of the BSE.
(4) Agreement Between BSE and BOXR
Under the proposal, the BSE's equities and options regulatory
functions would share certain infrastructure and personnel. After the
completion of the restructuring, these shared assets would remain the
property of BSE and the shared personnel would continue to be employed
by BSE. In each case, however, BOXR would have access to those
resources through inter-company contracts with BSE. In particular, BSE
would contract to provide BOXR with certain management and support
services and staff. The contract would include services for
administration, membership, technology, finance and accounting, human
resources and legal and regulatory services. The agreement between BSE
and BOXR would allocate charges for these services and staff between
BSE and BOXR.
(5) National Market System Plans
The BSE currently is a participant in various NMS plans, including
the Consolidated Tape Association (``CTA'') Plan, the Consolidated
Quotation System (``CQS'') Plan, the Nasdaq Unlisted Trading Privileges
Plan (``UTP'') Plan, and the Intermarket Trading System Plan, as well
as a conditional participant, subject to Commission approval, in
several options NMS plans, including the Options Price Reporting
Authority (``OPRA'') Plan, the Options Listing Procedures (``OLPP'')
Plan and the Intermarket Options Linkage Plan.\18\ These plans are
joint industry plans for SROs that address last sale reporting,
quotation reporting, listing procedures, and intermarket trading.
Following the creation of BOXR, BSE, in its continuing role as the SRO,
would continue to serve as the voting member of these NMS Plans.
Nevertheless, BSE expects that, for those plans that relate to options
trading, i.e., the OPRA Plan, the OLPP Plan and the Intermarket Options
Linkage Plan, a BOXR representative would serve as the BSE's
representative in dealing with these plans.
---------------------------------------------------------------------------
\18\ The BSE is also a conditional participant in the Options
Self-Regulatory Council (``OSRC''). The OSRC Plan is not an NMS plan
under Section 11A of the Act, but rather a plan to allocate
regulatory responsibilities under Rule 17d-2 under the Act. 17 CFR
240.17d-2.
---------------------------------------------------------------------------
(II) BOXR By-Laws
The BOXR By-Laws would reflect the status of BOXR as a wholly-owned
subsidiary of BSE, ultimately subject to the self-regulatory authority
of the BSE. As a separate corporate entity, BOXR would have its own
board of directors and officers that would administer its day-to-day
operations.
(A) BOXR Board of Directors
The BOXR Board would consist of no fewer than 7 or more than 13
directors. Currently, the Exchange contemplates that there would be 7
directors. The composition of the BOXR Board would be as follows:
[sbull] The Chief Executive Officer (``CEO'') of BSE (who will be
considered a member of the Board for voting purposes, but not for
qualification percentage purposes);
[sbull] At least 50% Public Directors;\19\
---------------------------------------------------------------------------
\19\ ``Public Director'' is defined as a Director who has no
material business relationship with a broker or dealer, or the BSE,
BOX, or BOXR. See BOXR By-Laws, Definition (p).
---------------------------------------------------------------------------
[sbull] At least 20%, but no fewer than 2, nominees of Options
Participants (the ``Options Participant Directors'').
The BSE, as the founder and sole member, would appoint the initial
BOXR Board. Subsequently, the BOXR Board would be nominated by the
sitting BOXR Board, subject to the nominating procedures set forth
below \20\ for the selection of at least twenty percent, but no fewer
than two Options Participant Directors. The BOXR Board would be elected
by the BSE Board, as the BSE is the sole shareholder of BOXR. The BSE
would have the right to approve, remove, and replace any member of the
BOXR Board by virtue of its status as sole shareholder, subject to the
By-Laws. Any vacancy on the BOXR Board would be filled with a person
who satisfies the classification associated with the vacant seat, i.e.,
a member of the public or a representative of an Options Participant.
---------------------------------------------------------------------------
\20\ See discussion of the proposed BOXR Nominating Committee
below.
---------------------------------------------------------------------------
To the extent that the number of BOXR Board seats is changed from
the initially contemplated 7 members, at least 50 percent of the BOXR
Board must be Public Directors and at least 20 percent, but no fewer
than two, representatives of Options Participants. The BSE believes
that this provision would ensure that the public interest is adequately
represented in the Exchange's decision-making process pursuant to
section 6(b)(3) of the Act.\21\ Further, the Exchange acknowledges that
public representatives help to ensure that no single group of market
participants has the ability to systemically disadvantage other market
participants through the exchange governance process. The BSE believes
that Public Directors can provide unique, unbiased perspectives, which
should enhance the ability of the BOXR Board to address issues in a
non-discriminatory fashion and foster the integrity of BOXR. In this
way, the Public Directors may help to prevent unfair discrimination
between customers, brokers, or dealers in the administration of BOXR,
and protect investors and the public interest,
[[Page 45296]]
consistent with the provisions of Section 6(b)(5) of the Act.\22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f(b)(3).
\22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed BOXR By-Laws provide that at least 20 percent (but no
fewer than two directors) must be directors who are officers or
directors of an Options Participant and are elected by plurality vote
of Options Participants, following a nomination process which involves
the BOXR Nominating Committee.\23\ The Options Participant Directors
would be nominated by the BOXR Nominating Committee or by petition of
at least 5 Options Participants. When a vote is held, the candidates
selected by Options Participants must be supported by a plurality of
the Options Participants who cast votes in order to be selected as a
candidate for the BOXR Board. Pursuant to the proposed amendments to
the Constitution, the BSE, as the sole member, would be required to
appoint the Options Participant Directors so chosen and put forth to
the BSE Board by the BOXR Nominating Committee.\24\
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\23\ See discussion of the proposed BOXR Nominating Committee
below.
\24\ See discussion of the proposed amendments to the BSE
Constitution below, which requires the BSE to elect the slate
submitted by the BOXR Nominating Committee.
---------------------------------------------------------------------------
(B) Management
BOXR would have a Chairman of the Board and may have a President,
either of whom may be the CEO of BOXR. In addition, BOXR would have a
Chief Regulatory Officer who would be appointed by, and serve at the
pleasure of, the BOXR Board. The officers of BOXR would manage the
business and affairs of BOXR, subject to the oversight of the BOXR
Board, and, in some cases, subject to the approval of BSE as the sole
member and SRO.
(C) BOXR Committees
In an effort to streamline its management, the BSE has chosen to
commence BOXR operations with only two administrative committees,
although there are specific provisions in the proposed By-Laws
permitting the appointment of additional committees by the BOXR Board,
as necessary. There would be a BOXR Nominating Committee and a BOXR
Hearing Committee, both of which would provide Options Participant
involvement in the administration of the day-to-day operations of BOX.
(1) Nominating Committee
The BOXR Nominating Committee would be responsible for nominating
two candidates for the BOXR Board, one candidate for the BSE Board, and
members for any vacant positions on the Nominating Committee. These
candidates would represent Options Participants on the respective
Boards. The BOXR Nominating Committee would consist of seven members,
six of whom would be elected by ballot. The seventh would be appointed
by the BOXR Board, and must be one of that Board's existing Public
Directors. Of the six elected members, five shall represent broker-
dealer Options Participants of BOX (at least one of which shall also
represent a Market Maker on BOX), and one shall be a representative of
the public. Thus, of the seven total members of the committee, there
would be two members who are representatives of the public. The BOXR
Nominating Committee would propose a slate of two eligible nominees for
the BOXR Board, one eligible nominee for the BSE Board and the nominees
for the BOXR Nominating Committee.
The BSE has also set forth a proposed provision which it believes
ensures further fair representation of Options Participants in the
nominating process. Options Participants would be able to submit
additional nominees for each of the available positions by way of
petition for independent nominations. In recognition of the fact that
BOX would be an electronic marketplace with geographically diverse
Options Participants, the Exchange has proposed that independent
nominations may take place by petition of only five Options
Participants. This is in contrast to the independent nomination process
for the BSE, which requires fifteen BSE Member signatures for an
independent nomination to be effected. By lowering the number of
signatures required for an independent nomination from Options
Participants, the Exchange believes it is encouraging independent
nominations, thereby enhancing the potential for more effective
representation of Options Participants. This process is proposed for
not only the position reserved on the BSE Board for the Options
Participant Governor, but for the two positions reserved on the BOXR
Board for Options Participant representatives and the nominees for the
BOXR Nominating Committee as well.
Furthermore, and perhaps most importantly, Options Participants
alone would vote, by plurality, to choose the individuals who would
represent them. Only after this vigorous and full nomination and
electoral process concludes would the chosen candidates be presented,
by the BOXR Nominating Committee, to the BSE Board for appointment. In
accordance with the proposed Constitutionally established standards and
the proposed BOXR By-Laws, the BSE Board is then charged with
appointing the BOXR Board, as well as accepting the Options Participant
Governor candidate for the BSE Board of Governors.
The Exchange believes that its proposal is consistent with section
6(b) of the Act, in general, and furthers the objectives of section
6(b)(3),\25\ in particular, in that it is consistent with the fair
representation principles set forth in the Act. Under section 6(b)(3),
the rules of an exchange must assure that its members are fairly
represented in the selection of its directors and administration of its
affairs. The fair representation requirement of section 6(b)(3) allows
statutory members to have a voice in an exchange's use of its self-
regulatory authority. This statutory requirement also helps ensure that
exchange members are protected from unfair, unfettered actions by an
exchange pursuant to its rules, and that, in general, an exchange is
administered in a way that is equitable to all those who trade on its
market or through its facilities. The BSE believes that the proposals
contained in this filing would ensure that Options Participants are
treated in a manner consistent with the requirements of section
6(b)(3).
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\25\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------
In addition, to make sure that the public interest is adequately
represented in an exchange's decision-making process, section 6(b)(3)
of the Act states that an exchange's rules must provide that one or
more of its directors be representative of issuers and investors, and
not associated with a member of the exchange, or with any broker-
dealer. The Exchange's proposal would allow a representative of Options
Participants to be on the BSE Board, but would not alter the
composition of the BSE Board. In particular, the Exchange notes that
the 50% public representation on the BSE Board is not affected. The
Exchange is in agreement with a long established belief expressed by
the Commission on this regard that the inclusion of public
representatives on exchange oversight bodies is critical to ensuring
that an exchange works to protect the public interest in the exchange
governance process. The Exchange values unique, unbiased perspectives
on the BSE Board and other governing bodies. In this regard, the
proposed nominating process for Options Participant representatives has
been made less stringent so as to permit and encourage greater
participation by what would be a diverse group of Participants in the
BOX marketplace. Therefore, by the combination of Board composition and
the nominating/election process, the
[[Page 45297]]
Exchange believes it is assuring that Options Participants are
represented fairly in the selection of the BSE and BOXR Boards, and
thereby in the administration of Exchange affairs and in the affairs of
the Exchange subsidiary, BOXR, which would most directly affect them.
(2) Hearing Committee
The BOXR disciplinary process would be similar to the existing BSE
disciplinary process, and would be governed by a BOXR Hearing
Committee. The BOXR Hearing Committee would be appointed by the
Chairman of the Board of BOXR. Membership of the committee shall be
comprised of at least one Options Participant member and such number of
non-Participant members as the Chairman may deem necessary.
The BOXR Chief Regulatory Officer, or his staff, would authorize
the initiation of disciplinary hearings and proceedings. The BOXR
Hearing Committee would conduct hearings, render decisions and impose
sanctions. Decisions of the BOXR Hearing Committee may be appealed for
review to the BOXR Board. Any decision of the BOXR Board may
subsequently be appealed to the BSE Board of Governors, which shall
have the discretion whether to hear such appeal. If the BSE Board of
Governors does not order review of a decision of the BOXR Board, or, in
its discretion, elects not to hear an appeal of a decision of the BOXR
Board, then the decision of the BOXR Board shall be deemed to be the
final action of the Exchange. Any decision of the BSE Board of
Governors, or the BOXR Board (in cases where the BSE Board in its
discretion has elected not to hear the appeal) may be ultimately
appealed to the Commission. As with all BSE decisions, the Commission
has the authority to review final disciplinary sanctions imposed by
BOXR or the BSE on Options Participants, including sanctions imposed
for violations of BOX rules.
The Exchange believes that its Hearing Committee, BOXR Board and
BSE Board of Governors Appeals process is consistent with the Act, and
in particular section 6(b)(7) thereunder, in that the Exchange has
established fair procedures for disciplining Options Participants. The
BSE Board of Governors has appellate jurisdiction of sanctions and
findings of the BOXR Hearing Committee and the BOXR Board for
violations of the rules and regulations of the Act, the Constitution
and Rules of the BSE, the BOX Rules, the BOXR By-Laws, and the
interpretations and stated policies of either the BSE Board of
Governors or the Board of Directors of BOXR. Moreover, aggrieved
Options Participants may appeal the decision of the BSE Board of
Governors to the Commission.
(III) Changes to the Boston Stock Exchange Constitution
The proposed changes to the BSE Constitution have two primary
purposes. First, the proposed amendment to Article II, Section 1,
reserves a seat on the BSE Board for a representative of BOX Options
Participants. Although the proposal would permit a representative of
Options Participants to serve on the BSE Board, the proposal would not
alter the overall BSE Board composition. The BSE Board would continue
to be comprised of fifty percent Public Directors (at least five of
which shall be from financial institutions not directly associated with
a member organization or broker-dealer). Also, the BSE Board would
continue to consist of twenty directors, in addition to the Chairman
and Vice-Chairman of the Exchange.
Second, in section 4 of the same Article IV, the BSE has proposed
to ensure that the candidates elected by Options Participants are
seated by the BSE Board. Specifically, this applies to both the Options
Participant Governor elected to serve on the BSE Board, as well as the
two Options Participant representatives elected to serve on the BOXR
Board. Such a process is consistent with the established process in
which BSE Board members are elected by BSE Members, and subsequently
selected and appointed both by and to the BSE Board.
2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b)\26\ of the Act, in general, and furthers
the objectives of section 6(b)(5),\27\ 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.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, 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
Written comments on the proposed rule change were neither solicited
nor 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 the 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. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. 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 submissions should refer to File
No. SR-BSE-2003-04 and should be submitted by August 22, 2003.
[[Page 45298]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-19615 Filed 7-31-03; 8:45 am]
BILLING CODE 8010-01-P