[Federal Register: March 27, 2006 (Volume 71, Number 58)]
[Notices]
[Page 15232-15234]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr06-99]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53516; File No. SR-BSE-2006-14]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
and Amendments No. 1 and 2 Thereto Relating to Information Contained in
a Directed Order on the Boston Options Exchange
March 20, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 14, 2006, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the BSE. On March 16, 2006,
the BSE filed Amendment No. 1 to the proposed rule change.\3\ On March
17, 2006, the BSE filed Amendment No. 2 to the proposed rule change.\4\
The BSE filed the proposed rule change pursuant to section 19(b)(3)(A)
of the Act \5\ and Rule 19b-4(f)(6) thereunder,\6\ which renders the
proposed rule change effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, which supersedes and replaces the
original filing in its entirety, the BSE changed the statutory basis
of the filing.
\4\ In Amendment No. 2, which supersedes and replaces the
original filing and Amendment No. 1 in its entirety, the BSE changed
the statutory basis of the filing.
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') is
proposing to amend its rules governing its Directed Order process on
the Boston Options Exchange (``BOX''). The Exchange is proposing to
clearly state that the BOX Trading Host identifies to an Executing
Participant (``EP'') \7\ the identity of the firm entering a Directed
Order. This rule will be effective until June 30, 2006, while the
Commission considers a corresponding Exchange proposal \8\ to amend its
rules to permit EPs to choose the firms from whom they will accept
Directed Orders, while providing complete anonymity of the firm
entering a Directed Order.\9\ In addition, the Exchange commits that it
will cease to provide the identity of order entry firms prior to June
30, 2006, if the Commission staff prohibits all options exchanges from
disclosing the identity of order entry firms in their Directed Order
systems.
---------------------------------------------------------------------------
\7\ BSE proposes that a Market Maker who desires to accept
Directed Orders must systemically indicate that it is an EP whenever
the Market Maker wishes to receive Directed Orders.
\8\ See Securities Exchange Act Release No. 53357 (February 23,
2006), 71 FR 10730 (March 2, 2006) (SR-BSE-2005-52).
\9\ In the event that the issue of anonymity in the Directed
Order process is not resolved by June 30, 2006, the Exchange intends
to submit another filing under Rule 19b-4(f)(1) under the Act
extending this rule and system process.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the BSE included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The BSE has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
BSE seeks to amend its rules to clearly state that the BOX Trading
Host identifies to an EP the identity of the firm entering a Directed
Order. Market Makers are able to handle orders on an agency basis
directed to them by Order Flow Providers (``OFPs''). In Section 1,
Chapter I of the BOX Rules, a Directed Order is defined as a Customer
Order directed to a Market Maker by an OFP. An OFP sends a Directed
Order to BOX with a designation of the Market Maker to whom the order
is to be directed. BOX then routes the Directed Order to the
appropriate Market Maker. Under Chapter VI, Section 5(c)(ii) of the BOX
Rules, a Market Maker only has two choices when he receives a Directed
Order: (1) Submit the order to the PIP process; or (2) send the order
back to BOX for placement onto the BOX Book.
The BSE proposes to amend Chapter VI, Section 5(c)(i) of the BOX
Rules to clarify that unlike all other orders submitted to the BOX
Trading Host, Directed Orders are not anonymous. The Options
Participant identification number (``Participant ID'') of the OFP
sending the Directed Order will be revealed to the Market Maker
recipient. The Market Maker must submit this Participant ID to BOX
whenever the Market Maker chooses to submit the Directed Order and his
Primary Improvement Order to the PIP process. However, once the
Directed Order is submitted to the PIP process or the BOX Book, the
Participant ID is not shown to any market participant and the identity
of the OFP will be anonymous pursuant to Chapter V, Section 14(e) of
the BOX Rules.
Chapter VI, Section 5(c)(i) of the BOX Rules prohibits a Market
Maker from rejecting a Directed Order. The BSE wishes to clarify that
upon systematically indicating its desire to accept Directed Orders, a
Market Maker that receives a Directed Order is not, under any
circumstances, to reject the receipt of the Directed Order from the BOX
Trading Host nor reject the Directed Order back to the OFP who
[[Page 15233]]
sent it. A Market Maker who desires to accept Directed Orders must
systemically indicate that it is an EP whenever the Market Maker wishes
to receive Directed Orders from the BOX Trading Host. If a Market Maker
does not systemically indicate that it is an EP, then the BOX Trading
Host will not forward any Directed Orders to that Market Maker. In such
a case, the BOX Trading Host will send the order directly to the BOX
Book.
Other Clarifying Rule Change Relating to Directed Orders
Currently, Chapter V, Section 14(e) of the BOX Rules states that
the identity of Options Participants who submit orders to the Trading
Host will remain anonymous to market participants at all times, except
during error resolution or through the normal clearing process as set
forth in Chapter V, Section 16(a)(vi) of the BOX Rules. Proposed
Chapter V, Section 14(e) of the BOX Rules and the Supplementary
Material thereto, would clarify that the Participant ID of an OFP who
submits orders to the Trading Host for use in the Directed Order
process will be revealed to the EP who receives such Directed Orders as
set forth in Chapter VI, Section 5(c) of the BOX Rules.
2. Statutory Basis
The Exchange believes that the proposed rule change is designed to
clarify the information contained in a Directed Order. This
clarification will allow Options Participants to make better informed
decisions in determining when and how to use the Directed Order
process. Accordingly, the Exchange believes that the proposal is
consistent with the requirements of section 6(b) of the Act,\10\ in
general, and section 6(b)(5) of the Act,\11\ in particular, in that it
is designed to promote just and equitable principles of trade, to
prevent fraudulent and manipulative acts and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change, as amended: (1) Does
not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
section 19(b)(3)(A) \12\ of the Act and Rule 19b-4(f)(6)
thereunder.\13\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) under the Act
requires the self-regulatory organization to provide the Commission
written notice of its intent to file the proposed rule change at
least five business days (or such shorter time as designated by the
Commission) before doing so. The BSE has requested that the
Commission waive the five-day pre-filing notice requirement. The
Commission granted BSE's request.
---------------------------------------------------------------------------
The BSE requests that the Commission waive the 30-day operative
delay, as specified in Rule 19b-4(f)(6)(iii),\14\ and designate the
proposed rule change to become operative immediately. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because such waiver
would immediately conform the BOX rules with BOX's current practice and
clarify that Directed Orders on BOX are not anonymous.\15\
---------------------------------------------------------------------------
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\16\
---------------------------------------------------------------------------
\16\ The effective date of the original proposed rule is March
14, 2006. The effective date of Amendment No. 1 is March 16, 2006.
The effective date of Amendment No. 2 is March 17, 2006. For
purposes of calculating the 60-day period within which the
Commission may summarily abrogate the proposed rule change under
section 19(b)(3)(C) of the Act, the Commission considers the period
to commence on March 17, 2006, the date on which the BSE submitted
Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-BSE-2006-14 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BSE-2006-14. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the BSE. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-BSE-2006-14 and should be submitted on or before April
17, 2006.
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
[[Page 15234]]
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
Nancy M. Morris,
Secretary.
[FR Doc. E6-4339 Filed 3-24-06; 8:45 am]
BILLING CODE 8010-01-P