[Federal Register: September 20, 2005 (Volume 70, Number 181)]
[Notices]
[Page 55188-55189]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20se05-117]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52404; File No. SR-BSE-2005-21]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order
Approving Proposed Rule Change Relating to a Proposal To Transfer a
Portion of Its Ownership Interest in Boston Options Exchange Facility
September 9, 2005.
On July 27, 2005, the Boston Stock Exchange (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change announcing BSE's intention to transfer a portion
of its ownership interest in BOX LLC, the operator of its Boston
Options Exchange facility (``BOX''), such that its aggregate percentage
interest will fall below 20%.\3\ The purpose of the transfer would be
to assist BSE in funding its equities-related business interests and
initiatives related thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In the proposed rule change, BSE acknowledged that pursuant
to Section 8.4(f) of the operating agreement of BOX LLC (the ``LLC
Agreement''), any transfer that would result in a reduction of BSE's
aggregate Percentage Interest in BOX LLC to below 20% is subject to
the rule filing process pursuant to Section 19(b)(1) of the Act (15
U.S.C. 78s(b)(1)) and Rule 19b-4 thereunder (17 CFR 240-19b-4).
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The proposed rule change was published for comment in the Federal
Register on August 5, 2005.\4\ The Commission received no comments on
the proposed rule change. This order approves the proposed rule change.
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\4\ See Securities Exchange Act Release No. 52169 (July 29,
2005), 70 FR 45451.
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The Commission has reviewed carefully BSE's proposed rule change
and finds that the proposal is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities exchange,\5\ and with the requirements of Section 6(b).\6\
In particular, the Commission finds that the proposal furthers the
objectives of Section 6(b)(1),\7\ in that it will help ensure that the
Exchange is so organized and has the capacity to carry out the purposes
of the Act and to comply and to enforce compliance by the Exchange's
members with the Act, the rules and regulations of the Act, and the
rules of the Exchange; and Section 6(b)(5),\8\ in that it is designed
to facilitate transactions in securities; to prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities; to remove impediments to and perfect the mechanism of a
free and open market and a national market system; and in general, to
protect investors and the public interest.
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\5\ In approving this proposed rule change, the Commission notes
that it has also considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(1).
\8\ 15 U.S.C. 78f(b)(5).
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Although BSE does not presently have a transferee designated, BSE
represented in its proposed rule change that: (1) Any transferee will
need to sign and be bound by the provisions of the LLC Agreement; and
(2) any Transfer,\9\ including a Transfer that will result in BSE's
Percentage Interest falling below the 20% threshold, will be subject to
the various limitations set forth in the LLC Agreement, throughout
Article 8 and elsewhere, regarding suitability and other regulatory and
business requirements.\10\
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\9\ Under the terms of the LLC Agreement, a ``Transfer'' occurs
when any LLC Member would ``dispose of, sell, alienate, assign,
exchange, participate, subparticipate, encumber, or otherwise
transfer in any manner * * * all or any part or portion of its
Units'' (ownership interest).
\10\ For example, BSE would be prohibited, under Section 8.1(d),
from Transferring any of its Units to anyone other than a Member, an
affiliate of a Member, or Interactive Brokers Group LLC (``IB'')
(according to the terms set forth in Section 8.6(d)), until the
earlier of the second anniversary of the Launch Date of BOX or the
date on which IB's percentage interest has been reduced to no more
than 8.00%. Further, pursuant to Section 8.1(a) of the LLC
Agreement, except for: (i) Transfers among Members; (ii) certain
transfers by IB; and (iii) transfers to Affiliates of a Member,
prior to any transfer, the proposed transferee must be approved by
the BOX LLC Board. To be eligible for approval, the proposed
transferee must: (i) Be of high professional and financial standing;
(ii) be able to carry out their duties as a Member; and (iii) be
under no regulatory or governmental bar or disqualification. In
addition, pursuant to Section 8.4(e) of the LLC Agreement, BOX would
be required to provide the Commission with notice ten days prior to
the closing date of any acquisition that results in a BOX Member's
ownership percentage interest meeting or crossing the threshold
level of 5%, or the successive 5% percentage interest levels of 10%
and 15%.
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Further, the BSE represented that its proposed transfer of Units
will not affect additional provisions of the LLC Agreement that make
special accommodations for BSE as the SRO of the BOX facility. For
example, Section 4.1(b) of the LLC Agreement provides that, with its
present ownership interest, BSE is entitled to maintain two seats on
the BOX LLC Board. Because BSE is not proposing to make any transfers
that would result in BSE's percentage interest in BOX LLC going below
8.00%, which is the threshold amount established in Section 4.1(b) for
BSE to maintain two directors on the Board, this entitlement will
remain. In addition, pursuant to Section 4.1 of the LLC Agreement, BSE
has an absolute right to designate at least one director on the BOX LLC
Board regardless of whether it maintains any ownership interest in BOX
LLC.
BSE also noted that, as a facility of an exchange, BOX is an
integral part of a self-regulatory organization registered pursuant to
the Act and is subject to the requirements of the Act. Although BOX LLC
itself will not carry out any regulatory functions, all of its
activities must be consistent with the Act. These obligations continue
as long as BOX is a facility of BSE, regardless of the size of BSE's
ownership interest in BOX LLC. BSE also represented that because the
Exchange is the SRO for the BOX facility, it will, independent of its
ownership interest, ensure that BOX LLC conducts the facility's
business in a manner consistent with the regulatory and oversight
responsibilities of the BSE and with the Act.
Finally, BSE represented that neither its proposal nor the actual
transfer of any BSE units will alter or modify the terms or the
enforcement of the LLC Agreement.
The Commission believes that because the proposed transfer of Units
by the BSE pursuant to the proposed rule change and the terms of the
LLC Agreement will not affect BOX's responsibilities as a facility of
BSE, or the Exchange's rights and obligations as the SRO for the BOX
facility, including the Exchange's right to designate at least one
director on the Board of BOX LLC, the proposed transfer of Units is
consistent with the requirements of the Act and the rules and
regulations
[[Page 55189]]
thereunder applicable to a national securities exchange.
The Commission expects, and BSE has represented, that should there
be any changes in the terms of the LLC Agreement between the date of
the publication of this proposal and the proposed transfer of BSE's
Units that would result in the BSE's Percentage Interest falling below
the 20% threshold, the Exchange will submit a new proposed rule change
in order for the Commission to consider the transfer of Units in light
of any changes made to the LLC Agreement.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-BSE-2005-21) is approved.
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\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-18615 Filed 9-19-05; 8:45 am]
BILLING CODE 8010-01-P