[Federal Register: December 15, 2005 (Volume 70, Number 240)]
[Notices]
[Page 74386-74388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de05-103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52929; File No. SR-BSE-2005-56]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
and Amendment No. 1 Thereto Relating to the Initial Listing and
Maintenance To List Options on Certain Securities
December 8, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 30, 2005, the Boston Stock Exchange, Inc. (``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 Exchange. On December 6, 2005, the Exchange
filed Amendment No. 1 to the proposed rule change.\3\ The Exchange
filed the proposed rule change as a ``non-controversial'' rule change
under Rule 19b-4(f)(6) under the Act,\4\ which rendered the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change, as
amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange made non-substantive
changes to the text of the proposed rule change.
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend section 3 (Criteria for Underlying
Securities) and section 4 (Withdrawal of Approval of Underlying
Securities) of Chapter IV of the Rules of the Boston Options Exchange
(``BOX''). Below is the text of the proposed rule change. Proposed
additions are in italics and proposed deletions are in [brackets].
* * * * *
Rules of the Boston Options Exchange Facility
Chapter IV. Securities Traded On The Boston Options Exchange Facility
Sec. 3 Criteria for Underlying Securities
(a) Underlying securities with respect to which put or call options
contracts are approved for listing and trading on BOX must meet the
following criteria:
i. The security must be registered with the SEC and be an ``NMS
stock'' as defined in Rule 600 of Regulation NMS under the Exchange Act
(1) Listed on a national securities exchange; or
(2) Traded through the facilities of a national securities
association and reported as a ``national market system'' (``NMS'')
security as set forth in Rule 11Aa3-1 under the Exchange Act]; and
ii. The security shall be characterized by a substantial number of
outstanding shares that are widely held and actively traded.
Subsections (b) through (j) No Change.
Sec. 4 Withdrawal of Approval of Underlying Securities
Subsection (a) No Change.
(b) An underlying security will not be deemed to meet BOXR's
requirements for continued approval whenever any of the following
occur: i. through iv. No Change.
v. {Reserved{time} [The issuer has failed to make timely reports as
required by applicable requirements of the Exchange Act or Rules
thereunder, and such failure has not been corrected within thirty (30)
days after the date the report was due to be filed.]
vi. The underlying security ceases to be an ``NMS stock'' as
defined in Rule 600 of Regulation NMS under the Exchange Act. [The
issue, in the case of an underlying security that is principally traded
on a national securities exchange, is delisted from trading on that
exchange and neither meets NMS criteria nor is traded through the
facilities of a national securities association, or the issue, in the
case of an underlying security that is principally traded through the
facilities of a national securities association, is no longer
designated as an NMS security.]
vii. No Change.
Subsection (c) through (j) No Change.
* * * * *
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.
[[Page 74387]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend a BOX rule pertaining to the
continued approval of securities that underlie options traded on the
Exchange. Specifically, the Exchange proposes to eliminate section
4(b)(v) of Chapter IV of the BOX rules. Section 4(b)(v) of Chapter IV
of the BOX rules sets forth various situations under which an
underlying security previously approved for options trading will in
usual circumstances be deemed to no longer meet Exchange requirements
for the continuance of such approval. In such circumstances, section
4(b)(v) of Chapter IV of the BOX rules provides that the Exchange will
not open for trading any additional series of options in that class and
may also limit any new opening transactions in those options series
that have already be opened.
Currently, section 4(b)(v) of Chapter IV of the BOX rules provides
that an underlying security will no longer be approved for options
trading on the Exchange when:
``(v) The issuer has failed to make timely reports as required by
applicable requirements of the Exchange Act or Rules thereunder, and
such failure has not been corrected within thirty (30) days after the
date the report was due to be filed.''\5\
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\5\ Phrase ``or Rules thereunder'' added pursuant to telephone
conference between Bill Meehan, Assistant Vice President, Exchange,
and David L. Orlic, Attorney, Division of Market Regulation,
Commission, on December 7, 2005.
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The Exchange proposes to eliminate this provision because it limits
investors' ability to use options to hedge existing equity positions in
such securities, and it is not necessary in the context of the rest of
section 4(b) of Chapter IV of the BOX rules.
First, section 4(b)(v) of Chapter IV of the BOX rules can and does
impact investors' interests by preventing them from using new options
series to hedge positions they may hold in the underlying security of
companies that fail to make timely reports required by the Act. The
Exchange states that such a restriction is inconsistent with rules and
regulations in the markets for the underlying securities because no
similar trading restriction is placed upon the trading of the
underlying security itself. Thus, section 4(b)(v) of Chapter IV of the
BOX rules only serves to limit the abilities of shareholders in such
companies who may wish to hedge their positions with new options
series, at a time when the ability to hedge may be particularly
important.
The Exchange believes that section 4(b)(v) of Chapter IV of the BOX
rules has outlived any usefulness and now serves to unnecessarily
burden and confuse the investing public. This provision was appropriate
when it was first implemented in or around 1976, when the listing and
trading of standardized options was still in its infancy and
information pertaining to public companies was not readily available to
the general investing public. The Exchange believes that today's listed
options market, however, is a mature one with investors who have access
to a significant amount of real-time market information to assist them
in making informed investment decisions, including information as to
whether companies have timely filed reports as required by the Act, and
if not, why not. Therefore, the Exchange states that there is no reason
to limit investors' ability to trade in options classes, including new
series within those classes, simply because a company is not timely in
filing its reports. The Exchange further advises that this restriction
is further misplaced, considering that investors are not similarly
restricted from buying or selling shares of the underlying security in
the equity markets.
Moreover, the Exchange believes that section 4(b)(v) of Chapter IV
of the BOX rules limits an investors' ability to hedge his underlying
stock positions at a time when he may be in most need to protect his
investment. The failure of a public company to comply with its
reporting requirements under the Act could cause a significant movement
in the price of that company's stock. Restricting the Exchange from
opening new options series may leave investors without means to hedge
their positions with options contracts at strike prices that more
accurately reflect the contemporaneous price trends of the underlying
stock.
Clearly, new options series on a security should not be permitted
to be opened if the underlying security ceases to be an NMS stock.
Typically, the Exchange becomes aware of issues that may impact the
continued listing of a security well before that security is delisted
from its primary market. Exchange staff routinely monitors daily press
releases and informational releases disseminated by various entities,
such as the primary listing market of a security and private news
services, in an effort to monitor the activities and news items
pertaining to the issuers of securities that underlie options traded on
the Exchange.\6\ In many cases, an issuer is given a substantial amount
of time to cure this deficiency before the primary market actually
delists the issuer's security. Many times, the issuer is able to comply
without its security ever being delisted. During this period, BOX staff
continually monitors the status of the issuer's compliance with its
reporting requirements to determine whether the security may be
delisted. Finally, the primary listing market typically issues a press
release well in advance of delisting an issuer's security to give
investors and other market participants adequate notice.
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\6\ This is consistent with Section 4(d) of Chapter IV of the
BOX rules.
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Given the availability of data and information relating to public
issuers of securities in today's markets, and in light of the extensive
amount of additional continued listing standards under section 4(b) of
Chapter IV of the BOX rules, the Exchange believes that waiting until a
security is actually delisted by its primary market is the appropriate
point at which to restrict the issuance of new options series in an
options class. Accordingly, the Exchange hereby proposes to eliminate
section 4(b)(v) of Chapter IV of the BOX rules.
Additionally, as a matter of ``housekeeping,'' the Exchange also
proposes to clarify section 3(a)(i) and section (4)(b)(vi) of Chapter
IV of the BOX rules, which govern the criteria for the initial and
continued listing of options on a particular security, respectively.
Both of these provisions include as part of their criteria a
requirement that the underlying security must be a national market
system security (``NMS security''). As part of the recently adopted
Regulation NMS, among other things, the Commission revised the
definition of an NMS security.\7\ Specifically, Rule 600(b) under
Regulation NMS defines an NMS security as ``any security or class of
securities for which transaction reports are collected, processed, and
made available pursuant to an effective transaction reporting plan, or
an effective national market system plan for reporting transactions in
listed options.'' As such, each of these Rules will be amended to
reflect these new terms.
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\7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 74388]]
section 6(b) of the Act \8\ in general, and furthers the objectives of
section 6(b)(5) of the Act \9\ in particular, in that the elimination
of section 4(b)(v) of Chapter IV of the BOX rules will serve to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i) Does not significantly affect
the protection of investors or the public interest; (ii) does not
impose any significant burden on competition; and (iii) by its terms,
does not become operative for 30 days after the date of 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) of the Act
\10\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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The Exchange has requested that the Commission waive the five-day
pre-filing notice requirement and the 30-day operative delay period for
``non-controversial'' proposals and make the proposed rule change
effective and operative upon filing. The Commission believes that
waiver of the five-day pre-filing notice and the 30-day operative delay
is consistent with the protection of investors and the public interest
because this filing does not raise any novel issues. For this reason,
the Commission designates the proposal to be effective and operative
upon filing with the Commission.\12\
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\12\ For the purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition and capital formation. 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in the furtherance of the purposes of the Act.
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 Number SR-BSE-2005-56 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-BSE-2005-56. 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 Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BSE-2005-56 and should be
submitted on or before January 5, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7369 Filed 12-14-05; 8:45 am]
BILLING CODE 8010-01-P