[Federal Register: July 27, 2005 (Volume 70, Number 143)]
[Notices]
[Page 43472-43473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy05-147]
[[Page 43472]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52071; File No. SR-BSE-2005-16]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Establishing a De Minimus
Exception to the 80/20 Test Relating to Linkage Trades on the Boston
Options Exchange
July 20, 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 May 19, 2005, 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 BSE. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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 its rules governing its operation of
intermarket linkage (``Linkage'') on the Boston Options Exchange
(``BOX''). Specifically, the Exchange is proposing to amend Chapter
XII, Section 5(b) of the BOX Rules to establish a ``de minimis''
exception to the limitation on Principal Order access imposed by the
Plan for the Purpose of Creating and Operating an Intermarket Option
Linkage (``Linkage Plan'') \3\ and related rules. The proposed change
would provide a de minimis exception from the 80/20 Test, which
provides that Market Makers effecting transactions that represent 20
percent or more of their contract volume in a particular calendar
quarter by sending Principal Orders \4\ to other exchanges via the
Linkage may not send Principal Orders in that option during the
following calendar quarter.
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\3\ On July 28, 2000, the Commission approved a national market
system plan for the purpose of creating and operating an intermarket
options market linkage (``Linkage'') proposed by the American Stock
Exchange, LLC, Chicago Board Options Exchange, Inc. and the
International Securities Exchange, Inc. See Securities Exchange Act
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000).
Subsequently, the Philadelphia Stock Exchange, Inc., the Pacific
Exchange, Inc. and the BSE joined the Linkage Plan. See Securities
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70851
(November 28, 2000); 43574 (November 16, 2000), 65 FR 70850
(November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029
(February 12, 2004).
\4\ The Exchange defines a Principal Order as an order for the
principal account of a market maker that does not relate to a
customer order the market maker is holding. See Chapter XII, Section
I (j)(ii) of the BOX Rules.
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The text of the proposed rule change is available on the BSE's Web
site at http://www.bostonstock.com, the BSE's Office of the Secretary,
and at the Commission's Public Reference Room.
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 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
The purpose of this proposed rule change is to implement proposed
Joint Amendment No. 17 to the Linkage Plan. Section 8(b)(iii) of the
Linkage Plan provides that Eligible Market Makers should send Principal
Orders through the Linkage on a limited basis and not as a primary
aspect of their business. Joint Amendment No. 17, together with this
proposed rule change, would change Chapter XII, Section 5(b) of the BOX
Rules to establish an exemption from the provision in the rule that
states that a Market Maker that effected 20 percent or more of its
volume in a particular option by sending Principal Orders through the
Linkage in a calendar quarter is prohibited from sending Principal
Orders via the Linkage in such option during the following calendar
quarter.
The Exchange believes that applying the 80/20 Test has resulted in
anomalies for Market Makers with limited volume in an eligible option
class. Specifically, if a Market Maker has very little overall trading
volume in an option, the execution of one or two Principal Orders
during a calendar quarter could result in the Market Maker failing to
meet the 80/20 Test. This would bar the Market Maker from using the
Linkage to send Principal Orders for the following calendar quarter. It
was not the intent of the BOX to bar Market Makers with limited volume
from sending Principal Orders through the Linkage in these
circumstances, since such trading does not constitute a primary aspect
of their business.
Thus, the Exchange's proposed rule would create a de minimus
exemption from the 80/20 Test for Market Makers that have a total
contract volume of less than 1,000 contracts in an options class for a
calendar quarter.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \5\ in general and furthers the objectives
of Section 6(b)(5) \6\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms 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\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The BSE does not believe that the proposed rule change will impose
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
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 Exchange consents, the Commission will:
(A) By order approve such 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 is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 43473]]
Electronic Comments
Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml
or send an e-mail to rule-comments@sec.gov.
Please include File No. SR-BSE-2005-16 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 No. SR-BSE-2005-16. 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, 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 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-2005-16 and
should be submitted on or before August 17, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3982 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P