[Federal Register: December 1, 2004 (Volume 69, Number 230)]
[Notices]
[Page 69962-69963]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de04-97]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50733; File No. SR-BSE-2004-50]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Eliminate a Restriction Precluding a BSE Specialist From Trading Both
Nasdaq-Listed and New York Stock Exchange-Listed Securities
Simultaneously
November 24, 2004.
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 22, 2004, 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 Exchange. The BSE
filed the proposed rule change pursuant to section 19(b)(3)(A) of the
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders it effective
upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\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 BSE proposes to eliminate the restrictions precluding a BSE
specialist from trading both Nasdaq-listed and New York Stock Exchange
(``NYSE'')-listed securities at the same time. The text of the proposed
rule change is below. Proposed deletions are in brackets.\5\
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\5\ With the instant proposed rule change, the BSE eliminated
Section 11 of Chapter XXXV (``Limitations on Specialists''). As a
result, all subsequent Sections in Chapter XXXV are renumbered.
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Chapter XXXV
Limitations on Specialists
[Sec. 11. Any individual member who is registered as a specialist
is not permitted to maintain a book, as defined in Chapter XV,
Specialists, Section 6, The Specialist's Book, in both Nasdaq
securities and listed securities. Nasdaq securities must comprise a
separate book which must be solely traded by a separate specialist. A
specialist who is qualified under the provisions of this Chapter XXXV,
and the provisions of Chapter XV, Specialists, Section 1, Registration,
to trade either listed or Nasdaq securities, or both, cannot accept
orders in, nor effect transactions in, both types of securities, at the
same time.
Nothing in this section shall preclude any duly qualified
specialist from occasionally substituting for, or acting as an
alternate for, another specialist in either listed or Nasdaq
securities, in accordance with Article XVI of the Constitution of the
Boston Stock Exchange, Officers and Associates, Section 7, Alternates
for Members Absent. A specialist substituting for another specialist in
accordance with the provisions of this section will be permitted to
trade both Nasdaq and listed securities at the same time, during the
period of substitution. In the case of an extended or permanent absence
of a specialist qualified to trade Nasdaq securities, the firm from
which the specialist is absent must promptly notify the Exchange and
make arrangements to permanently replace the absent specialist in a
reasonable amount of time, as determined by the Exchange. The Exchange
reserves the right to temporarily reassign some or all of the Nasdaq
securities comprising an absent specialist's book in the event that a
firm does not make suitable or timely arrangements for the replacement
of the absent specialist.]
* * * * *
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
The Exchange proposes to eliminate the restrictions, as set forth
in Chapter XXXV, Trading in Nasdaq Securities, Section 11, Limitations
on Specialists. This Section precludes a BSE specialist from trading
both Nasdaq-listed and NYSE-listed securities at the same time.
Originally, the primary reason for the restriction was to separate
specialists' books so that the BSE would be able to ensure that
specialists maintained adequate levels of capital in their respective
accounts. When the rule was first proposed,\6\ the Exchange anticipated
that individual BSE specialists might seek to trade large numbers of
Nasdaq-listed securities, and the Exchange was concerned that such a
practice would lead to an undue concentration of stocks within a single
specialist book. The Exchange was also concerned that differences in
the marketplaces for Nasdaq-listed and NYSE-listed securities
necessitated a requirement that a specialist concentrate on trading in
either the Nasdaq or NYSE-listed marketplace, but not both at the same
time.
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\6\ See Securities Exchange Act Release No. 44476 (June 26,
2001), 66 FR 35293 (July 3, 2001) (SR-BSE-2001-01).
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Since the rule was approved,\7\ BSE specialist trading practices
have gradually evolved to the point that the specialists are limiting
their trading to a much more limited number of securities. As a result,
the concern regarding undue concentration of stocks within a single
specialist book has lessened considerably. Also, regardless of the
number of stocks within a specialist's book, the Exchange consistently
monitors all of its specialist accounts regarding proper capitalization
and risk levels, and is confident in its ability to proactively manage
that risk, regardless of the types of securities within an account.
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\7\ See Securities Exchange Act Release No. 44952 (October 18,
2001), 66 FR 54039 (October 25, 2001) (SR-BSE-2001-01).
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Moreover, with the proposal set forth in Regulation NMS \8\ that
all securities, regardless of listing market, be considered NMS
securities, and the proposals to apply uniform rules (such as the
trade-through rule proposal \9\) to all securities, the Exchange no
longer believes that it is necessary, or prudent, to distinguish
between Nasdaq-listed
[[Page 69963]]
and NYSE-listed securities for the purposes of restricting a
specialist's trading activities. Recently enacted Regulation SHO \10\
also does not distinguish between NYSE-listed and Nasdaq-listed
securities in its application. The BSE is seeking to proactively
respond to the trend of treating all securities as one type, and as
part of a single national market system.
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\8\ See Securities Exchange Act Release No. 49325 (February 26,
2004), 69 FR 11126 (March 9, 2004).
\9\ Id. at 69 FR 11129-11153.
\10\ See Securities Exchange Act Release No. 50103 (July 28,
2004), 69 FR 48008 (August 6, 2004).
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Most importantly, however, is that, on November 9, 2004, Nasdaq
officially announced that it would be assuming the listing of the
Nasdaq-100 Index Tracking Stock (the ``QQQs''), effective December 1,
2004. Several BSE specialists currently trade the QQQs as an NYSE-
listed security. As a result of the prohibition currently set forth in
the BSE's rules, those specialists would no longer be able to transact
business in the QQQs on the BSE. Since the BSE is the only UTP Exchange
that currently has this restriction in place, BSE specialists, and the
BSE, would be placed at a severe competitive disadvantage, as a result
of actions beyond the Exchange's control, if the BSE does not remove
this restriction.
Accordingly, the Exchange has asked the Commission to waive the 30-
day operative delay of the proposed rule change, to allow it to be both
effective and operative upon filing with the Commission.
2. Statutory Basis
The BSE believes that the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\11\ in general, and
Section 6(b)(5)\12\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and is not designed to permit unfair discrimination between
customers, brokers, or dealers, or to regulate by virtue of any
authority matters not related to the administration of the Exchange.
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\11\ 15 U.S.C. 78f(b).
\12\ 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.
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 does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) Impose any significant burden on competition; and
(iii) Become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and
Rule 19b-4(f)(6) thereunder.\14\ 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 furtherance of the purposes of
the Act.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization provide the Commission
written notice of its intent to file a proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change with the Commission. The BSE complied with this
requirement.
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The BSE has asked that the Commission waive the 30-day operative
delay contained in Rule 19b-4(f)(6)(iii) under the Act.\15\ The
Commission believes such waiver is consistent with the protection of
investors and the public interest, for it will allow BSE specialists
that currently trade the QQQs as a NYSE-listed security to continue to
do so as of December 1, 2004, when Nasdaq will assume the listing of
the QQQs. For these reasons, the Commission designates the proposal to
be effective and operative upon filing with the Commission.\16\
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For 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. See 15
U.S.C. 78c(f).
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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:
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-2004-50 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-BSE-2004-50. 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, 450 Fifth
Street, NW., 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-
2004-50 and should be submitted on or before December 22, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3405 Filed 11-30-04; 8:45 am]
BILLING CODE 8010-01-P