6350 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

9 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4. 3File No. SR–BSE–2004–03 replaces and 

supersedes File No. SR-BSE–2003–24. See letter 

from John Boese, Vice President, Legal and 

Compliance, BSE, dated January 23, 2004.

4 15 U.S.C. 78s(b)(3)(A).

5 17 CFR 240.19b–4(f)(6). 6See BOX Rules Chapter V, Section 18.

but not by both methods. 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 filings will also be 

available for inspection and copying at 

the principal office of the Exchange. All 

submissions should refer to File No. 

SR–BSE–2004–02 and should be 

submitted by March 2, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2760 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49171; File No. SR–BSE–

2004–03] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

Boston Stock Exchange, Inc. Relating 

to Its Boston Options Exchange 

Trading Rules 

February 2, 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 January 

29, 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, II, and III below, which Items 

have been prepared by the Exchange.3

The BSE has submitted the proposed 

rule change under Section 19(b)(3)(A) of 

the Act 4 and Rule 19b–4(f)(6) 

thereunder,5 which renders the proposal 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The BSE proposes to add new 

paragraph (f), relating to anticipatory 

hedging, to Chapter III, ‘‘Business 

Conduct,’’ Section 4, ‘‘Prevention of the 

Misuse of Material Nonpublic 

Information,’’ of the Boston Options 

Exchange trading rules (‘‘BOX Rules’’). 

Proposed new language is italicized.

* * * * *

Chapter III Business Conduct 

Sec. 4 Prevention of the Misuse of 

Material NonPublic Information 

(a)–(e) no change 

(f) It may be considered conduct 

inconsistent with just and equitable 

principles of trade for any Participant or 

person associated with a Participant 

who has knowledge of all material terms 

and conditions of:

(i) an order and a solicited order,

(ii) an order being facilitated or 

submitted to the Price Improvement 

Period, or

(iii) orders being crossed;

the execution of which are imminent, to 

enter, based on such knowledge, an 

order to buy or sell an option for the 

same underlying security as any option 

that is the subject of the order, or an 

order to buy or sell the security 

underlying such class, or an order to 

buy or sell any related instrument until 

(a) the terms and conditions of the order 

and any changes in the terms and 

conditions of the order of which the 

Participant or person associated with 

the Participant has knowledge are 

disclosed to the trading crowd, or (b) the 

trade can no longer reasonably be 

considered imminent in view of the 

passage of time since the order was 

received. The terms of an order are 

‘‘disclosed’’ to the trading crowd on 

BOX when the order is entered into the 

BOX Book or the Price Improvement 

Period, as defined in Chapter V, Section 

18 of these Rules. For purposes of this 

Paragraph (f), an order to buy or sell a 

‘‘related instrument’’ means, in 

reference to an index option, an order 

to buy or sell securities comprising 10% 

or more of the component securities in 

the index or an order to buy or sell a 

futures contract on an economically 

equivalent index.

* * * * *

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 purpose of the proposed rule 

change is to add new paragraph (f), 

relating to anticipatory hedging, to 

Chapter III, ‘‘Business Conduct,’’

Section 4, ‘‘Prevention of the Misuse of 

Material Nonpublic Information,’’ of the 

BOX Rules. Currently, Chapter III, 

Section 4 of the BOX Rules contains 

policies and procedural requirements, 

as well as definitional language, 

regarding the obligations of Boston 

Options Exchange participants (‘‘BOX 

Participants’’) to prevent the misuse of 

material nonpublic information. To 

remain consistent with similar rules of 

other options exchanges, the BSE is 

proposing to adopt new paragraph (f) 

regarding anticipatory hedging. The rest 

of Chapter III, Section 4, will remain 

unchanged. 

Paragraph (f) would expressly 

prohibit any BOX Participant or person 

associated with a BOX Participant who 

has knowledge of the material terms and 

conditions of a solicited order, an order 

being facilitated or submitted to the 

Price Improvement Period (‘‘PIP’’),6 or 

orders being crossed, the execution of 

which are imminent, from entering, 

based on such knowledge, an order to 

buy or sell an option for the same 

underlying security; an order to buy or 

sell the security underlying such class; 

or an order to buy or sell any related 

instrument. The prohibition would 

remain in effect until the terms and 

conditions of such solicited, facilitated, 

PIP or crossed order are disclosed to the 

trading crowd, or until the trade can no 

longer reasonably be considered 

imminent in view of the passage of time 

since the order was received.

To allow BOX Participants to know 

what constitutes a ‘‘related instrument’’

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6351

7See BSE Rules of the Board of Governors 

Chapter II, Section 14, stating that a member, 

member organization, or person associated with or 

employed by a member or member organization 

shall not engage in conduct inconsistent with just 

and equitable principles of trade. Other BOX Rules 

expressly reference just and equitable principles of 

trade. See, e.g., BOX Rules Chapter V, Section 18(f) 

and (i), Section 27.01 and Chapter VII, Section 1(d). 

The lack of express reference in other BSE rules 

should not be construed as waiving the ability to 

make a violation of Chapter II, Section 14 of the 

BSE Rules of the Board of Governors, co-exist with 

any other violation, depending on the facts and 

circumstances of the case. The Exchange believes 

that a violation of the existing crossing, facilitation 

and solicitation provisions of the BOX Rules could 

be a violation of just and equitable principles of 

trade and could be subject to disciplinary action as 

such. In addition, a violation of paragraph (f) of 

Chapter III, Section 4 of the BOX Rules, for 

instance, could be in and of itself a stand-alone 

violation.

8 Depending on the facts and circumstances 

surrounding individual cases, anticipatory hedging 

activity may be a violation of other BSE Rules or 

rules under the Act.

9 15 U.S.C. 78f(b).

10 15 U.S.C. 78f(b)(5).

11 15 U.S.C. 78s(b)(3)(A).

12 17 CFR 240.19b–4(f)(6).

13For 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). 14 17 CFR 200.30–3(a)(12).

in reference to an index option, 

paragraph (f) clarifies that an order to 

buy or sell a related instrument means, 

in reference to an index option, an order 

to buy or sell securities comprising 10% 

or more of the component securities in 

the index or an order to buy or sell a 

futures contract on an economically 

equivalent index. 

Under the proposal, a violation of 

paragraph (f) may be considered 

conduct inconsistent with just and 

equitable principles of trade.7 The 

purpose of the proposed rule is to 

expressly prohibit anticipatory hedging 

that is based on inside information. The 

Exchange believes that a codified 

prohibition, and the proposed language 

stating that a violation of the rule may 

be considered conduct inconsistent with 

just and equitable principles of trade, 

should function as a deterrent to 

possible manipulative practices based 

on inside information.8

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with the 

requirements of Section 6(b) of the Act,9

in general, and Section 6(b)(5) of the 

Act,10 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 protect investors and the 

public interest by granting the Exchange 

greater authority to regulate anticipatory 

hedging.

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 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 BSE 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 

The BSE has filed the proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 11 and subparagraph (f)(6) of 

Rule 19b–4 thereunder.12 Because the 

foregoing proposed rule change: (1) 

Does not significantly affect the 

protection of investors or the public 

interest; (2) does not impose any 

significant burden on competition; and 

(3) does not become operative for thirty 

days from the date on which it was 

filed, 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 and Rule 

19b–4(f)(6) thereunder. The BSE 

provided the Commission with written 

notice of its intent to file the proposed 

rule change at least five business days 

prior to the filing date.

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative prior to 30 days after 

the date of filing. However, Rule 19b–

4(f)(6)(iii) permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest.13 The 

BSE has requested that the Commission 

waive the 30-day operative delay to 

allow the BSE to remain competitive 

with other options exchanges that 

currently have similar rules in effect. 

The Commission believes waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest. Acceleration will allow 

the BSE to institute its anticipatory 

hedging rules immediately. For these 

reasons, the Commission, consistent 

with the protection of investors and the 

public interest has determined to make 

the proposed rule change operative as of 

January 29, 2004.

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. 

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. 

Persons making written submissions 

should file six copies thereof with the 

Secretary, Securities and Exchange 

Commission, 450 Fifth Street, NW., 

Washington, DC 20549–0609. 

Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–BSE–2004–03. This file number 

should be included on the subject line 

if e-mail is used. To help the 

Commission process and review 

comments more efficiently, your 

comments should be sent in hardcopy 

or by e-mail but not by both methods. 

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 will also be available for 

inspection and copying at the principal 

office of the BSE. All submissions 

should refer to File No. SR–BSE–2004–

03 and should be submitted by March 

2, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2806 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–U