36856 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

6The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000 the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release 34–42758 (May 5, 2000), 65 FR 30175 (May

10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for public comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

7Commission Rule 19c–3 prohibits a national

securities exchange from imposing off-board trading

restrictions to equity securities listed after April 26,

1979. 17 CFR 240.19c(3).

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78k–1.

10 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

11Section 11A(a)(1)(C)(v) of the Act.

12NYSE Approval Order at 30179.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

rules filed by the exchanges noted

above.6

II. Description of the Proposal

Exchange Rules 5 and 6 restrict a

member’s ability to effect transactions in

Exchange-listed securities (Rule 5) and

bonds (Rule 6) off a national securities

exchange. In the proposing release, the

Exchange explained that these rules

were originally intended to ‘‘centralize

buying and selling interest in listed

securities to ensure the execution of

orders at the best possible prices. Over

time, however, these off-board trading

restrictions came to be viewed by many

as anticompetitive.’’ The Exchange also

noted that Chairman Levitt had recently

called for the elimination of off-board

trading rules.

The Exchange proposed to eliminate

Exchange Rule 5 because the rule is

‘‘largely irrelevant’’ to the trading of

Amex-listed equity securities, given the

applicability of Commission Rule 19c–

3 7 and the fact that most Amex-listed

stocks were listed for trading after April

26, 1979. The Exchange also noted that

Exchange Rule 5 only applies to Amex

members, and that non-member firms

do in fact trade Amex-listed equities off

an exchange. With respect to Exchange

Rule 6, the Exchange stated that the rule

was of ‘‘little practical consequence’’

due to the exceptions in the rule that

permit ‘‘the great bulk of listed bond

transactions to occur over-the counter.’’

Therefore, in light of the ‘‘limited

practical impact of the Exchange’s offboard trading rules and the changing

view on their propriety.’’ the Exchange

proposed to eliminate its off-board

trading restrictions for Amex-listed

equities and bonds.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 8 which requires, among other

things, that the rules of an exchange be

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, in

general, to protect investors and the

public interest, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 9

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading

restrictions will help further the

national market system objective in

Section 11(A)(a)(1)(C)(i) to assure the

economically efficient execution of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.10

As discussed more fully in the NYSE

Approval Order, the existence of offboard trading restricting can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Exchange Rules 5 and 6 directly restrict

a certain type of market center

competition—competition between

exchange markets and markets other

than exchange markets. Their rescission

today eliminates an inappropriate

regulatory burden on competition that

runs contrary to the objectives set forth

in the Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.11 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Exchange Rules 5 and 6 may have in

enhancing the interaction of investor

orders can no longer justify their

anticompetitive nature. To the extent

off-board trading rules enhance order

interaction, they do so in an undesirable

way—by attempting a direct restriction

on competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market centers should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task is

removing unwarranted regulatory

barriers to competition between market

centers. As stated in the NYSE Approval

Order, the rescission of off-board trading

rules is ‘‘intended solely to free the

forces of competition and allow investor

interests to control the success or failure

of individual market centers.’’ 12 The

same rationale and motivation support

the Commission’s action today.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR-Amex-00–05)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14724 Filed 6–09–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42887; File No. SR–BSE–

00–02]

Self-Regulatory Organizations; Boston

Stock Exchange Inc.; Order Approving

Proposed Rule Change to Rescind

Chapter II, Section 23, the Exchange’s

Off-Board Trading Rule

June 1, 2000.

I. Introduction

On March 9, 2000, the Boston Stock

Exchange, Inc. (‘‘BSE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’),

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a

Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36857

3Securities Exchange Act Release No. 42661

(April 10, 2000), 65 FR 20497.

4Securities Exchange Act Release No. 42660

(April 10, 2000, 65 FR 21052 (April 19, 2000) (File

No. SR–PCX–00–11).

5Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42459 (February 25, 2000, 65 FR

11619 (March 3, 2000) (File No. SR–CHX–99–28);

Securities Exchange Act Release No. 42458

(February 25, 2000), 65 FR 11628 (March 3, 2000)

(File No. SR–Phlx–00–12).

6The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release No. 34–42758 (May 5, 2000), 65 FR 30175

(May 10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for public comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78k–1.

9 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

10Section 11A(a)(1)(C)(v) of the Act.

11NYSE Approval Order at 30179.

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

proposed rule change to rescind Chapter

II, Section 23, the Exchange’s off-board

trading rule. The proposed rule change

was published for comment in the

Federal Register on April 17, 2000.3

Shortly thereafter, a proposed rule

change filed by the Pacific Exchange

rescinding its off-board trading rule was

published for public comment.4 Similar

proposed rule changes filed by the

American Stock Exchange, Chicago

Stock Exchange, and the Philadelphia

Stock Exchange had already been

published for public comment.5 The

Commission received no comments on

any of these proposals. Today, in

separate orders, the Commission is

approving the proposed rule changes to

rescind off-board trading rules filed by

the exchange noted above.6

II. Description of the Proposal

Chapter II, Section 23 restricts a

member’s ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release, the Exchange noted that

‘‘[a]dvances in the application of

technology have resulted in the creation

of new competitors to the regional

exchanges, such as Alternative Trading

Systems. As such, the Exchange

recognizes the need for exchanges and

their members to take part in the greater

level of free market trading.’’ The

Exchange also noted that the NYSE had

proposed to rescind its off-board trading

rule, and that the Commission had

requested that the Exchange review its

restrictions on off-board trading.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 7 which requires, among other

things, that the rules of an exchange be

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, in

general, to protect investors and the

public interest, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 8

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading

restrictions will help further the

national market system objective in

Section 11A(a)(1)(C)(i) to assure the

economically efficient execution of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.9

As discussed more fully in the NYSE

Approval Order, the existence of offboard trading restrictions can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Chapter II, Section 23 directly restrict a

certain type of market center

competition—competition between

exchange markets and markets other

than exchange markets. Their rescission

today eliminates an inappropriate

regulatory burden on competition that

runs contrary to the objectives set forth

in the Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.10 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Chapter II, Section 23 may have in

enhancing the interaction of investor

orders can no longer justify their

anticompetitive nature. To the extent

off-board trading rules enhance order

interaction, they do so in an undesirable

way—by attempting a direct restriction

on competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market centers should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task removing

unwarranted regulatory barriers to

competition between market centers. As

stated in the NYSE Approval Order, the

rescission of off-board trading rules is

‘‘intended solely to free the forces of

competition and allow investor interests

to control the success or failure of

individual market centers.’’ 11 The same

rationale and motivation support the

Commission’s action today.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–BSE–00–02)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14726 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42891; File No. SR–CHX–

00–07]

Self Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc. to

Eliminate the Series 7B Qualification

Examination for Floor Clerks Who May

Accept Orders From Professional

Customers for Execution on the

Exchange’s Trading Floor

June 1, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934