Federal Register / Vol. 72, No. 53 / Tuesday, March 20, 2007 / Notices 13147 

8Amex Response Letter at 1. 

9 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

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

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

11See Securities Exchange Act Release Nos. 

53539 (March 22, 2006), 71 FR 16353, 16381–82 

(March 31, 2006) (‘‘NYSE Hybrid Approval Order’’) 

and 54511 (September 25, 2006), 71 FR 58460 

(October 3, 2006). 

12See 71 FR at 16382. 

13Amex Response Letter at 1. 

14 15 U.S.C. 78s(b)(2). 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

• There is a negotiated trade; or 

• AEMI’s auto-execution 

functionality is disabled. 

In addition, the AEMI system would 

cancel a PPI order in three 

circumstances: (1) if the Specialist’s or 

Registered Trader’s best quote is 

withdrawn; (2) at the end of the day; or 

(3) there is a trading halt in the security. 

If there were multiple PPI orders at 

the same price, the Specialist’s PPI 

order would have priority, and any 

remaining size of an aggressing order 

would be executed against Registered 

Trader PPI orders in time priority. 

Intermarket sweep orders would be 

generated as necessary to clear any 

better-priced protected quotations at 

other trading centers before executing 

any PPI orders on the AEMI system. 

To reflect the proposed rule change as 

described above, changes are proposed 

to the following AEMI rules: Rule 123–

AEMI (Manner of Bidding and Offering), 

Rule 131–AEMI (Types of Orders), Rule 

157–AEMI (Orders with More than One 

Broker), and Rule 170–AEMI 

(Registration and Functions of 

Specialists). 

III. Summary of Comments and Amex 

Response 

The Commission received one 

comment letter opposing the proposed 

rule change. The commenter argued that 

limiting the use of PPI Orders to 

Specialists and Registered Traders gives 

them ‘‘an unfair advantage’’ and thus is 

not consistent with Section 6(b) of the 

Act. 

The commenter noted that the 

Specialist would have access to 

aggressing orders that could be priceimproved but Floor Brokers would not. 

The commenter suggested that there 

would be many instances where Floor 

Brokers would be willing to provide 

price improvement but would not 

publicly display such interest in order 

to minimize any potential market 

impact. The commenter also suggested 

that PPI Orders could be misused to 

trade ahead of a Floor Broker’s 

marketable orders instead of providing 

price improvement. 

In its response to comments, Amex 

asserted that Floor Brokers are able to 

operate effectively and compete with 

Specialists and Registered Traders. For 

example, Amex pointed out that Floor 

Brokers have the exclusive use of 

certain order types on AEMI (e.g., 

percentage orders and reserve orders). 

Amex also emphasized that the use of 

PPI Orders would be monitored and 

policed electronically. Amex stated that 

its regulatory program would be able to 

detect possible unfair trading practices. 

Finally, Amex represented that it ‘‘is in 

the process of developing the means by 

which other market participants, 

including floor brokers, would have the 

ability to systematically provide such 

price improvement.’’ 8

IV. Discussion and Commission’s 

Findings 

After careful consideration, 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.9 In 

particular, the Commission finds that 

the proposal is consistent with the 

requirements of Section 6(b)(5) of the 

Act,10 which requires, among other 

things, that the Exchange’s rules 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. 

The Commission previously has 

found similar exchange rules to be 

consistent with the Act.11 The 

Commission does not believe that the 

comment raises any issue that would 

preclude approval of the current 

proposal. As the Commission noted in 

the NYSE Hybrid Approval Order, 

Specialists today are permitted to offer 

price improvement to incoming orders 

in the auction market.12 In this 

proposal, Amex seeks to provide its 

Specialists and Registered Traders with 

the ability to continue to offer price 

improvement in an electronic 

environment, but only if certain 

conditions are met. A Specialist’s or 

Registered Trader’s PPI order is eligible 

for execution only if its quote on the 

same side of the market is at or one tick 

away from the APQ. If the Specialist’s 

or Registered Trader’s quotation is at the 

APQ, a PPI order is eligible to execute 

up to the same size as its quotation; if 

it is one tick away from the APQ, the 

PPI order is eligible to execute up to one 

half the size of its quotation. A PPI order 

will be ignored if the Specialist’s or 

Registered Trader’s quotation is more 

than one tick away from the APQ. Thus, 

a Specialist’s ability to benefit from the 

PPI order is directly correlated with the 

extent to which it quotes competitive 

markets in size. The Commission notes, 

moreover, that Amex has represented 

that it ‘‘is in the process of developing 

the means by which other market 

participants, including floor brokers, 

would have the ability to systematically 

provide such price improvement.’’ 13

The Commission further notes that a 

PPI order could execute only against a 

marketable incoming limit order. An 

incoming order that is not marketable 

against a PPI order (or a protected 

quotation) and that improves the APQ 

would be quoted as part of the new 

APQ. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,14 that the 

proposed rule change (SR–Amex–2007–

08), be, and it hereby is, approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–5005 Filed 3–19–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55450; File No. SR–BSE–

2007–11] 

Self-Regulatory Organizations; Boston 

Stock Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Amend the 

Existing Fee Schedules 

March 13, 2007. 

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 March 2, 

2007, 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 

substantially prepared by the Exchange. 

The BSE has designated this proposal as 

one changing a due, fee, or other charge 

under Section 19(b)(3)(A)(ii) of the Act 3

and Rule 19b–4(f)(2) thereunder,4 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 


pwalker on PROD1PC71 with NOTICES
13148 Federal Register / Vol. 72, No. 53 / Tuesday, March 20, 2007 / Notices 

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

6 15 U.S.C. 78f(b)(4). 

7 15 U.S.C. 78s(b)(3)(A)(ii). 

8 17 CFR 240.19b–4(f)(2). 

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 amending the 

Boston Equities Exchange (‘‘BeX’’) fee 

schedule to include a transaction fee to 

be charged to BSE Members who request 

a BeX purchase & Sale Blotter reflecting 

the transaction information related to 

the execution of a single order, part of 

which was executed on BeX and part of 

which was executed at an away Trading 

Center. The text of the proposed rule 

change is available at http:// 

www.bostonstock.com, at the BSE, 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 

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 

On November 20, 2006, the BSE filed 

BSE–2006–44, a rule filing that 

amended the existing BSE fee schedule 

and established a fee schedule for the 

BeX, a facility of the Exchange. BSE–

2006–44 resulted in, among other 

things, the deletion of all Transaction 

Fees, Electronic File Access and 

Processing Fees, and Floor Operation 

Fees from the BSE fee schedule. The 

Transaction Fees and Electronic File 

Access and Processing Fees that were 

deleted from the BSE fee schedule were 

transferred to the BeX fee schedule. The 

purpose of this proposed rule change is 

to amend the BeX fee schedule to 

include a transaction fee that was 

deleted from the BSE fee schedule but 

not transferred to the BeX fee schedule 

as a part of BSE–2006–44. Specifically, 

the BSE fee schedule contained a 

transaction fee titled ‘‘Floor Brokered 

non-BSE executions.’’ The fee for Floor 

Brokered non-BSE executions was 

$0.0005, or $0.05 per 100 shares. BSE 

Members were charged the Floor 

Brokered non-BSE execution fee when 

the Member requested that the 

information related to the execution of 

a single order, only a part of which had 

been executed on the BSE with the 

remaining portion executed at an away 

Trading Center, be reflected on a BSE 

Purchase & Sale Blotter rather than 

having only the portion executed at the 

BSE reflected on the BSE Purchase & 

Sale Blotter. In order to include the 

information related to the portion of an 

order executed at the Trading Center 

other than the BSE on a BSE Purchase 

& Sale Blotter, in other words, in order 

to consolidate the transaction 

information on a single report, the BSE 

performed the necessary back office 

operations on behalf of the BSE Member 

so the transaction information, 

including the information related to the 

portion of the order executed at an away 

Trading Center, would appear on a BSE 

Purchase & Sale Blotter reflecting the 

transaction information related to the 

execution of a single order, part of 

which was executed on BeX and part of 

which was executed at an away Trading 

Center. The fee would now be titled 

‘‘Non-BeX executed trades’’ and would 

appear on the BeX fee schedule. As 

such, what had been known as the Floor 

Brokered non-BSE executions fee on the 

BSE schedule will now appear on the 

BeX fee schedule as the Non-BeX 

executed trades fee and will apply in 

the BeX environment. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the requirements of Section 6(b) of the 

Act,5 in general, and furthers the 

objectives of Section 6(b)(4) of the Act,6

in particular, in that it is designated to 

provide for the equitable allocation of 

reasonable dues, fees and other charges 

among Exchange members and issuers 

and other persons using Exchange 

facilities. 

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 comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change 

has been designated as a fee change 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 7 and Rule 19b–4(f)(2) thereunder,8

because it establishes or changes a due, 

fee or other charge imposed by the 

Exchange. Accordingly, the proposal 

will take effect upon filing with the 

Commission. 

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. 

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 rulecomments@sec.gov. Please include File 

Number SR–BSE–2007–11 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BSE–2007–11. 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 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 72, No. 53 / Tuesday, March 20, 2007 / Notices 13149 

9 17 CFR 200.30–3(a)(12). 

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). 

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 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–2007–11 and should 

be submitted on or before April 10, 

2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4976 Filed 3–19–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55471; File No. SR–NASD–

2007–013] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Portfolio 

Margin 

March 14, 2007. 

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

Securities Exchange Act of 1934 (‘‘Act’’

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on February 12, 2007, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) 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 NASD. NASD 

has filed the proposed rule as a ‘‘noncontroversial’’ 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD proposes to amend NASD Rule 

2520 to permit members to margin 

certain products according to a 

prescribed portfolio margin 

methodology on a pilot basis. NASD 

further proposes to amend NASD Rule 

2860 to require that a disclosure 

statement and written acknowledgement 

for use with the proposed portfolio 

margin program be furnished to 

customers using a portfolio margin 

account. 

Below is the text of the proposed rule 

change. Proposed new rule language is 

in italics. 

* * * * * 

2520. Margin Requirements 

(a) through (f) No Change. 

(g) Portfolio Margin 

As an alternative to the ‘‘strategybased’’ margin requirements set forth in 

paragraphs (a) through (f) of this Rule, 

members may elect to apply the 

portfolio margin requirements set forth 

in this paragraph (g) to all margin equity 

securities,1 listed options, security 

futures products (as defined in Section 

3(a)(56) of the Exchange Act), unlisted 

derivatives, warrants, index warrants 

and related instruments, provided that 

the requirements of paragraph 

(g)(6)(B)(i) of this Rule are met. 

In addition, a member, provided that 

it is a Futures Commission Merchant 

(‘‘FCM’’) and is either a clearing 

member of a futures clearing 

organization or has an affiliate that is a 

clearing member of a futures clearing 

organization, is permitted under this 

paragraph (g) to combine an eligible 

participant’s related instruments as 

defined in paragraph (g)(2)(D), with 

listed index options, unlisted 

derivatives, options on exchange traded 

funds (‘‘ETF’’), index warrants and 

underlying instruments and compute a 

margin requirement for such combined 

products on a portfolio margin basis. 

The portfolio margin provisions of 

this Rule shall not apply to Individual 

Retirement Accounts (‘‘IRAs’’). 

(1) Monitoring.—Members must 

monitor the risk of portfolio margin 

accounts and maintain a comprehensive 

written risk analysis methodology for 

assessing the potential risk to the 

member’s capital over a specified range 

of possible market movements of 

positions maintained in such accounts. 

The risk analysis methodology shall 

specify the computations to be made, 

the frequency of computations, the 

records to be reviewed and maintained, 

and the person(s) within the 

organization responsible for the risk 

function. This risk analysis 

methodology must be filed with NASD, 

or the member’s designated examining 

authority (‘‘DEA’’) if other than NASD, 

and submitted to the Commission prior 

to the implementation of portfolio 

margining. In performing the risk 

analysis of portfolio margin accounts 

required by this Rule, each member 

shall include in the written risk analysis 

methodology procedures and guidelines 

for: 

(A) obtaining and reviewing the 

appropriate account documentation 

and financial information necessary for 

assessing the amount of credit to be 

extended to eligible participants; 

(B) the determination, review and 

approval of credit limits to each eligible 

participant, and across all eligible 

participants, utilizing a portfolio margin 

account; 

(C) monitoring credit risk exposure to 

the member from portfolio margin 

accounts, on both an intra-day and end 

of day basis, including the type, scope 

and frequency of reporting to senior 

management; 

(D) the use of stress testing of portfolio 

margin accounts in order to monitor 

market risk exposure from individual 

accounts and in the aggregate; 

(E) the regular review and testing of 

these risk analysis procedures by an 

independent unit such as internal audit 

or other comparable group; 

(F) managing the impact of credit 

extended related to portfolio margin 

accounts on the member’s overall risk 

exposure; 

(G) the appropriate response by 

management when limits on credit 

extensions related to portfolio margin 

accounts have been exceeded; and 

(H) determining the need to collect 

additional margin from a particular 

eligible participant, including whether 

that determination was based upon the 

creditworthiness of the participant and/ 

or the risk of the eligible product. 

Moreover, management must 

periodically review, in accordance with 

written procedures, the member’s credit 

extension activities for consistency with 

these guidelines. Management must 

periodically determine if the data 

necessary to apply this paragraph (g) is 

accessible on a timely basis and 

information systems are available to 

adequately capture, monitor, analyze 

and report relevant data. 

(2) Definitions.—For purposes of this 

paragraph (g), the following terms shall 

have the meanings specified below: 


pwalker on PROD1PC71 with NOTICES