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[Federal Register Volume 65, Number 74 (Monday, April 17, 2000)]
[Notices]
[Pages 20497-20498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9486]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42661: File No. SR-BSE-00-02]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Boston Stock Exchange, Inc. Rescinding Chapter II, 
Section 23, Dealings on Other Exchanges, or Publicly Outside the 
Exchange

April 10, 2000.
    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 9, 2000, the Boston Stock Exchange, Inc. (``Exchange'' or 
``BSE'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. 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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    The Exchange's proposed rule change raises issues similar to those 
raised by the New York Exchange's (``NYSE'') proposal to repeal NYSE 
Rule 390, which rule generally prohibits NYSE members and their 
affiliates from effecting transactions in certain NYSE-listed 
securities away from a national securities exchange. The Commission 
recently issued the notice of filing for the NYSE's proposal (``NYSE 
Notice'') and solicited comment on a number of important issues that 
have broad implications for the structure of the U.S. securities 
markets.\3\ Specifically, the Commission requested comment on market 
fragmentation--the trading of orders in multiple locations without 
interaction among those orders--and on several options for addressing 
market fragmentation. To promote a comprehensive discussion of off-
boarding trading restrictions and related market fragmentation issues, 
the Commission requests that persons interested in the Exchange's 
proposal refer to the NYSE Notice and submit comments that respond to 
the questions presented in the NYSE Notice.\4\
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    \3\ See Securities Exchange Act Release No. 42450 (Feb. 23, 
2000), 65 FR 10577 (Feb. 28, 2000) (File No. SR-NYSE-99-48). The 
Commission notes that similar proposals have been filed by the 
American Stock Exchange, Securities Exchange Act Release No. 42460 
(February 25, 2000), 65 FR 11618 (March 3, 2000) (File No. SR-
Amex+00-05); the Chicago Stock Exchange, Securities Exchange Act 
Release No. 42459 (Feb. 25, 2000), 65 FR 11619 (March 3, 2000) (File 
No. SR-CHX-99-28); the Philadelphia Stock Exchange, Securities 
Exchange Act Release No. 42458 (Feb. 25, 2000), 65 FR 11628 (March 
3, 2000) (File No. SR-Phlx-00-12); and the Pacific Exchange, SR-PCX-
00-11.
    \4\ The Commission notes that the NYSE Notice is available on 
the Commission's website at: http://www.sec.gov/rules/sros/ny9948n.htm>.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to rescind Chapter II, Section 23, ``Dealings 
on Other Exchanges or Publicly Outside the Exchange,'' which will 
remove the Exchange's off-board trading restrictions. The text of the 
proposed rule change is available at the Exchange and at the 
Commission.

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 rescind its restrictions on off-board 
trading under

[[Page 20498]]

Chapter II, Section 23, ``Dealings on Other Exchanges or Publicly 
Outside the Exchange.'' Originally, Chapter II, Section 23 prohibited 
Exchange members from trading over-the-counter in certain securities. 
Off-board trading restrictions in general provided an additional 
incentive for members to purchase regional specialist units which 
promoted internalization of order flow and limited fragmentation.
    However, the Commission narrowed the scope of exchange off-board 
trading restrictions by the adoption of Rules 19c-1 and 19c-3 under the 
Act.\5\ Rule 19c-1 enabled Exchange members to execute agency trades 
with a market maker who is not an exchange member. Rule 19c-3 permits 
Exchange members to execute proprietary trades in securities listed 
after April 26, 1979. On a practical basis, the purchase of a regional 
specialist unit allowed a member firm to internalize its small retail 
order flow without violating an exchange's off-board principal trading 
restrictions.
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    \5\ 17 CFR 240.19c-1 and 17 CFR 240.19c-3.
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    The Exchange believes it is appropriate to rescind its restrictions 
on off-board trading at this time. Advances 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 NYSE also filed 
to rescind NYSE Rule 390. In light of these developments (as well as 
the Commission's request that the Exchange review its restrictions on 
off-board trading), the Exchange now proposed to rescind Chapter II, 
Section 23.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \6\ in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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 is not designed to 
permit unfair discrimination between customers, issuers, brokers, and 
dealers.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not 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 written comments on 
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 approved 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. The Commission also invites 
interested persons to submit written data, views, and arguments on the 
market fragmentation issues presented in the NYSE Notice.\7\ Persons 
making written submissions should file six copies thereof with the 
Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0609. 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 persons, 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 will also be available for 
inspection and copying at the principal office at the Exchange. All 
submissions should refer to File No. SR-BSE-00-02 and should be 
submitted by May 8, 2000. Comments responding to the Commission's 
request for comment on market fragmentation issues should refer to File 
No. SR-NYSE-99-48 and should be submitted by April 28, 2000.
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    \7\ See supra notes 3 and 4.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9486 Filed 4-14-00; 8:45 am]
BILLING CODE 8010-01-M
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