Document ID: SEC-2005-0393-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2005-12-15T05:00Z

[Federal Register: December 15, 2005 (Volume 70, Number 240)]
[Notices]               
[Page 74386-74388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de05-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52929; File No. SR-BSE-2005-56]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to the Initial Listing and 
Maintenance To List Options on Certain Securities

December 8, 2005.
    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 30, 2005, the Boston Stock Exchange, Inc. (``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. On December 6, 2005, the Exchange 
filed Amendment No. 1 to the proposed rule change.\3\ The Exchange 
filed the proposed rule change as a ``non-controversial'' rule change 
under Rule 19b-4(f)(6) under the Act,\4\ which rendered the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made non-substantive 
changes to the text of the proposed rule change.
    \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 Exchange proposes to amend section 3 (Criteria for Underlying 
Securities) and section 4 (Withdrawal of Approval of Underlying 
Securities) of Chapter IV of the Rules of the Boston Options Exchange 
(``BOX''). Below is the text of the proposed rule change. Proposed 
additions are in italics and proposed deletions are in [brackets].
* * * * *

Rules of the Boston Options Exchange Facility

Chapter IV. Securities Traded On The Boston Options Exchange Facility
Sec. 3 Criteria for Underlying Securities
    (a) Underlying securities with respect to which put or call options 
contracts are approved for listing and trading on BOX must meet the 
following criteria:
    i. The security must be registered with the SEC and be an ``NMS 
stock'' as defined in Rule 600 of Regulation NMS under the Exchange Act
    (1) Listed on a national securities exchange; or
    (2) Traded through the facilities of a national securities 
association and reported as a ``national market system'' (``NMS'') 
security as set forth in Rule 11Aa3-1 under the Exchange Act]; and
    ii. The security shall be characterized by a substantial number of 
outstanding shares that are widely held and actively traded.
    Subsections (b) through (j) No Change.
Sec. 4 Withdrawal of Approval of Underlying Securities
    Subsection (a) No Change.
    (b) An underlying security will not be deemed to meet BOXR's 
requirements for continued approval whenever any of the following 
occur: i. through iv. No Change.
    v. {Reserved{time} [The issuer has failed to make timely reports as 
required by applicable requirements of the Exchange Act or Rules 
thereunder, and such failure has not been corrected within thirty (30) 
days after the date the report was due to be filed.]
    vi. The underlying security ceases to be an ``NMS stock'' as 
defined in Rule 600 of Regulation NMS under the Exchange Act. [The 
issue, in the case of an underlying security that is principally traded 
on a national securities exchange, is delisted from trading on that 
exchange and neither meets NMS criteria nor is traded through the 
facilities of a national securities association, or the issue, in the 
case of an underlying security that is principally traded through the 
facilities of a national securities association, is no longer 
designated as an NMS security.]
    vii. No Change.
    Subsection (c) through (j) No Change.
* * * * *

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.

[[Page 74387]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend a BOX rule pertaining to the 
continued approval of securities that underlie options traded on the 
Exchange. Specifically, the Exchange proposes to eliminate section 
4(b)(v) of Chapter IV of the BOX rules. Section 4(b)(v) of Chapter IV 
of the BOX rules sets forth various situations under which an 
underlying security previously approved for options trading will in 
usual circumstances be deemed to no longer meet Exchange requirements 
for the continuance of such approval. In such circumstances, section 
4(b)(v) of Chapter IV of the BOX rules provides that the Exchange will 
not open for trading any additional series of options in that class and 
may also limit any new opening transactions in those options series 
that have already be opened.
    Currently, section 4(b)(v) of Chapter IV of the BOX rules provides 
that an underlying security will no longer be approved for options 
trading on the Exchange when:
    ``(v) The issuer has failed to make timely reports as required by 
applicable requirements of the Exchange Act or Rules thereunder, and 
such failure has not been corrected within thirty (30) days after the 
date the report was due to be filed.''\5\
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    \5\ Phrase ``or Rules thereunder'' added pursuant to telephone 
conference between Bill Meehan, Assistant Vice President, Exchange, 
and David L. Orlic, Attorney, Division of Market Regulation, 
Commission, on December 7, 2005.
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    The Exchange proposes to eliminate this provision because it limits 
investors' ability to use options to hedge existing equity positions in 
such securities, and it is not necessary in the context of the rest of 
section 4(b) of Chapter IV of the BOX rules.
    First, section 4(b)(v) of Chapter IV of the BOX rules can and does 
impact investors' interests by preventing them from using new options 
series to hedge positions they may hold in the underlying security of 
companies that fail to make timely reports required by the Act. The 
Exchange states that such a restriction is inconsistent with rules and 
regulations in the markets for the underlying securities because no 
similar trading restriction is placed upon the trading of the 
underlying security itself. Thus, section 4(b)(v) of Chapter IV of the 
BOX rules only serves to limit the abilities of shareholders in such 
companies who may wish to hedge their positions with new options 
series, at a time when the ability to hedge may be particularly 
important.
    The Exchange believes that section 4(b)(v) of Chapter IV of the BOX 
rules has outlived any usefulness and now serves to unnecessarily 
burden and confuse the investing public. This provision was appropriate 
when it was first implemented in or around 1976, when the listing and 
trading of standardized options was still in its infancy and 
information pertaining to public companies was not readily available to 
the general investing public. The Exchange believes that today's listed 
options market, however, is a mature one with investors who have access 
to a significant amount of real-time market information to assist them 
in making informed investment decisions, including information as to 
whether companies have timely filed reports as required by the Act, and 
if not, why not. Therefore, the Exchange states that there is no reason 
to limit investors' ability to trade in options classes, including new 
series within those classes, simply because a company is not timely in 
filing its reports. The Exchange further advises that this restriction 
is further misplaced, considering that investors are not similarly 
restricted from buying or selling shares of the underlying security in 
the equity markets.
    Moreover, the Exchange believes that section 4(b)(v) of Chapter IV 
of the BOX rules limits an investors' ability to hedge his underlying 
stock positions at a time when he may be in most need to protect his 
investment. The failure of a public company to comply with its 
reporting requirements under the Act could cause a significant movement 
in the price of that company's stock. Restricting the Exchange from 
opening new options series may leave investors without means to hedge 
their positions with options contracts at strike prices that more 
accurately reflect the contemporaneous price trends of the underlying 
stock.
    Clearly, new options series on a security should not be permitted 
to be opened if the underlying security ceases to be an NMS stock. 
Typically, the Exchange becomes aware of issues that may impact the 
continued listing of a security well before that security is delisted 
from its primary market. Exchange staff routinely monitors daily press 
releases and informational releases disseminated by various entities, 
such as the primary listing market of a security and private news 
services, in an effort to monitor the activities and news items 
pertaining to the issuers of securities that underlie options traded on 
the Exchange.\6\ In many cases, an issuer is given a substantial amount 
of time to cure this deficiency before the primary market actually 
delists the issuer's security. Many times, the issuer is able to comply 
without its security ever being delisted. During this period, BOX staff 
continually monitors the status of the issuer's compliance with its 
reporting requirements to determine whether the security may be 
delisted. Finally, the primary listing market typically issues a press 
release well in advance of delisting an issuer's security to give 
investors and other market participants adequate notice.
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    \6\ This is consistent with Section 4(d) of Chapter IV of the 
BOX rules.
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    Given the availability of data and information relating to public 
issuers of securities in today's markets, and in light of the extensive 
amount of additional continued listing standards under section 4(b) of 
Chapter IV of the BOX rules, the Exchange believes that waiting until a 
security is actually delisted by its primary market is the appropriate 
point at which to restrict the issuance of new options series in an 
options class. Accordingly, the Exchange hereby proposes to eliminate 
section 4(b)(v) of Chapter IV of the BOX rules.
    Additionally, as a matter of ``housekeeping,'' the Exchange also 
proposes to clarify section 3(a)(i) and section (4)(b)(vi) of Chapter 
IV of the BOX rules, which govern the criteria for the initial and 
continued listing of options on a particular security, respectively. 
Both of these provisions include as part of their criteria a 
requirement that the underlying security must be a national market 
system security (``NMS security''). As part of the recently adopted 
Regulation NMS, among other things, the Commission revised the 
definition of an NMS security.\7\ Specifically, Rule 600(b) under 
Regulation NMS defines an NMS security as ``any security or class of 
securities for which transaction reports are collected, processed, and 
made available pursuant to an effective transaction reporting plan, or 
an effective national market system plan for reporting transactions in 
listed options.'' As such, each of these Rules will be amended to 
reflect these new terms.
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    \7\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 74388]]

section 6(b) of the Act \8\ in general, and furthers the objectives of 
section 6(b)(5) of the Act \9\ in particular, in that the elimination 
of section 4(b)(v) of Chapter IV of the BOX rules will serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and is designed to promote just and equitable 
principles of trade and to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) by its terms, 
does not become operative for 30 days after the date of filing, 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 
\10\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the five-day 
pre-filing notice requirement and the 30-day operative delay period for 
``non-controversial'' proposals and make the proposed rule change 
effective and operative upon filing. The Commission believes that 
waiver of the five-day pre-filing notice and the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because this filing does not raise any novel issues. For this reason, 
the Commission designates the proposal to be effective and operative 
upon filing with the Commission.\12\
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    \12\ For the 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).
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    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 the 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, as amended, 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-2005-56 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-BSE-2005-56. 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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-2005-56 and should be 
submitted on or before January 5, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7369 Filed 12-14-05; 8:45 am]

BILLING CODE 8010-01-P