Document ID: SEC-2006-0666-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2006-05-23T04:00Z

[Federal Register: May 23, 2006 (Volume 71, Number 99)]
[Notices]               
[Page 29689-29690]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23my06-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53817; File No. SR-BSE-2006-05]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Approving a Proposed Rule Change to Modify the Boston Options 
Exchange's Fee Schedule to Impose Surcharge Fees for Transactions in 
Options on ETFs on a Retroactive Basis

May 17, 2006.
    On March 15, 2006, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to retroactively establish certain Boston Options Exchange 
(``BOX'') licensing fee surcharges applicable to broker-dealer 
proprietary accounts and market maker accounts for trades in options on 
certain exchange traded funds (``ETFs''). The proposed rule change was 
published for comment in the Federal Register on April 13, 2006.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53607 (April 6, 
2006), 71 FR 19221 (``Notice'').
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    The BOX's Fee Schedule currently has in place a surcharge fee item 
for transactions in the respective ETF options effected by market 
makers and broker-dealer proprietary accounts that imposes a $0.10 per 
contract fee for transactions in certain licensed options, including 
Standard & Poor's Depository Receipts (SPY), iShares Russell 2000 Index 
Fund (IWM), iShares Russell 2000 Growth Index Fund (IWO), and iShares 
Nasdaq Biotechnology Index Fund (IBB).\4\ In addition, the BOX's Fee 
Schedule currently lists a surcharge fee of $0.09 per contract fee for 
transactions in certain licensed options, including S&P Energy Select 
Sector SPDR Fund (XLE) and S&P Financial Select Sector SPDR Fund (XLF). 
The surcharge fees on the licensed options listed above became 
effective on January 4, 2006.\5\ The Exchange is now proposing to 
retroactively apply these surcharge fees from the Effective Dates 
listed in Table 1 of the notice \6\ (``Effective Dates'') (i.e., the 
date on which each product commenced trading on BOX) through January 3, 
2006.\7\
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    \4\ The BOX Fee Schedule also contains a $0.10 surcharge fee per 
contract for options on the ETF Nasdaq 1000 (``QQQQ''), which is not 
at issue in this proposed rule change.
    \5\ See Securities Exchange Act Release No. 53454 (March 8, 
2006), 71 FR 13439 (March 15, 2006) (SR-BSE-2006-01).
    \6\ See Notice, supra note 3. The Standard & Poor's Depository 
Receipts commenced trading on January 10, 2005; the iShares Russell 
2000 Index Fund commenced trading on May 2, 2005; the S&P Energy 
Select Sector SPDR Fund commenced trading on June 6, 2005; and the 
iShares Russell 2000 Growth Index Fund, the iShares Nasdaq 
Biotechnology Index Fund, and S&P Financial Select Sector SPDR Fund 
all commenced trading on June 27, 2005.
    \7\ BSE represents these fees are only charged to BOX 
Participants.
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    In addition, the Exchange is proposing to amend the BOX Fee 
Schedule to clarify the meaning of the current text in Section 4(b) 
(``InterMarket Linkage'') of the BOX Fee Schedule, which includes an 
explicit reference to the surcharge with respect to Inbound P and PA 
orders that are billed per contract.\8\ The BSE is also proposing to 
amend the title of Section

[[Page 29690]]

4(b) of the BOX Fee Schedule to provide more clarity as to which party 
is billed.
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    \8\ Specifically, the Exchange proposes to replace the sentence 
``Same as if were BOX Participant'' with ``This charge is the same 
as that which is applicable to a BOX Participant under Section 2. 
These orders are also subject to any additional pass-through 
surcharge fees specified in Section 2(c), as applicable.''
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    After careful consideration of the proposal, 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\ and, in particular, the requirements 
of Section 6(b) of the Act and the rules and regulations 
thereunder.\10\ Specifically, the Commission believes that the proposal 
to retroactively establish a surcharge fee of 9 or 10 cents, as 
applicable, for certain transactions in options on the above-listed 
ETFs that occurred on the BOX between each ETF options' Effective Date 
and January 3, 2006 is consistent with Section 6(b)(4) of the Act,\11\ 
in that the proposed rule change provides for the equitable allocation 
of reasonable dues, fees, and other charges among the Exchange's 
members and issuers and other persons using its facilities.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Commission notes that the BOX Fee Schedule that was in effect 
when each of these products commenced trading (i.e., on the Effective 
Dates) stated in Section 2(c) that applicable surcharges applied for 
options on ETFs that are passed-through by BOX.\12\ While the BSE 
failed to amend in a timely manner its Fee Schedule to specifically 
list each individual ETF option product and the associated surcharge 
fee on the BOX Fee Schedule as it was required to do pursuant to 
Section 19(b) of the Act \13\ and Rule 19b-4 thereunder,\14\ the 
Commission notes that the BSE has represented that its Participants: 
(1) were aware that surcharge fees were applicable for options on the 
ETFs pursuant to the general language in Section 2(c) of the BOX Fee 
Schedule that states that surcharge fees apply to transactions in 
certain licensed options; and (2) were aware of the specific pass-
through licensing surcharges for each product via their monthly billing 
statement.\15\ Given this level of transparency with respect to the 
existence of surcharge fees for licensed products, and in consideration 
of the fact that options on the applicable ETFs have been listed and 
traded on BOX since each product's respective Effective Date,\16\ the 
Commission believes that the retroactive extension of the respective 
surcharge fees to all applicable transactions occurring since, and as 
of, the commencement of trading of each product on BOX is equitable in 
order to defray BSE's licensing costs.
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    \12\ Section 2(c) of the BOX Fee Schedule then stated, as it 
currently does: ``Plus, where applicable, any surcharge for options 
on ETFs that are passed through by BOX.''
    \13\ 15 U.S.C. 78s(b).
    \14\ 17 CFR 240.19b-4.
    \15\ See Notice, supra note 3.
    \16\ The options on the applicable ETFs began trading on BOX 
ranging from January 10, 2005 to June 27, 2005. See supra note 6.
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    The Commission also believes that the new text in Section 4(b) of 
the BOX Fee Schedule does not raise any new or novel issues but rather 
serves as a non-substantive change to the BOX Fee Schedule to clarify 
the existing text. The Commission notes the Exchange's representation 
that this change does not impose any new fees on Linkage Orders, that 
it is consistent with the Linkage Fee pilot program, and that 
applicable Linkage Orders have always been assessed this surcharge and 
have been invoiced as such.\17\ Further, the Commission believes that 
the change to the title of Section 4(b) of the BOX Fee Schedule does 
not raise any new or novel issues and merely is designed to accurately 
reflect the party which is billed. Accordingly, the Commission believes 
that the changes to Section 4(b) of the BOX Fee Schedule clarify and 
expand upon the existing text and do not result in any change in 
application of the Fee Schedule.
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    \17\ See id.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-BSE-2006-05) is hereby 
approved.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
Nancy M. Morris,
Secretary.
[FR Doc. E6-7818 Filed 5-22-06; 8:45 am]

BILLING CODE 8010-01-P