Document ID: SEC-2006-1298-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2006-10-06T04:00Z

[Federal Register: October 6, 2006 (Volume 71, Number 194)]
[Notices]               
[Page 59161-59169]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc06-103]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54546; File No. SR-BSE-2006-30]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change and Notice of Filing and 
Order Granting Accelerated Approval to Amendment No. 2 Relating to the 
Implementation of the Second Phase of the Boston Equities Exchange 
(``BeX'') Trading System

 September 29, 2006.

I. Introduction

    On August 3, 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, as amended (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change in connection with the 
implementation of the second phase of the Boston Equities Exchange 
(``BeX'') trading system. In addition, in connection with satisfying 
the requirements of Regulation NMS under the Act, the BSE proposes 
several new order types; rules to prevent locked or crossed quotations; 
a new order routing system; and an order protection rule. The proposed 
rule change was published for comment in the Federal Register on August 
16, 2006.\3\ The Commission received no comments regarding the 
proposal. On September 29, 2006, the BSE filed Amendment No. 2 to the 
proposed rule change.\4\ This order approves the proposed rule change, 
grants accelerated approval to Amendment No. 2 to the proposed rule 
change, and solicits comments from interested persons on Amendment No. 
2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 54291 (August 8, 
2006), 71 FR 47264.
    \4\ In Amendment No. 2, BSE made several changes to the proposed 
rule change, including: (1) introducing a new order type to be known 
as a Non-Displayed Order; (2) amending the definition of a Preferred 
Price Cross and ISO Cross; (3) clarifying when certain provisions 
relating to Regulation NMS become effective; (4) adding provisions 
for the handling of odd-lot and mixed-lot orders, including the 
ranking and display of odd-lots and mixed-lots; (5) clarifying the 
ranking and display of Reserve Orders; (6) adding a provision 
relating to the anonymity of trades executed by a Member against 
itself; (7) adding a provision relating to access to BeX by 
Sponsored Participants; (8) stating that, for purposes of Section 
11(a) of the Act (15 U.S.C. 78k(a)) and Rule 11a2-2(T) (17 CFR 
240.11a2-2(T)) thereunder, all orders for the accounts of Exchange 
members will be transmitted to the BeX trading system from off the 
floor (since the Exchange no longer will have any physical trading 
floor) by electronic means; and (9) making several clarifying 
changes and correcting several technical errors contained in the 
rule text. Amendment No. 1 was withdrawn by BSE on September 29, 
2006.
---------------------------------------------------------------------------

II. Summary Description of the Proposal

    BeX is an electronic securities communications and trading facility 
for equity securities designed to be used by BSE Members, including 
Electronic Access Members, and their customers. BeX, a facility of the 
Exchange, was developed, and is owned and operated, by BSX Group, LLC 
(``BSX'').\5\ The Commission recently approved rules to implement the 
first phase of BeX,\6\ which is limited to securities listed otherwise 
than on the NASDAQ Stock Market LLC (``Nasdaq'') for which the BSE 
obtained unlisted trading privileges (``UTP'') after June 30, 2006 
(``BeX Phase I''). The Exchange now proposes to implement the second 
phase of BeX (``BeX Phase II'') as a fully-automated electronic book 
for the display and execution of orders in securities listed on any 
exchange through introducing new, as well as amending certain existing, 
Rules of the Board of Governors (``BSE Rules'').\7\ The BSE also 
proposes to implement new Exchange rules to satisfy the requirements of 
Regulation NMS.\8\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 54364 (August 25, 
2006), 71 FR 52185 (September 1, 2006) (approving the BeX facility 
and its governance structure).
    \6\ See Securities Exchange Act Release No. 54365 (August 25, 
2006), 71 FR 52192 (September 1, 2006) (``BeX Phase I Order'').
    \7\ The BeX trading rules will be located in Chapter XXXVII of 
the BSE Rules.
    \8\ The rules relating to Regulation NMS requirements will be 
located in Chapter XXXVIII of the BSE Rules.
---------------------------------------------------------------------------

    BeX is a fully-automated electronic book for the display and 
matching of orders in eligible securities, without the participation of 
a specialist.\9\ Securities traded on BeX cannot also be traded by a 
BSE specialist.\10\ The Exchange has indicated that implementation of 
BeX is scheduled to occur on October 30, 2006. Accordingly, there no 
longer will be any specialist participation in any transactions on the 
BSE or otherwise as of such implementation. The Exchange, however, 
proposes to add rules to

[[Page 59162]]

permit participation by market makers in BeX as part of the instant 
proposed rule change.
---------------------------------------------------------------------------

    \9\ See BeX Phase I Order, supra note 6.
    \10\ See Chapter XXXVII, Section 1 of the BSE Rules.
---------------------------------------------------------------------------

    In connection with satisfying the requirements of Regulation NMS, 
the Exchange proposes to offer several execution enhancements, 
including additional order types, a rule aimed at the prevention of 
locked or crossed markets, electronic order routing, and an order 
protection rule, as it transitions to a fully electronic trading venue 
with its BeX facility and in accordance with the implementation of 
Regulation NMS. The Exchange expects that initially the current trading 
rules of the BSE will remain largely intact,\11\ as supplemented by the 
BeX Phase I rules previously approved by the Commission, and the rule 
changes contained herein relating to the BeX facility, including rule 
changes required under Regulation NMS.
---------------------------------------------------------------------------

    \11\ The Exchange has represented that within thirty days of 
full implementation of the BeX trading system, it intends to file a 
proposed rule change under Section 19(b)(1) of the Act, which will 
be designed to eliminate all rules that are no longer applicable as 
a result of the transition from the traditional floor-based model of 
trading to the all-electronic BeX platform. The Exchange notes, for 
example, that rules related to specialists will be removed as there 
will no longer be any specialist participation in any transactions 
on the BSE or otherwise.
---------------------------------------------------------------------------

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and the rules and 
regulations promulgated thereunder applicable to a national securities 
exchange \12\ and, in particular, with the requirements of Section 6(b) 
of the Act.\13\ Specifically, the Commission finds that approval of the 
proposed rule change is consistent with Section 6(b)(5) of the Act \14\ 
in that it is designed to facilitate transactions in securities; to 
prevent fraudulent and manipulative acts and practices; 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.
---------------------------------------------------------------------------

    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Eligible Securities

    Under the rules approved in connection with BeX Phase I, all 
securities eligible for trading on the Exchange that are listed 
otherwise than on Nasdaq for which the BSE obtains UTP after June 30, 
2006 would be eligible for trading in the BeX. The Exchange has 
proposed to amend this definition to allow all securities eligible for 
trading on the Exchange to be eligible for trading in the BeX. In 
Amendment No. 2, the Exchange proposes to allow the BeX to accept and 
execute mixed-lot and odd-lot orders in Nasdaq Global Market securities 
and Nasdaq Capital Market securities. BeX will continue to only accept 
and display round-lot orders for securities listed on exchanges other 
than the Nasdaq.
    The Commission finds that the Exchange's proposal to expand the 
category securities eligible to be traded on BeX is consistent with the 
Act.

B. Eligible Orders

    Under BeX Phase I, orders eligible for execution in the BeX may be 
designated as one of the following existing BSE order types: ``at the 
close,'' ``at the opening or at the opening only,'' ``day,'' ``do not 
increase (DNI),'' ``do not reduce (DNR),'' ``fill or kill,'' ``good 
`till cancel,'' ``immediate or cancel (``IOC''),'' ``limit, limited or 
limited price,'' ``market,'' ``stop limit,'' or ``stop,'' ``cross,'' 
``cross with size,'' ``good `till date (GTD),'' ``good 'till time 
(GTT),'' ``limit or close,'' ``mid-point cross,'' and ``post primary 
cross.'' \15\ The Exchange has proposed to amend Chapter XXXVII, 
Section 2 of the BSE Rules to add the following additional orders types 
as part of BeX Phase II: ``reserve order,'' ``minimum quantity order,'' 
``preferred price cross,'' ``automatic immediate or cancel'' 
(``AIOC''), ``best price intermarket sweep order'' (``BPISO''), ``ISO 
cross order,'' ``price-penetrating ISO,'' ``cancel on corporate action 
order,'' and ``non-displayed order.'' \16\ Best price intermarket 
sweep, price-penetrating ISO, ISO Cross and AIOC orders would not be 
eligible for submission to BeX until February 5, 2007, which is the 
Trading Phase Date under Regulation NMS.\17\ Descriptions of the 
proposed order types are as follows:
---------------------------------------------------------------------------

    \15\ These order types were approved in the BeX Phase I approval 
orders. See supra note 6.
    \16\ These new order types are being proposed in connection with 
the proposed rules relating to Regulation NMS but will be located in 
Chapter XXXVII of the BeX Rules.
    \17\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038 (May 24, 2006).
---------------------------------------------------------------------------

    Reserve Order: A reserve order is a limit order with a portion of 
the size displayed and with a reserve portion of the size that is not 
displayed. A reserve order could not be an IOC order or market order. 
The displayed portion of a reserve order (not the reserve portion) 
would be ranked at the specified limit price and the time of order 
entry with its initial display quantity. If the displayed portion of a 
reserve order is decremented such that an odd-lot quantity remains from 
the initial displayed quantity, the odd-lot quantity would not be 
displayed, but would keep its ranking in time priority. If the 
displayed portion of a reserve order is decremented such that a mixed-
lot quantity remains from the initial displayed quantity, only the 
round lot portion of the mixed-lot quantity would be displayed, but 
both the round-lot and odd-lot portions of the mixed-lot quantity would 
keep their rankings in time priority. A reserve order would be 
replenished when the initial display quantity had been executed in its 
entirety.
    As proposed, the displayed portion of a reserve order would be 
replenished for: (1) The initial display quantity; or (2) if the 
remaining reserve quantity is smaller than the initial display 
quantity, the entire reserve quantity; provided that any odd-lot amount 
or odd-lot portion of the mixed-lot would not be displayable, but would 
nevertheless be ranked in time priority as of the time it would have 
been displayed as a part of the replenishment had it not been an odd-
lot quantity and would be handled in accordance with the applicable 
provisions of Chapter XXXVII, Section 3(i) of the BSE Rules.
    Minimum Quantity Order: A minimum quantity order is an order 
subject to the provisions of Chapter XXXVII, Section 6 of the BSE Rules 
(Orders to be Reduced and Increased on Ex-Date), that, upon entry, 
would be executed at least at its minimum quantity or the order would 
be cancelled. If executed in part, the remaining quantity would remain 
in the book and follow the execution rule for the order type. A stop 
limit order could be designated as a minimum quantity order and, at the 
election of the order, would be handled pursuant to Chapter XXXVII, 
Section 3(j) of the BSE Rules.
    Preferred Price Cross Order: A preferred price cross order is a 
two-sided cross order with a ``preferred limit price'' set by the 
Member. A preferred limit price would be the limit price at which the 
two-sided cross order would be executed, if it is better than the best 
bid and offer displayed on BeX and equal to or better than the National 
Best Bid or National Best Offer. When the preferred limit price does 
not meet the above conditions, the execution price of the order would 
be the closest price above or below the preferred limit price,

[[Page 59163]]

such that the execution price is better than the best bid and offer 
displayed on BeX and equal to or better than the National Best Bid or 
National Best Offer by a Minimum Price Variation.\18\ For example, if 
the best bid and offer displayed on BeX is 2.00 to 2.05 and the 
National Best Bid and Offer is 2.01 to 2.05, and the Preferred Limit 
Price is 1.99, the order would execute at 2.01. When the best bid and 
offer on BeX are equal to the National Best Bid and Offer and are one 
Minimum Price Variation apart, the execution price will be at the 
midpoint of the National Best Bid and Offer. For example, if the Best 
Bid and Offer displayed on BeX is 2.00 to 2.01, the National Best Bid 
and Offer is 2.00 to 2.01, and the Preferred Limit Price is 1.99, the 
order would execute at 2.005.
---------------------------------------------------------------------------

    \18\ ``Minimum Price Variation'' is defined in Chapter II, 
Section 41 of the BSE Rules. The Exchange has proposed to amend this 
definition to account for the situation where a Preferred Price 
Cross Order is executed at a price that is one half the Minimum 
Price Variation.
---------------------------------------------------------------------------

    AIOC Order: An automatic immediate or cancel order would be an 
order received on BeX that would execute immediately and automatically, 
either in whole or in part, at or better than its limit price, with any 
unexecuted balance of the order to be immediately cancelled. The 
unexecuted portion of the order would not be routed to another Trading 
Center. AIOC, unlike IOC orders, cannot be submitted until February 5, 
2007, or an exemption from the ITS Plan is obtained.
    Best Price ISO: A BPISO is an order marked as required by Rule 
600(b)(30) of Regulation NMS that would be executed against any orders 
at the Exchange's Best Bid or Best Offer (including any undisplayed 
orders at that price) as soon as the order is received by the BSE, with 
any unexecuted balance of the order to be immediately cancelled. The 
BSE, in executing a BPISO, would not take any of the actions described 
in Chapter XXXVIII, Section 4 of the BSE Rules to prevent an improper 
trade through. BPISOs would not be eligible for submission to BeX until 
February 5, 2007.
    Price-Penetrating ISO: A price-penetrating ISO is an order marked 
as required by Rule 600(b)(30) of Regulation NMS that would be executed 
at or better than its limit price as soon as the order is received by 
the BSE, with any unexecuted balance of the order to be immediately 
cancelled. Price-penetrating ISOs would be executed against any 
eligible orders at the BSE through multiple price points (including any 
undisplayed orders). The BSE, in executing these orders, would not take 
any of the actions described in proposed Chapter XXXVIII, Section 4 of 
the BSE Rules to prevent an improper trade-through, as defined therein. 
Price-penetrating ISOs would not be eligible for submission to BeX 
until February 5, 2007.
    ISO Cross Order: An ISO cross order is a two-sided order that, upon 
receipt, would be executed without any action on the part of the 
Exchange to prevent an improper trade-through. The cross price must be 
priced better than the best bid or offer displayed in BeX. ISO Cross 
orders would not be eligible for submission to BeX until February 5, 
2007, or an exemption from the ITS Plan is obtained.
    Cancel on Corporate Action Order: An order designated as a cancel 
on corporate action order would be cancelled in the event of a 
dividend, distribution or stock split in the subject security.
    Non-Displayed Order: A non-displayed order is a limit order, limit 
or close order or stop limit order that is not displayed in BeX, but 
the order would remain available for potential execution against all 
incoming orders until executed in its entirety or cancelled. In the 
event a non-displayed order that crosses the National Best Bid or Offer 
is entered, that order would either be cancelled or, at the instruction 
of the member entering the order, routed to an away Trading Center(s). 
Similarly, if a non-displayed order already on the BeX book crosses the 
National Best Bid or Offer as a result of movement in the marketplace, 
that order would either be cancelled or, at the instruction of the 
member entering the order, routed to an away Trading Center(s). Non-
displayed orders required to be routed to an away Trading Center(s) 
would be routed as displayed orders.
    The Commission believes that these order types are appropriate in 
the context of the trading services proposed to be offered by the BeX 
facility and are consistent with the Act. In addition, the BSE's 
proposal regarding reserve orders and non-displayed orders comport with 
rules the Commission previously approved for other exchanges.\19\ The 
Commission notes that these order types should help provide market 
participants with flexibility in executing transactions that meet the 
specific requirements of the order type.
---------------------------------------------------------------------------

    \19\ See, e.g., NYSE Arca Rule 7.31(h)(3).
---------------------------------------------------------------------------

C. Access

    The Exchange proposes that BeX would be available for entry and 
execution of orders by Member Organizations and Sponsored Participants 
with authorized access. To obtain authorized access to BeX, each 
Sponsored Participant would be required to enter into a BeX Participant 
Agreement. A Sponsored Participant could obtain authorized access to 
BeX only if such access is authorized in advance by one or more 
Sponsoring Member Organizations. Sponsored Participants would be 
required to enter into and maintain customer agreements with one or 
more Sponsoring Member Organizations establishing the proper 
relationship(s) and account(s) through which the Sponsored Participant 
may trade on BeX. Such customer agreement(s) would be required to 
incorporate the sponsorship provisions set forth in proposed Chapter 
XXXVII, Section 5 of the BSE Rules. The proposed rule change sets forth 
the requirements and procedures to be followed by the Sponsored 
Participant and the Sponsoring Member Organization.
    The Commission believes that the proposed sponsored access 
provisions are appropriate and notes that they comport with rules the 
Commission previously approved for other exchanges.\20\
---------------------------------------------------------------------------

    \20\ See, e.g., NYSE Arca Rule 7.29.
---------------------------------------------------------------------------

D. Compliance With Intermarket Trading System (``ITS'') Plan

    As set forth in Chapter XXXVII, Section 3(j) of the BSE Rules, to 
ensure compliance with the ITS Plan as long as it remains in effect, 
otherwise eligible orders would be cancelled or routed away in certain 
circumstances. For example, marketable orders that would trade through 
the National Best Bid or National Best Offer would either be cancelled 
or be routed to the market(s) showing the National Best Bid or National 
Best Offer at the order-entering firm's instructions. In addition, if 
an order in an ITS eligible security crosses or locks the National Best 
Bid or National Best Offer at the time that it is received, the order 
would be immediately cancelled to ensure compliance with the ITS Plan's 
rules relating to locked markets.\21\
---------------------------------------------------------------------------

    \21\ Similarly, if an order in a listed security locks or 
crosses the Best Bid or Best Offer in BeX at the time it is 
received, but not the National Best Bid or National Best Offer, the 
order would be executed according to BeX's matching algorithm, and 
any remaining portion would be immediately cancelled, if it would 
lock or cross the National Best Bid or National Best Offer.
---------------------------------------------------------------------------

E. Ranking and Display of Orders for Undisplayed Orders and Odd-Lot and 
Mixed-Lot Orders

    As set forth in Chapter XXXVII, Section 3(i) of the BSE Rules, 
displayed

[[Page 59164]]

orders on BeX would be ranked in price/time priority. Within each price 
level, orders would be ranked in time priority based on the time the 
order is displayed. As noted above, the Exchange proposes to allow 
reserve orders (i.e., part of the order is displayed) and non-displayed 
orders (i.e., no part of the order is displayed). Under the Exchange's 
proposed amendment to Chapter XXXVII, Section 3(i) of the BSE Rules, 
reserve quantities of reserve orders would be considered displayed when 
replenished. Undisplayed orders on BeX, such as non-displayed orders 
and reserve quantities of reserve orders, would be ranked after all 
other displayed orders at that price level and would be ranked in time 
priority among all undisplayed orders. The Exchange provided the 
following example of the ranking process between displayed and 
undisplayed orders:
    At 9:30 a.m., a reserve order to buy 500 shares is entered. The 
initial display quantity is 200 shares and the undisplayed reserve 
quantity is 300 shares.
    At 9:32 a.m., a non-displayed order to buy 300 shares is entered.
    At 9:33 a.m., a reserve order to buy 200 shares is entered. The 
initial display quantity is 100 shares and the undisplayed reserve 
quantity is also 100 shares.
    At 9:34 a.m., an order to sell 1,000 shares at market is entered.
    Assuming all the buy orders are at the same price level, the 1,000 
shares will execute against the following orders: 200 shares of the 
displayed portion of the 9:30 a.m. reserve order. 100 shares of the 
displayed portion of the 9:33 a.m. reserve order. 300 shares of the 
undisplayed reserve quantity of the 9:30 a.m. reserve order. 300 shares 
of the undisplayed portion of the 9:32 a.m. non-display order. 100 
shares of the undisplayed reserve quantity of the 9:33 a.m. reserve 
order.
    The proposed revision to Chapter XXXVII, Section 3(i) of the BSE 
Rules also sets forth the handling of odd-lot and mixed-lot portions 
for reserve orders. In addition, the proposed rule revision states that 
while BeX would only accept and display round-lot orders for securities 
listed on exchanges other than Nasdaq, it would accept odd-lot and 
mixed-lot orders for Nasdaq Global Market securities and Nasdaq Capital 
Market securities. The proposed amendment to Chapter XXXVII, Section 
3(i) of the BSE Rules would indicate how odd-lot share amounts would be 
handled in BeX for these Nasdaq-listed securities.
    The Commission believes that the proposed rule revisions relating 
to ranking and display of orders, including odd-lot and mixed-lot 
portions of reserve orders and the handling of odd-lot and mixed-lot 
components of orders for Nasdaq securities, are consistent with the 
Act.

F. Anonymity

    The Exchange has proposed to amend Chapter XXXVII, Section 3(i) of 
the BSE Rules to state that BeX will provide pre-trade anonymity for 
all submitted orders, except as otherwise permitted by the proposed 
rule. All display-eligible orders (non-displayed orders and reserve 
portions of reserve orders are not display-eligible) at all price 
levels on the BeX would be displayed to all Members on an anonymous 
basis and transactions executed on the BeX would be processed 
anonymously.\22\ Transaction reports would indicate the details of the 
transaction, but would not reveal contra party identities. No Member 
having the right to trade through the facilities of BeX and who has 
been a party to or has knowledge of an execution would be under an 
obligation to divulge the name of the buying or selling firm in any 
transaction. Except as otherwise provided for in the BSE Rules, no 
Member would be permitted to transmit through the facilities of BeX any 
information regarding a bid, offer, other indication of an order, or 
the Member's identity, to another Member until permission to disclose 
and transmit such bid, offer, other indication of an order, or the 
Member's identity has been obtained from the originating Member or the 
originating Member affirmatively elects to disclose its identity.
---------------------------------------------------------------------------

    \22\ The Exchange indicated that it intends to request a limited 
exemption from the staff of the Commission from paragraph 
(a)(2)(i)(A) of Rule 10b-10 under the Act on its own behalf and/or 
on behalf of its Members who execute trades on the BeX. The 
exemption request will be limited to those trades that BSE Members 
execute on BeX with other BSE Members when using the anonymous 
feature of BeX's electronic trading system. The BSE also intends to 
request assurance that the Commission staff would not recommend 
enforcement action to the Commission if, in lieu of making and 
preserving a separate record, BSE Members rely on the BSE's 
retention of the identities of the BSE Members that execute 
anonymous trades through BeX to satisfy the requirements of Rules 
17a-3(a)(1) and 17a-4(a) under the Act, 17 CFR 240.17a-3(a)(1) and 
17a-4(a), respectively. The Exchange has represented that it will 
not implement the anonymity feature of BeX unless and until the 
requested relief is granted.
---------------------------------------------------------------------------

    BeX would reveal the identity of a Member in the following 
circumstances: (1) For regulatory purposes or to comply with an order 
of a court or arbitrator; (2) when the National Securities Clearing 
Corporation (``NSCC'') ceases to act for a Member or the Member's 
clearing firm, and NSCC determines not to guarantee the settlement of 
the Member's trades; (3) on risk management reports provided to the 
contra party of the Member or Member's clearing firm each day by 4 p.m. 
(E.S.T.) which disclose trading activity on the aggregate dollar value 
basis; or (4) unless otherwise instructed by a Member, BeX would reveal 
to a Member, no later than the end of the day on the date an anonymous 
trade was executed, when the Member's quote or order has been 
decremented by another quote or order submitted by that same Member.
    To satisfy Members' recordkeeping obligations under Rules 17a-
3(a)(1) \23\ and 17a-4(a) \24\ under the Act, the Exchange would retain 
for the period specified in Rule 17a-4(a) the identity of each Member 
that executes an anonymous transaction described in Chapter XXXVII, 
Section 3(i)(iii) of the BSE Rules. BeX would retain information in its 
original form or a form approved under Rule 17a-6 under the Act.\25\ 
Members would retain the obligation to comply with Rules 17a-3(a)(1) 
and 17a-4(a) under the Act whenever they possess the identity of their 
contra party.
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17a-3(a)(1).
    \24\ 17 CFR 240.17a-4(a).
    \25\ 17 CFR 240.17a-6.
---------------------------------------------------------------------------

    The Commission believes that the proposed BSE rule relating to 
anonymity is appropriate in the context of the trading services 
proposed to be offered by BeX and is consistent with the Act. The 
Commission notes that the proposed rule is consonant with the rules of 
other exchanges that the Commission previously has approved.\26\
---------------------------------------------------------------------------

    \26\ See, e.g., NYSE Arca Rule 7.41.
---------------------------------------------------------------------------

G. Market Makers

    BSE Members would be permitted to apply for Market Maker 
status.\27\ An applicant would file an application for Market Maker 
status on a form prescribed by the Exchange. Applications would be 
reviewed by the Exchange, which would consider factors including, but 
not limited to, capital operations, personnel, technical resources, and 
disciplinary history. No Member would be permitted to act as a Market 
Maker in any security unless such Member had been approved as a Market 
Maker in a security by the Exchange pursuant to the BSE Rules and the 
Exchange had not suspended or canceled such approval. Approved Market 
Makers would be designated as dealers on the Exchange for all purposes

[[Page 59165]]

under the Act and the rules and regulations thereunder.
    An applicant's Market Maker status would become effective upon 
receipt by the Member of notice of an approval by the Exchange. In the 
event that an application was disapproved by the Exchange, the 
applicant would have an opportunity to be heard upon the specific 
grounds for the denial, in accordance with the provisions of Chapter 
XXX of the BSE Rules.
---------------------------------------------------------------------------

    \27\ See proposed Chapter XXXVII, Section 8 of the BSE Rules 
(Approval of Market Makers).
---------------------------------------------------------------------------

    Market Maker status could be suspended or terminated by the 
Exchange upon a determination of any substantial or continued failure 
by such Market Maker to engage in dealings in accordance with the BSE 
Rules. Likewise, any Market Maker could withdraw its Market Maker 
status by giving written notice to the Exchange. Such withdrawal would 
become effective on the tenth business day following the Exchange's 
receipt of the notice. A Market Maker who failed to give a ten-day 
written notice of withdrawal to the Exchange would be subject to formal 
disciplinary action pursuant to Chapter XXX of the BSE Rules. 
Subsequent to withdrawal, the Member would not be permitted to re-apply 
as a Market Maker for a period of six months.
    A Market Maker would be assigned a newly authorized security or a 
security already admitted to dealings on the BeX by filing an 
assignment request form with the Exchange.\28\ Assignment of the 
security would become effective on the first business day following the 
Exchange's approval of the assignment. In considering the approval of 
the assignment of the Market Maker in a security, the Exchange could 
consider: (1) The financial resources available to the Market Maker; 
(2) the Market Maker's experience, expertise and past performance in 
making markets, including the Market Maker's performance in other 
securities; (3) the Market Maker's operational capability; (4) the 
maintenance and enhancement of competition among Market Makers in each 
security in which they are assigned; (5) the existence of satisfactory 
arrangements for clearing the Market Maker's transactions; and (6) the 
character of the market for the security, e.g., price, volatility, and 
relative liquidity. A Market Maker's assignment in a security could be 
terminated by the Exchange if the Market Maker fails to enter 
quotations in the security within five business days after the Market 
Maker's assignment in the security becomes effective. Moreover, the 
Exchange could limit the number of Market Makers in a security upon 
prior written notice to Members.
---------------------------------------------------------------------------

    \28\ See Chapter XXXVII, Section 9 of the BSE Rules (Assignment 
of Market Maker in a Security).
---------------------------------------------------------------------------

    Market Makers would be selected by the Exchange based on, but not 
limited to, the following: Experience with making markets in equities; 
adequacy of capital; willingness to promote the BeX as a marketplace; 
issuer preference; operational capacity; support personnel; and history 
of adherence to Exchange rules and securities laws.
    A Market Maker could voluntarily terminate its assignment in a 
security by providing the Exchange with a one-day written notice of 
such termination. A Market Maker that failed to give advanced written 
notice of termination to the Exchange could be subject to formal 
disciplinary action pursuant to Chapter XXX of the BSE Rules. 
Furthermore, the Exchange could suspend or terminate any assignment of 
a Market Maker in a security or securities whenever, in the Exchange's 
judgment, the interests of a fair and orderly market are best served by 
such action. A Member would be permitted to seek review of any action 
taken by the Exchange, including the denial of the application for, or 
the termination or suspension of, a Market Maker's assignment in a 
security or securities, in accordance with Chapter XXX of the BSE 
Rules.
    Members assigned as Market Makers in one or more securities traded 
on the BeX would be required to engage in a course of dealings for 
their own account to assist in the maintenance, insofar as reasonably 
practicable, of fair and orderly markets on the BeX.\29\ The 
responsibilities and duties of a Market Maker specifically would 
include, but not be limited to, the following: (1) Maintaining 
continuous, two-sided quotes in those securities in which the Market 
Maker is assigned to trade; (2) maintaining adequate minimum capital in 
accordance with Rule 15(c)3-1 under Act; \30\ (3) remaining in good 
standing with the Exchange; (4) informing the Exchange of any material 
change in financial or operational condition or in personnel; and (5) 
clearing and settling transactions through the facilities of a 
registered clearing agency. This last requirement could be satisfied by 
direct participation, use of direct clearing services, or by entry into 
a correspondent clearing arrangement with another Member that clears 
trades through such agency. A Market Maker would be required to satisfy 
the responsibilities and duties during BeX's primary trading session on 
all days in which the Exchange is open for business.
---------------------------------------------------------------------------

    \29\ See proposed Chapter XXXVII, Section 10 of the BSE Rules 
(Obligations of Market Makers).
    \30\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

    If the Exchange found any substantial or continued failure by a 
Market Maker to engage in a course of dealings as specified in the 
applicable BSE Rules, such Market Maker would be subject to 
disciplinary action or suspension or revocation of the assignment by 
the Exchange in one or more of the securities in which the Market Maker 
is assigned.
    A Market Maker would be permitted to apply to the Exchange to 
withdraw temporarily from its Market Maker status in the securities in 
which it is assigned. The Market Maker would be required to base its 
request on demonstrated legal or regulatory requirements that 
necessitate its temporary withdrawal, or provide the Exchange an 
opinion of counsel certifying that such legal or regulatory basis 
exists. The Exchange would act promptly on such request and, if the 
request were granted, the Exchange could temporarily reassign the 
securities to another Market Maker.
    Market Makers would be required to maintain minimum performance 
standards at levels determined from time to time by the Exchange. Such 
levels would vary depending on the price, liquidity, and volatility of 
the security in which the Market Maker is assigned. The performance 
measurements would include: (1) Percent of time at the National Best 
Bid or National Best Offer; (2) percent of executions priced better 
than the National Best Bid or National Best Offer; (3) average 
displayed size; (4) average quoted spread; and (5) in the event the 
security is a derivative security, the ability of the Market Maker to 
transact in underlying markets.
    A Market Maker on the Exchange would be permitted to engage in 
other business activities, or be affiliated with a broker-dealer that 
engages in Other Business Activities (as defined below), only if there 
is an Information Barrier (also commonly referred to as ``Chinese 
Wall'') between the market making activities and the other business 
activities.\31\ ``Other Business Activities'' would mean: (1) 
Conducting an investment banking or public securities business; or (2) 
making markets in the options overlying the security in which it makes 
markets.
---------------------------------------------------------------------------

    \31\ See proposed Chapter XXXVII, Section 11 of the BSE Rules 
(Limitations on Dealings).
---------------------------------------------------------------------------

    The Exchange's proposed rule on limitations on dealings would 
require that market making functions be physically separated from the 
locations

[[Page 59166]]

in which Other Business Activities are conducted. The proposal also 
would establish minimum requirements for the procedures to be 
implemented to prevent the use of material non-public corporate or 
market information in the possession of persons on one side of the 
barrier from influencing the conduct of persons on the barrier's other 
side. In addition, the proposal sets forth the items of information to 
be furnished in writing to the Exchange by the Member implementing an 
information barrier. Absent the Exchange finding a Member's information 
barriers acceptable, a Market Maker could not conduct Other Business 
Activities.
    A Member or an affiliate of the Member would be permitted to clear 
the Member's Market Maker transactions if it establishes procedures to 
ensure that information with respect to such clearing activities will 
not be used to compromise the Information Barrier. In this regard: (1) 
The procedures must provide that any information pertaining to Market 
Maker securities positions and trading activities, and information 
derived from any clearing and margin financing arrangements, may be 
made available only to those employees (other than employees actually 
performing clearing and margin functions) specifically authorized under 
this Rule to have access to such information or to other employees in 
senior management positions who are involved in exercising general 
managerial oversight with respect to the market making activity; and 
(2) any margin financing arrangements must be sufficiently flexible so 
as not to limit the ability of any Market Maker to meet market making 
or other obligations under the Exchange's Rules.
    The Commission believes that the Exchange's proposed rules 
regarding Market Makers for BeX are appropriate and consistent with the 
Act. The Commission notes that the Exchange's rules are substantially 
similar to rules of other exchanges that it has previously 
approved.\32\
---------------------------------------------------------------------------

    \32\ See, e.g., NYSE Arca Rule 7.26.
---------------------------------------------------------------------------

H. Application of ``Effect v. Execute'' Exemption From Section 11(a) of 
the Act

    When the Commission approved BeX Phase I,\33\ the Commission found, 
based upon representations made by the Exchange,\34\ that BeX Phase I 
satisfied the requirements of Rule 11a2-2(T) \35\ under Section 11(a) 
of the Act.\36\ With respect to Rule 11a2-2(T)'s off-floor 
requirement,\37\ the Commission found that orders sent, by electronic 
means, from the Exchange's physical trading floor could be considered 
to be sent from ``off-floor'' for purposes of the BeX trading 
system.\38\ In reaching this conclusion, the Commission relied, among 
other things, upon the Exchange's statement that securities traded on 
the BeX trading system would not be traded on the Exchange's physical 
floor and, therefore, the BeX trading system could be considered 
essentially a different, separate ``trading floor.'' \39\
---------------------------------------------------------------------------

    \33\ See BeX Phase I Order, supra note 6.
    \34\ See Letter from William C. Meehan, General Counsel, BSE, to 
Kelly M. Riley, Assistant Director, Division of Market Regulation, 
Commission, dated June 2, 2006; Letter from William C. Meehan, 
General Counsel, BSE, to Kelly M. Riley, Assistant Director, 
Division, Commission, dated August 8, 2006.
    \35\ 17 CFR 240.11a2-2(T).
    \36\ 15 U.S.C. 78k(a).
    \37\ See 17 CFR 240.11a2-2(T)(a)(2)(ii).
    \38\ See BeX Phase I Order, supra note 6, at 52197.
    \39\ See id. In the BeX Phase I Order, the Commission also noted 
that Exchange members on the Exchange's physical trading floor would 
not have a time/place advantage with regard to the securities traded 
in the BeX trading system, and that members present on the 
Exchange's physical trading floor would see information about orders 
at the top of the BeX trading system only after that information had 
been sent to the securities information processor for dissemination 
to the public.
---------------------------------------------------------------------------

    In connection with the proposed rule change to implement BeX Phase 
II, the Exchange updated certain representations it made to the 
Commission to reflect changes being made in BeX Phase II. Specifically, 
the Exchange stated that upon implementation of BeX Phase II, all 
transactions on the Exchange will take place within the BeX electronic 
trading facility, and the Exchange's physical trading floor will cease 
to exist. Accordingly, the Exchange has represented that in BeX Phase 
II, all orders for the accounts of Exchange members will be transmitted 
to the BeX trading system from off the floor (since the Exchange no 
longer will have any physical trading floor) by electronic means.\40\ 
The Exchange has stated that, other than the elimination of the 
physical trading floor, all of the other representations it made to the 
Commission in connection with BeX Phase I remain true and correct in 
all respects for BeX Phase II.\41\ Therefore, the Commission believes 
that BeX Phase II satisfies the requirements of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \40\ See Amendment No. 2.
    \41\ See id.
---------------------------------------------------------------------------

I. Regulation NMS

1. Locking and Crossing Quotations in NMS Stocks
    In accordance with the requirements of Rule 610 of Regulation NMS, 
BSE Members would have an obligation to reasonably avoid displaying, 
and avoid engaging in a pattern or practice of displaying any 
quotations that lock or cross a protected quotation, and any manual 
quotations that lock or cross a quotation previously disseminated 
pursuant to an effective national market system plan. This rule would 
be contained in new Chapter XXXVIII, Section 2 of the BSE Rules. The 
proposed rule states that it will not become effective until February 
5, 2007, or an earlier appropriate exemption from the ITS Plan is 
obtained.
    For purposes of this proposed rule, a ``crossing quotation'' would 
mean the display of a bid for an NMS stock during regular trading hours 
at a price that is higher than the price of an offer for such NMS stock 
previously disseminated pursuant to an effective national market system 
plan, or the display of an offer for a NMS stock during regular trading 
hours at a price that is lower than the price of a bid for such NMS 
stock previously disseminated pursuant to an effective national market 
system plan. For purposes of this proposed rule, a ``locking 
quotation'' would mean the display of a bid for an NMS stock during 
regular trading hours at a price that equals the price of an offer for 
such NMS stock previously disseminated pursuant to an effective 
national market system plan, or the display of an offer for a NMS stock 
during regular trading hours at a price that equals the price of a bid 
for such NMS stock previously disseminated pursuant to an effective 
national market system plan.
    The proposed rule would provide four exceptions from the 
prohibition on locking or crossing protected quotations. The proposed 
rule would except: (1) Those quotations displayed at a time when the 
Trading Center displaying the locked or crossed quotation was 
experiencing a failure, material delay or malfunction of its systems or 
equipment; (2) those quotations displayed at a time when the protected 
bid was higher than a protected offer in the NMS stock; (3) those 
automated quotations where the BSE member displaying such automated 
quotation simultaneously routed an ISO order to execute against the 
full displayed size of any locked or crossed protected quotation; and 
(4) those manual quotations that locked or crossed another manual 
quotation, and the BSE member displaying the locking or

[[Page 59167]]

crossing manual quotation simultaneously routed an ISO to execute 
against the full displayed size of the locked or crossed manual 
quotation.
    The Commission believes that the proposed rule on locking or 
crossing quotations is consistent with Rule 610(d) of Regulation NMS.
2. Order Routing
    The BSE has proposed a rule, in accordance with the requirements of 
Regulation NMS, that would govern the order routing process.\42\
---------------------------------------------------------------------------

    \42\ See Chapter XXXVIII, Section 3 of the BSE Rules (Order 
Routing).
---------------------------------------------------------------------------

    The BSE would only route an eligible order when the order has not 
been executed in its entirety on BeX due to the requirements of Chapter 
XXXVIII, Section 4, paragraph (a) of the BSE Rules, consistent with 
Rule 611of Regulation NMS, and the terms of the order permit routing to 
another Trading Center for execution. The BSE has determined that 
eligible orders would be orders that are designated by the customer to 
execute or route. IOC, AIOC, all ISO order types and FOK orders would 
not be designated to execute or route.
    Orders would be routed either in their entirety or as component 
orders to an away Trading Center(s). Orders would be routed, consistent 
with Rule 611 of Regulation NMS, to the Trading Center(s) publishing 
any better-priced Protected Bid(s) or Protected Offer(s) for execution 
against such Protected Bid(s) or Protected Offer(s) for the full 
displayed size of the Protected Quotation. The remaining portion of the 
order, if any, will be executed, or ranked and displayed on the BSE 
book, in accordance with the terms of such order and would be handled 
in the manner described in Chapter XXXVII, Section 3 of the BSE Rules.
    Eligible orders would be routed on behalf of the Member who 
submitted the eligible order if that Member is a member or subscriber 
of the away Trading Center or, in the case where the Member is not a 
member or subscriber of the away Trading Center, the order would be 
routed through a third party broker-dealer, or ``give up,'' that is a 
member or subscriber of the away Trading Center pursuant to the terms 
of an agreement entered into between the BSE and that third party 
broker-dealer, which agreement is described below. The eligible order 
would be routed to another Trading Center priced at the Protected Quote 
published by the Trading Center.
    As stated above, the Exchange would route orders to other Trading 
Centers under certain circumstances (``Routing Services''). The 
Exchange would provide its Routing Services pursuant to the terms of 
three separate agreements: (1) An agreement between the Exchange and 
each Member on whose behalf orders would be routed (``Member-Exchange 
Agreement''); (2) an agreement between the Exchange and each third-
party broker-dealer that would serve as a ``give-up'' on an away 
Trading Center when the Member on whose behalf an order is routed is 
not also a member or subscriber of the away Trading Center (``Give-Up 
Agreement''); and (3) an agreement between the Exchange and a third-
party service provider (``Technology Provider'') pursuant to which the 
Exchange licenses the routing technology used by the Exchange for its 
Routing Services (``Exchange-Technology Provider Agreement'').
    The Exchange would provide its Routing Services in compliance with 
these rules and with the provisions of the Act and the rules 
thereunder, including, but not limited to, the requirements in Sections 
6(b)(4) and (5) of the Act \43\ that the rules of a national securities 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among its members and issuers and other persons using 
its facilities, and not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    As provider of the Routing Services, the Exchange would license the 
necessary routing technology for use within its own systems and 
accordingly would control the logic that determines when, how, and 
where orders are routed away to other Trading Centers.
    The Exchange would establish and maintain procedures and internal 
controls reasonably designed to adequately restrict the flow of 
confidential and proprietary information between the Exchange 
(including its facilities) and the Technology Provider, and, to the 
extent the Technology Provider reasonably receives confidential and 
proprietary information, that adequately restrict the use of such 
information by the Technology Provider to legitimate business purposes 
necessary for the licensing of routing technology. The Exchange-
Technology Provider Agreement would include terms and conditions that 
enable the Exchange to comply with these proposed requirements.
    As noted above, if an order that is eligible for routing cannot be 
executed in its entirety on the BSE, consistent with the requirements 
of Rule 611 of Regulation NMS, the order would be routed to the 
applicable Trading Center(s). While an order remains outside the BSE, 
it would have no time standing relative to others received from BSE 
Members at the same price that could be executed against interest on 
the BSE book. Requests from BSE Members to cancel their orders while 
routed away to another Trading Center would be processed subject to 
applicable trading rules of the relevant away Trading Center. Where an 
order is not fully executed at the away Trading Center(s), the order 
would be executed, or ranked and displayed on the BSE book in 
accordance with the terms of such order and would be handled in the 
manner described in Chapter XXXVII, Section 3 of the BSE Rules.
    The Commission finds that the Exchange's proposal to provide 
outbound Routing Services, and the proposed rules governing such 
services, are consistent with the Act. The Commission notes that the 
Exchange's proposed outbound routing functionality is not the exclusive 
means for accessing better priced quotes in other market centers, 
should an order not be executable on the BeX facility. Accordingly, the 
Exchange's Routing Services are optional, and a Member is free to route 
its orders to other market centers through alternative means.
3. Order Protection Requirements Rule
    The BSE, in accordance with the requirements of Regulation NMS, has 
proposed an order protection requirements rule that would prohibit 
trades from being executed on the BSE if the execution would result in 
an improper trade-through under Rule 611 of Regulation NMS.\44\ If the 
execution of an order on the Exchange would cause an improper trade-
through, that order, if eligible to route, would be routed to the 
appropriate Trading Center(s) or, if not, automatically cancelled. The 
proposed rule states that it will not become effective until February 
5, 2007.
---------------------------------------------------------------------------

    \44\ See proposed Chapter XXXVIII, Section 4 of the BSE Rules 
(``Order Protection Requirements''). Under the proposed rule, an 
order would not be eligible for execution on the BSE if its 
execution is at a price that is lower than a Protected Bid or higher 
than a Protected Offer (a ``trade-through''), or if its execution 
would be improper under Rule 611 of Regulation NMS (together, an 
``improper trade-through'').
---------------------------------------------------------------------------

    The proposed order protection requirements rule would contain 
several exceptions that are exceptions under Rule 611 of Regulation 
NMS, including: A crossed markets exception, a self-help exception, a 
non-regular way cross exception, a single priced opening,

[[Page 59168]]

reopening or closing trade exception, an inbound ISO exception, a stop 
order exception, and an exception for a benchmark order executed at the 
BSE.\45\ In addition, the BSE would be able to disregard the bid or 
offer of a Trading Center if it is identified by the Trading Center a 
manual quotation. If a purchase or sale of an NMS stock qualifies for 
an exception to the Order Protection Rule under Regulation NMS, the BSE 
would attach an appropriate modifier approved by the operating 
committee of the relevant national market system plan.\46\
---------------------------------------------------------------------------

    \45\ According to the Exchange, BeX does not presently provide 
for non-regular was cross orders or benchmark orders, although these 
order types may be introduced in the future through an appropriate 
proposed rule change to be filed with the Commission.
    \46\ If a trade is executed pursuant to the ISO exception of 
Rule 611(b)(5) or (6) and the self-help exception of Rule 611(b)(1), 
the trade will be identified as executed pursuant to the ISO 
exception.
---------------------------------------------------------------------------

    The Exchange represents that it intends to operate as an automated 
trading system that displays bids and offers that qualify as automated 
quotations under the definition set out in Rule 600(b)(3) of Regulation 
NMS, with manual capabilities in the event it is unable to generate 
automated quotations. Among other things, if the BSE has not accepted 
two or more AIOC orders sent as sequential test messages, the BSE would 
attach a ``manual'' identifier to the bids and offers it makes publicly 
available. Additionally, immediately upon receiving an alert as a 
result of its periodic processes that the Exchange's trading system has 
taken more than two seconds to process two or more AIOC orders in a 
symbol sent as sequential messages, the Market Operations Center 
(``MOC'') would automatically attach a ``manual'' identifier to the 
bids and offers it makes publicly available.
    Once the BSE has made any required systems changes, or otherwise 
determined that its quotations satisfied the requirements of Rule 
600(b)(3) of Regulation NMS, and conducted applicable tests to confirm 
that the Exchange's quotes qualify as automated quotations, the 
Exchange would remove the ``manual'' identifier from the bids and 
offers that are made publicly available. The Exchange also would notify 
other Trading Centers that its quotations are automated by announcing 
that fact through an appropriate mechanism for communicating with other 
Trading Centers.
    The Commission believes that the Exchange's rules governing order 
protection requirements are consistent with Rule 611 of Regulation NMS.

IV. Accelerated Approval of Amendment No. 2

    The Commission finds good cause for approving Amendment No. 2 to 
the proposed rule change prior to the thirtieth day after publishing 
notice of Amendment No. 2 in the Federal Register pursuant to Section 
19(b)(2) of the Act.\47\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange: (1) Introduced a new order type 
to be known as a non-displayed order; (2) amended the definition of a 
preferred price cross and ISO cross; (3) clarified when certain 
provisions related to Regulation NMS become effective; (4) added 
provisions for the handling of odd-lot and mixed-lot orders, including 
the ranking and display of odd-lots and mixed-lots; (5) clarified the 
ranking and display of Reserve Orders; (6) added a provision relating 
to the anonymity of trades executed by a Member against itself; (7) 
added a provision relating to access to BeX by Sponsored Participants; 
(8) stating that, for purposes of Section 11(a) of the Act (15 U.S.C. 
78k(a)) and Rule 11a2-2(T) (17 CFR 240.11a2-2(T)) thereunder, all 
orders for the accounts of Exchange members will be transmitted to the 
BeX trading system from off the floor (since the Exchange no longer 
will have any physical trading floor) by electronic means; and (9) 
making several clarifying changes and correcting several technical 
errors contained in the rule text.
    The Commission notes that the proposal to amend the definition of a 
preferred price cross order to require it to execute at better than the 
best bid and offer displayed on BeX and equal to or better than the 
National Best Bid or National Best Offer is a clarifying change that 
comports with the requirements for cross orders on BeX previously 
approved by the Commission.\48\ Amendment No. 2 made a similar change 
with respect to the definition of an ISO cross order. The Commission 
further notes that other exchanges have rules in place similar to the 
rules proposed by the Exchange relating to non-displayed orders, odd-
lot and mixed-lot orders, anonymity of trades executed by a Member 
against itself, and access by Sponsored Participants. Finally, 
Amendment No. 2 contains several clarifying and technical changes that 
do not affect the substance of the proposed rule change.
---------------------------------------------------------------------------

    \48\ See note 6 supra.
---------------------------------------------------------------------------

    Accordingly, the Commission believes that accelerating approval of 
Amendment No. 2 raises no new or novel issues of regulatory concern and 
therefore the Commission believes its implementation should not be 
delayed. The Commission also believes that accelerated approval is 
reasonable because it should help to ensure that the appropriate rules 
are in place at the Exchange at the time that the BSE's final technical 
specifications with respect to Regulation NMS must be published. 
Further, the Exchange's representation with respect to the 
applicability of Rule 11a2-2(T) to trading on BeX simply updates a 
representation previously provided to the Commission.
    For the reasons noted above, the Commission finds good cause for 
approving Amendment No. 2 to the proposed rule change prior to the 
thirtieth day after publishing notice of Amendment No. 2 in the Federal 
Register pursuant to Section 19(b)(2) of the Act.\49\
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(2). Pursuant to Section 19(b)(2) of the 
Act, the Commission may not approve any proposed rule change, or 
amendment thereto, prior to the thirtieth day after the date of 
publication of the notice thereof, unless the Commission finds good 
cause for so doing.
---------------------------------------------------------------------------

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-2006-30 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-2006-30. 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

[[Page 59169]]

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 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 
Amendment No. 2 of File Number SR-BSE-2006-30 and should be submitted 
on or before October 27, 2006.

VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Section 6(b)(5) of the Act.\50\
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\51\ that the proposed rule change (SR-BSE-2006-30) is approved and 
Amendment No. 2 is approved on an accelerated basis.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\52\
---------------------------------------------------------------------------

    \52\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-16580 Filed 10-5-06; 8:45 am]

BILLING CODE 8011-01-P