Document ID: SEC-2006-1583-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2006-12-07T05:00Z

[Federal Register: December 7, 2006 (Volume 71, Number 235)]
[Notices]               
[Page 71000-71002]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de06-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54832; File No. SR-BSE-2006-46]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Amending Rules To Require 
Securities Become Eligible for a Direct Registration System

 November 29, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 26, 2006, the 
Boston Stock Exchange, Inc. (``BSE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I, II, and III below, which items have been prepared primarily 
by BSE. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSE proposes to amend its rules to require securities of all listed 
companies become eligible to participate in a Direct Registration 
System (``DRS'') administered by a clearing agency registered under 
Section 17A of the Act.

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

    In its filing with the Commission, BSE 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. BSE has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.\2\
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    \2\ The Commission has modified portions of the text of the 
summaries prepared by BSE.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    DRS, as administered by The Depository Trust Company (``DTC''), is 
an electronic system that allows an investor to establish either 
through the issuer's transfer agent or through the investor's broker-
dealer a book-entry position on the books of the issuer and to 
electronically transfer her position between the transfer agent and the 
broker-dealer.\3\ DRS, therefore, allows an investor to have securities 
registered in her name without having a certificate issued to her and 
to electronically transfer, thereby eliminating the risk and delays 
associated with the use of certificates, her securities to her broker-
dealer in order to effect a transaction. Ownership is recorded in book-
entry form, and instead of receiving a physical

[[Page 71001]]

certificate from the issuer or its transfer agent, the investor 
receives a statement of holdings as evidence of ownership.
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    \3\ Currently, the only registered clearing agency operating a 
DRS is DTC. For a description of DRS and the DRS facilities 
administered by DTC, see Securities Exchange Act Release Nos. 37931 
(November 7, 1996), 61 FR 58600 (November 15, 1996), [File No. SR-
DTC-96-15] (order granting approval to establish DRS) and 41862 
(September 10, 1999), 64 FR 51162 (September 21, 1999), [File No. 
SR-DTC-99-16] (order approving implementation of the Profile 
Modification System).
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    BSE believes that DRS will be an important step in reducing the use 
of securities certificates, which should facilitate transfers in 
securities and could eventually lead to lower risks and costs for 
issuers and investors.\4\ To encourage the use of DRS, the BSE proposes 
to require that all listed securities be eligible to participate in 
DRS. Under the proposed rule change, BSE would add Section 3 to Chapter 
XXVII that would require any security initially listing on BSE on or 
after January 1, 2007, to be eligible for a DRS that is operated by a 
clearing agency registered under Section 17A of the Act. This 
requirement, however, would not extend to (i) securities of companies 
which already have securities listed on BSE, (ii) securities of 
companies which immediately prior to such listing had securities listed 
on another securities exchange in the U.S., or (iii) non-equity 
securities which are book-entry only. Under the proposed rule, on and 
after January 1, 2008, all securities listed on BSE, other than non-
equity securities which are book-entry only, must be eligible for a DRS 
that is operated by a clearing agency registered under Section 17A of 
the Act.\5\ While this proposal would require that securities be DRS 
eligible, it would not mandate the elimination of securities 
certificates and, subject to applicable state law and the company's 
governing documents, an investor could still elect to receive a 
securities certificate if an issuer elects to issue securities 
certificates.
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    \4\ In that regard, in March 2004 the Commission published a 
concept release that discussed, among other things, whether more 
should be done to reduce the use of physical securities certificates 
by individual investors. The Commission noted that the use of 
physical certificates increases the costs and risks of clearing and 
settling securities transactions, costs that most often are 
ultimately borne by investors. Securities Exchange Act Release No. 
8398 (March 11, 2004), 69 FR 12922 (March 18, 2004). Issuers may 
save money by not having to print or process physical certificates 
but may incur other ongoing expenses to maintain book-entry records, 
such as mailing statements to shareholders.
    \5\ The exact text of the BSE's proposed rule change is set 
forth in its filing, which can be found at http://www.bostonstock.com/legal/pending_rule_filings.html
.

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    In order for a security to be eligible for the only DRS in 
operation today, the issuer is required to use a transfer agent that 
meets certain insurance and connectivity requirements.\6\ As a result, 
some transfer agents may have to make changes to comply with their 
requirements. In addition, certain issuers may have to make amendments 
to their governing documents, such as their by-laws or corporate 
charters, to be eligible to issue book-entry positions. To allow 
sufficient time for these changes, BSE proposes implementing the 
proposed requirement on January 1, 2008, for issuers with securities 
already listed on BSE or another listed marketplace when the rule is 
approved. Companies listing for the first time would have greater 
flexibility to adopt any required changes and therefore the proposed 
requirement would be applicable to new listings beginning January 1, 
2007.
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    \6\ DTC's rules require that a transfer agent (including an 
issuer acting as its own transfer agent) acting for a company 
issuing securities in DRS must be a DRS Limited Participant. 
Securities Exchange Act Release No. 37931 (November 7, 1996), 61 FR 
58600 (November 15, 1996), [File No. SR-DTC-96-15].
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(2) Statutory Basis
    The statutory basis under the Act for this proposed rule change is 
the requirement under Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of an exchange are designed 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 perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.\7\ BSE believes that the 
proposed rule is consistent with its obligations under Section 6(b)(5) 
because requiring securities to be eligible to use DRS should increase 
the trading of securities in held book-entry forms, which should in 
turn facilitate the processing of securities transactions.
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    \7\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    BSE 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

    BSE has neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period: (i) As the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding; or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-2006-46 in the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-BSE-2006-46. 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 filings also will be 
available for inspection and

[[Page 71002]]

copying at the principal office of BSE and on BSE's Web site, 
http://www.bse.com. 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-
2006-46 and should be submitted on or before December 28, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20730 Filed 12-6-06; 8:45 am]

BILLING CODE 8011-01-P