Document ID: SEC-2006-1255-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2006-09-27T04:00Z

[Federal Register: September 27, 2006 (Volume 71, Number 187)]
[Notices]               
[Page 56569-56571]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27se06-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54476; File No. SR-BSE-2006-31]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Removing Its Short Sale Price Test Rule

September 20, 2006.
    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 September 6, 2006, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. BSE has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under paragraph (f)(6) 
of Rule 19b-4 under the Act,\3\ which renders the proposal effective 
upon receipt of this filing by the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSE proposes amending its rules related to trading in Nasdaq 
securities to remove the short sale price test rule, or ``bid test'' 
rule, applicable to Nasdaq Global Market securities and Nasdaq Capital 
Market securities (``Nasdaq Securities'') traded on facilities of the 
BSE. That rule is presently set forth in Chapter XXXV, Section 26 of 
the BSE Rules.
    In addition to removing the BSE ``bid test'' rule for short sales 
of Nasdaq Securities from the BSE Rules, the proposed amendment is 
intended to clarify that all Nasdaq Securities traded on BSE facilities 
will be exempt from the requirements of any short sale price test 
applicable to Nasdaq Securities, including, but not limited to, the 
short sale price test set forth in Rule 10a-1 of the Act.
    Regulation SHO Rule 202T established procedures to allow the 
Commission to temporarily suspend short sale price tests so that the 
Commission could study the effectiveness of short sale price tests (the 
``Pilot'').\4\ The Pilot is designed to assist the Commission in 
assessing whether changes to short sale regulation are necessary in 
light of current market practices and the purposes underlying short 
sale regulation. To determine whether additional rulemaking is 
necessary, Commission staff will evaluate the results of the Pilot. 
After completion of the Pilot Program or at such other time if the 
Commission determines that such exemptions are no longer necessary or 
appropriate in the public interest or consistent with the protection of 
investors, the BSE will amend its rules accordingly, if necessary. The 
text of the proposed rule change is available from the principal office 
of the Exchange and from the Commission's Public Reference Room.
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    \4\ See Exchange Act Release No. 50104 (July 28, 2004), 69 FR 
48032 (August 6, 2004).
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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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    On or about August 1, 2006, The NASDAQ Stock Market LLC 
(``Nasdaq'') became a national securities exchange. As a result of 
Nasdaq becoming a national securities exchange, Nasdaq Securities 
became exchange listed securities subject to the short sale ``tick 
test'' provisions of Rule 10a-1 under the Act, which governs short 
sales of any security registered on, or admitted to, unlisted trading 
privileges on a national securities exchange if such transactions are 
made pursuant to an effective transaction reporting plan as defined in 
Rule 600 of Regulation NMS.\5\
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    \5\ See the July 20, 2006 letter from James Brigagliano, Acting 
Associate Director, Securities and Exchange Commission, Division of 
Market Regulation to David C. Whitcomb, Jr., at the Chicago Stock 
Exchange, Inc.
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    Both the Chicago Stock Exchange, Inc. and Nasdaq requested, and 
have been granted, an exemption from the ``tick test'' provisions of 
Rule 10a-1 for Nasdaq listed securities while the Regulation SHO Pilot 
Program (the ``Pilot Program'') remains pending or until such other 
time as the Commission determines that such exemptions are no longer 
necessary or appropriate in the public interest or consistent with the 
protection of investors.\6\ The BSE intends to rely upon the exemption 
from the ``tick test'' provisions of Rule 10a-1 set forth in the 
Commission's July 20, 2006 letter to the Chicago Stock Exchange, Inc. 
As such, transactions in Nasdaq Securities on the BSE will be exempt 
from the ``tick test'' provisions of Rule 10a-1 just as transactions in 
Nasdaq Securities on the Chicago Stock Exchange, Inc. are exempt. The 
BSE will

[[Page 56570]]

not apply a ``tick test'' for Nasdaq Securities until the Pilot Program 
is completed or the Commission directs otherwise.
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    \6\ See id.
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    Even though the BSE will not be applying the ``tick test'' to 
Nasdaq Securities traded on the BSE, the BSE does have a short sale 
price test rule that requires Nasdaq Securities traded by specialists 
be subject to a ``bid test.'' \7\ The BSE ``bid test'' rule is 
presently set forth in Chapter XXXV, Section 26 of the BSE Rules and 
states, in relevant part, that ``No specialist shall effect a short 
sale for the account of a customer or for his own account in a Nasdaq 
security at or below the current best (inside) bid when the current 
best (inside) bid is below the preceding best (inside) bid in the 
security.'' This proposed amendment is intended to remove the short 
sale ``bid test'' rule applicable to Nasdaq Securities traded by 
specialists on the BSE. This proposed amendment would allow short sales 
of Nasdaq Securities traded by specialists on the BSE without a short 
sale price test rule until December 31, 2006, after which the BSE will 
be trading Nasdaq Securities solely on its fully electronic Boston 
Equities Exchange (``BeX''). As of January 1, 2007 there will no longer 
be any specialist traded stocks on the BSE or any of its facilities. As 
such, BeX traded securities are not subject to Chapter XXXV, Section 26 
of the BSE Rules because they are not traded by specialists.
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    \7\ Prior to Nasdaq becoming a national securities, NASD's short 
sale ``bid test'' Rule 3350, now Rule 5100, was not applicable to a 
National Securities Exchange trading Nasdaq securities on an 
unlisted trading privileges basis. Therefore there was no 
requirement for the BSE to have a short sale ``bid test'' rule for 
Nasdaq securities.
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    The BSE has not traded a Nasdaq security on the Exchange since or 
about September of 2004. BSE began receiving nominal specialist-traded 
Nasdaq crossing business in August 2006. In August, BSE received one 
cross transaction. BSE expects that the specialist-traded Nasdaq 
crossing business, which will conclude when BSE begins trading Nasdaq 
securities on the fully electronic BeX on January 1, 2007, will 
continue to be a nominal amount in overall Nasdaq security trading 
volume and should not have any material effect on the Pilot. The BSE 
believes if it did not remove its current short sale ``bid test'' rule 
it would be at a competitive disadvantage to other regional market 
centers.
2. Basis
    BSE states that the proposed amendment is designed to prevent the 
BSE from being at a competitive disadvantage to other regional market 
centers that may be able to attract order flow as a result of their not 
having any short sale price test applicable to Nasdaq Securities until 
completion of the Pilot Program or until such other time as the 
Commission determines that such exemptions are no longer necessary or 
appropriate in the public interest or consistent with the protection of 
investors. Except for some nominal Nasdaq crossing business that began 
in August 2006 and will conclude on January 1, 2007, BSE has not traded 
Nasdaq securities since September 2004. In addition, the proposed 
amendment will delete a rule that will be rendered obsolete on January 
1, 2007, when BSE begins trading Nasdaq securities on the BeX on a 
fully electronic basis without specialists. As such, the Exchange 
believes that the proposal is consistent with the requirements of 
Section 6(b) of the Act,\8\ in general, and Section 6(b)(5) of the 
Act,\9\ in particular, in that it is designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transaction in 
securities, to remove impediments to and perfect the mechanism for a 
free and open market and a national market system, and, in general, 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 comments on the 
proposed rule change.

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

    (a) This proposed rule change is filed pursuant to paragraph (A) of 
section 19(b)(3) of the Act.
    (b) Because the foregoing rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
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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    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 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 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-2006-31 on 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 No. SR-BSE-2006-31. 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 at the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the above-mentioned self-regulatory organization. 
All comments received will be posted without change; the Commission 
does

[[Page 56571]]

not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to the File Number SR-BSE-2006-31 and should 
be submitted on or before October 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-15793 Filed 9-26-06; 8:45 am]

BILLING CODE 8010-01-P