Document ID: SEC-2008-1001-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Boston Stock Exchange, Inc.
Posted Date: 2008-07-18T04:00Z

[Federal Register: July 18, 2008 (Volume 73, Number 139)]
[Notices]               
[Page 41384-41386]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jy08-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58140; File No. SR-BSE-2008-40]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to a New Quote Removal Mechanism Upon Technical Disconnect

July 10, 2008.
    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 July 8, 2008, 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. The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act,\3\ and Rule 19b-4(f)(5) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(5).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Chapter VI of the Boston Options 
Exchange Group LLC (``BOX'') Rules to add Section 16, Quote Removal 
Mechanism Upon Technical Disconnect (``Quote Removal Mechanism''). The 
text of the proposed rule change is available at http://
www.bostonstock.com, the principal office of the Exchange, and the 
Commission's Public Reference Room.

[[Page 41385]]

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
    The Exchange is proposing to amend the BOX Rules to add a new Quote 
Removal Mechanism in order to protect BOX Market Makers in the event 
that they lose communication with the BOX Trading Host \5\ due to a 
loss of connectivity between their designated BOX Gateway \6\ and the 
BOX Trading Host.
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    \5\ References herein to the term Trading Host will have the 
meaning as set forth in Section 1(a)(65) of Chapter I of the BOX 
Rules.
    \6\ A ``Gateway'' is the system component through which Market 
Makers communicate their quotes to the Trading Host. See Proposed 
Chapter VI, Section 16, Supplementary Material .01, BOX Rules.
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    BOX Market Makers currently enter quotes into the Trading Host via 
Gateways. BOX currently has several Gateways, and multiple Market 
Makers may connect to the Trading Host through a single Gateway. All 
the quotes for each class to which a Market Maker is assigned may be 
sent through a particular Gateway or, alternatively, a single Market 
Maker may have the quotes for separate classes to which it is assigned 
sent through different Gateways. Under the proposed rule, if the 
Trading Host does not receive any Heartbeat messages (``Heartbeat'') 
\7\ from a Gateway for a specified period of time, the Quote Removal 
Mechanism will automatically cancel all Market Maker quotes that were 
posted through the affected Gateway.
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    \7\ A Heartbeat message is a communication which acts as a 
virtual pulse between a Gateway and the Trading Host. The Heartbeat 
message sent by the Gateway and subsequently received by the Trading 
Host allows the Trading Host to continually monitor its connection 
with the Gateways.
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    As proposed, the Quote Removal Mechanism will monitor the 
connections between the Trading Host and the Gateways. The Trading Host 
will continuously count the number of seconds (``n'') (the ``Counter'') 
since the last Heartbeat message was received from a particular 
Gateway. Each Heartbeat message received by the Trading Host from a 
particular Gateway will restart the Counter for that particular 
Gateway. The Quote Removal Mechanism will be triggered, and a Market 
Maker's quotes will automatically be removed from the Trading Host, if 
the Counter reaches ``n'' seconds.
    Any non-connectivity is Gateway-specific. Therefore, the 
cancellation of the Market Makers' quotes entered into the Trading Host 
via a particular Gateway will neither impact nor determine the 
treatment of the quotes of the same or other Market Makers entered into 
the Trading Host via a separate and distinct Gateway. After the Quote 
Removal Mechanism is employed, and upon a reconnection between the 
Gateway and the Trading Host, the Trading Host will send a message to 
the affected Market Makers informing them that their quotes through the 
specific affected Gateway have been automatically cancelled.
    The period of non-connectivity that will trigger the removal of the 
Market Makers' quotes via the Quote Removal Mechanism will be standard 
for all Market Makers.\8\ The Quote Removal Mechanism will be enabled 
for all Market Makers on their appointed options classes during the 
trading day and may not be disabled by the Market Makers.
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    \8\ The Exchange will notify Market Makers via Regulatory 
Circular as to the setting of ``n'' seconds. This value will be 
configurable by the Exchange and any subsequent re-configurations 
will be announced to Market Makers via Regulatory Circular. In no 
event shall ``n'' seconds be set for less than one (1) second or 
greater than nine (9) seconds.
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    The following examples illustrate the manner in which the Quote 
Removal Mechanism will function: \9\
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    \9\ For the purposes of this example only, ``n'' will be set at 
5 seconds.
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(1) 11:30:00--Counter starts
    11:30:02--Trading Host receives a Heartbeat message from Gateway 1. 
Counter re-starts
(2) 3:30:00--Counter starts
    3:30:02:--Trading Host receives a Heartbeat message from Gateway 1. 
Counter re-starts
    3:30:07--No Heartbeat messages received from Gateway 1 after 5 
seconds. Pursuant to the proposed Quote Removal Mechanism, all Market 
Maker quotes entered through Gateway 1 are removed from the Trading 
Host.
    As demonstrated above, the Counter will restart for a Gateway each 
time the Trading Host receives a Heartbeat message from that particular 
Gateway. Once connectivity to the Gateway is reestablished, the Market 
Makers affected by the mechanism will be able to send messages to the 
Trading Host in order to reestablish their quotes. Any quotes affected 
by the Quote Removal Mechanism, including quotes that are removed from 
the Trading Host and/or quotes sent to BOX during the period of non-
connectivity, will not be taken into account when determining whether a 
Market Maker has fulfilled its continuous quoting obligations on 
BOX.\10\ Only after connectivity to the Gateway has been reestablished 
will quotes once again be taken into account for this purpose.
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    \10\ See Section 6(d) of Chapter VI of the BOX Rules.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\11\ in general, and Section 
6(b)(5) of the Act,\12\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, 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. 
The Exchange believes that this proposed rule change will benefit the 
marketplace because it will reduce the risk of erroneous or stale 
quotes on the BOX Book in the event that the Trading Host loses 
connectivity with a Gateway. Furthermore, the proposed Quote Removal 
Mechanism will provide for the protection of Market Makers, who must 
bear the burden of market risk for stale quotes caused by circumstances 
outside of their control, as well as for the protection of investors 
and the efficiency and fairness of the markets as a whole.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 41386]]

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(5) \14\ thereunder 
because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) have the effect of 
limiting the access to or availability of an existing order entry or 
trading system of the Exchange.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 19b-4(f)(5).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further 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-2008-40 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.
    All submissions should refer to File Number SR-BSE-2008-40. 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 Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filings also will be available for 
inspection and copying at the principal office of BSE. 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 publicly available. All 
submissions should refer to File Number SR-BSE-2008-40 and should be 
submitted on or before August 8, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16401 Filed 7-17-08; 8:45 am]

BILLING CODE 8010-01-P