Document ID: SEC-2006-0403-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.
Posted Date: 2006-03-27T05:00Z

[Federal Register: March 27, 2006 (Volume 71, Number 58)]
[Notices]               
[Page 15232-15234]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr06-99]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53516; File No. SR-BSE-2006-14]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendments No. 1 and 2 Thereto Relating to Information Contained in 
a Directed Order on the Boston Options Exchange

March 20, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 14, 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 and 
II below, which Items have been prepared by the BSE. On March 16, 2006, 
the BSE filed Amendment No. 1 to the proposed rule change.\3\ On March 
17, 2006, the BSE filed Amendment No. 2 to the proposed rule change.\4\ 
The BSE filed the proposed rule change pursuant to section 19(b)(3)(A) 
of the Act \5\ and Rule 19b-4(f)(6) thereunder,\6\ which renders the 
proposed rule change effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which supersedes and replaces the 
original filing in its entirety, the BSE changed the statutory basis 
of the filing.
    \4\ In Amendment No. 2, which supersedes and replaces the 
original filing and Amendment No. 1 in its entirety, the BSE changed 
the statutory basis of the filing.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') is 
proposing to amend its rules governing its Directed Order process on 
the Boston Options Exchange (``BOX''). The Exchange is proposing to 
clearly state that the BOX Trading Host identifies to an Executing 
Participant (``EP'') \7\ the identity of the firm entering a Directed 
Order. This rule will be effective until June 30, 2006, while the 
Commission considers a corresponding Exchange proposal \8\ to amend its 
rules to permit EPs to choose the firms from whom they will accept 
Directed Orders, while providing complete anonymity of the firm 
entering a Directed Order.\9\ In addition, the Exchange commits that it 
will cease to provide the identity of order entry firms prior to June 
30, 2006, if the Commission staff prohibits all options exchanges from 
disclosing the identity of order entry firms in their Directed Order 
systems.
---------------------------------------------------------------------------

    \7\ BSE proposes that a Market Maker who desires to accept 
Directed Orders must systemically indicate that it is an EP whenever 
the Market Maker wishes to receive Directed Orders.
    \8\ See Securities Exchange Act Release No. 53357 (February 23, 
2006), 71 FR 10730 (March 2, 2006) (SR-BSE-2005-52).
    \9\ In the event that the issue of anonymity in the Directed 
Order process is not resolved by June 30, 2006, the Exchange intends 
to submit another filing under Rule 19b-4(f)(1) under the Act 
extending this rule and system process.
---------------------------------------------------------------------------

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 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. The BSE 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
    BSE seeks to amend its rules to clearly state that the BOX Trading 
Host identifies to an EP the identity of the firm entering a Directed 
Order. Market Makers are able to handle orders on an agency basis 
directed to them by Order Flow Providers (``OFPs''). In Section 1, 
Chapter I of the BOX Rules, a Directed Order is defined as a Customer 
Order directed to a Market Maker by an OFP. An OFP sends a Directed 
Order to BOX with a designation of the Market Maker to whom the order 
is to be directed. BOX then routes the Directed Order to the 
appropriate Market Maker. Under Chapter VI, Section 5(c)(ii) of the BOX 
Rules, a Market Maker only has two choices when he receives a Directed 
Order: (1) Submit the order to the PIP process; or (2) send the order 
back to BOX for placement onto the BOX Book.
    The BSE proposes to amend Chapter VI, Section 5(c)(i) of the BOX 
Rules to clarify that unlike all other orders submitted to the BOX 
Trading Host, Directed Orders are not anonymous. The Options 
Participant identification number (``Participant ID'') of the OFP 
sending the Directed Order will be revealed to the Market Maker 
recipient. The Market Maker must submit this Participant ID to BOX 
whenever the Market Maker chooses to submit the Directed Order and his 
Primary Improvement Order to the PIP process. However, once the 
Directed Order is submitted to the PIP process or the BOX Book, the 
Participant ID is not shown to any market participant and the identity 
of the OFP will be anonymous pursuant to Chapter V, Section 14(e) of 
the BOX Rules.
    Chapter VI, Section 5(c)(i) of the BOX Rules prohibits a Market 
Maker from rejecting a Directed Order. The BSE wishes to clarify that 
upon systematically indicating its desire to accept Directed Orders, a 
Market Maker that receives a Directed Order is not, under any 
circumstances, to reject the receipt of the Directed Order from the BOX 
Trading Host nor reject the Directed Order back to the OFP who

[[Page 15233]]

sent it. A Market Maker who desires to accept Directed Orders must 
systemically indicate that it is an EP whenever the Market Maker wishes 
to receive Directed Orders from the BOX Trading Host. If a Market Maker 
does not systemically indicate that it is an EP, then the BOX Trading 
Host will not forward any Directed Orders to that Market Maker. In such 
a case, the BOX Trading Host will send the order directly to the BOX 
Book.
Other Clarifying Rule Change Relating to Directed Orders
    Currently, Chapter V, Section 14(e) of the BOX Rules states that 
the identity of Options Participants who submit orders to the Trading 
Host will remain anonymous to market participants at all times, except 
during error resolution or through the normal clearing process as set 
forth in Chapter V, Section 16(a)(vi) of the BOX Rules. Proposed 
Chapter V, Section 14(e) of the BOX Rules and the Supplementary 
Material thereto, would clarify that the Participant ID of an OFP who 
submits orders to the Trading Host for use in the Directed Order 
process will be revealed to the EP who receives such Directed Orders as 
set forth in Chapter VI, Section 5(c) of the BOX Rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is designed to 
clarify the information contained in a Directed Order. This 
clarification will allow Options Participants to make better informed 
decisions in determining when and how to use the Directed Order 
process. Accordingly, the Exchange believes that the proposal is 
consistent with the requirements of section 6(b) of the Act,\10\ in 
general, and section 6(b)(5) of the Act,\11\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Because the foregoing proposed rule change, as amended: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
section 19(b)(3)(A) \12\ of the Act and Rule 19b-4(f)(6) 
thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) under the Act 
requires the self-regulatory organization to provide the Commission 
written notice of its intent to file the proposed rule change at 
least five business days (or such shorter time as designated by the 
Commission) before doing so. The BSE has requested that the 
Commission waive the five-day pre-filing notice requirement. The 
Commission granted BSE's request.
---------------------------------------------------------------------------

    The BSE requests that the Commission waive the 30-day operative 
delay, as specified in Rule 19b-4(f)(6)(iii),\14\ and designate the 
proposed rule change to become operative immediately. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would immediately conform the BOX rules with BOX's current practice and 
clarify that Directed Orders on BOX are not anonymous.\15\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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.\16\
---------------------------------------------------------------------------

    \16\ The effective date of the original proposed rule is March 
14, 2006. The effective date of Amendment No. 1 is March 16, 2006. 
The effective date of Amendment No. 2 is March 17, 2006. For 
purposes of calculating the 60-day period within which the 
Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on March 17, 2006, the date on which the BSE submitted 
Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 No. SR-BSE-2006-14 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-2006-14. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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 available publicly. All submissions should refer to 
File Number SR-BSE-2006-14 and should be submitted on or before April 
17, 2006.
---------------------------------------------------------------------------

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

[[Page 15234]]

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

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Nancy M. Morris,
Secretary.
[FR Doc. E6-4339 Filed 3-24-06; 8:45 am]

BILLING CODE 8010-01-P