Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Establishing a De Minimus Exception to the 80/20 Test Relating to Linkage Trades on the Boston Options Exchange, 43472-43473 [E5-3982]

Download as PDF 43472 Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52071; File No. SR–BSE– 2005–16] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Establishing a De Minimus Exception to the 80/20 Test Relating to Linkage Trades on the Boston Options Exchange July 20, 2005. 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 May 19, 2005, 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 BSE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules governing its operation of intermarket linkage (‘‘Linkage’’) on the Boston Options Exchange (‘‘BOX’’). Specifically, the Exchange is proposing to amend Chapter XII, Section 5(b) of the BOX Rules to establish a ‘‘de minimis’’ exception to the limitation on Principal Order access imposed by the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (‘‘Linkage Plan’’) 3 and related rules. The proposed change would provide a de minimis exception from the 80/20 Test, which provides that Market Makers effecting transactions that represent 20 percent or more of their contract volume in a particular calendar quarter by sending Principal Orders 4 to other exchanges via the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 On July 28, 2000, the Commission approved a national market system plan for the purpose of creating and operating an intermarket options market linkage (‘‘Linkage’’) proposed by the American Stock Exchange, LLC, Chicago Board Options Exchange, Inc. and the International Securities Exchange, Inc. See Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, the Philadelphia Stock Exchange, Inc., the Pacific Exchange, Inc. and the BSE joined the Linkage Plan. See Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 (February 12, 2004). 4 The Exchange defines a Principal Order as an order for the principal account of a market maker 2 17 VerDate jul<14>2003 20:48 Jul 26, 2005 Jkt 205001 Linkage may not send Principal Orders in that option during the following calendar quarter. The text of the proposed rule change is available on the BSE’s Web site at https://www.bostonstock.com, the BSE’s Office of the Secretary, and at the Commission’s Public Reference Room. 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 Exchange 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 purpose of this proposed rule change is to implement proposed Joint Amendment No. 17 to the Linkage Plan. Section 8(b)(iii) of the Linkage Plan provides that Eligible Market Makers should send Principal Orders through the Linkage on a limited basis and not as a primary aspect of their business. Joint Amendment No. 17, together with this proposed rule change, would change Chapter XII, Section 5(b) of the BOX Rules to establish an exemption from the provision in the rule that states that a Market Maker that effected 20 percent or more of its volume in a particular option by sending Principal Orders through the Linkage in a calendar quarter is prohibited from sending Principal Orders via the Linkage in such option during the following calendar quarter. The Exchange believes that applying the 80/20 Test has resulted in anomalies for Market Makers with limited volume in an eligible option class. Specifically, if a Market Maker has very little overall trading volume in an option, the execution of one or two Principal Orders during a calendar quarter could result in the Market Maker failing to meet the 80/20 Test. This would bar the Market Maker from using the Linkage to send Principal Orders for the following calendar quarter. It was not the intent of the BOX to bar Market Makers with that does not relate to a customer order the market maker is holding. See Chapter XII, Section I (j)(ii) of the BOX Rules. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 limited volume from sending Principal Orders through the Linkage in these circumstances, since such trading does not constitute a primary aspect of their business. Thus, the Exchange’s proposed rule would create a de minimus exemption from the 80/20 Test for Market Makers that have a total contract volume of less than 1,000 contracts in an options class for a calendar quarter. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 5 in general and furthers the objectives of Section 6(b)(5) 6 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The BSE does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 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 90 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 Exchange 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: 5 15 6 15 E:\FR\FM\27JYN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 27JYN1 Federal Register / Vol. 70, No. 143 / Wednesday, July 27, 2005 / Notices Electronic Comments • Use the Commission’s Internet comment form at https://www.sec.gov/ rules/sro.shtml or send an e-mail to rule-comments@sec.gov. Please include File No. SR–BSE–2005–16 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File No. SR–BSE–2005–16. 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 (https://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. 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–2005–16 and should be submitted on or before August 17, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.7 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–3982 Filed 7–26–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52068; File No. SR–CBOE– 2005–57] Self-Regulatory Organizations; Notice of Filing of a Proposed Rule Change by the Chicago Board Options Exchange, Incorporated Relating to the 80/20 Test of the Plan for the Purpose of Creating and Operating an Intermarket Linkage July 20, 2005. 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 19, 2005, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the CBOE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules governing the operation of the Intermarket Linkage (‘‘Linkage’’). The Exchange is proposing to modify the ‘‘80/20 Test’’ in determining limitations on Principal Order access. The text of the proposed rule change is available on CBOE’s Web site (https:// www.cboe.com), at the CBOE’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CBOE 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 CBOE has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 7 17 CFR 200.30–3(a)(12). VerDate jul<14>2003 19:40 Jul 26, 2005 2 17 Jkt 205001 PO 00000 Fmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the filing is to modify the so-called ‘‘80–20 Test’’ (‘‘Test’’) in Exchange Rule 6.85. The Rule states that Market-Makers should send Principal Orders through the Linkage on a limited basis and not as a primary aspect of their business.3 The Test implements this general principle by prohibiting a Market-Maker from sending Principal Orders in an eligible option class if, in the last calendar quarter, the MarketMaker’s Principal Order contract volume is disproportionate to the Market-Maker’s contract volume executed against customer orders in its own market. The Exchange believes that applying the Test has resulted in anomalies for Market-Makers with limited volume in an eligible option class. Specifically, if a Market-Maker has very little overall trading volume in an option, the execution of one or two Principal Orders during a calendar quarter could result in the Market-Maker failing to meet the Test. This would bar the Market-Maker from using the Linkage to send Principal Orders in that options class for the following calendar quarter. The Exchange believes that it was not the intent of the Participants to bar Market-Makers with limited volume from sending Principal Orders through the Linkage in these circumstances since such trading clearly was not ‘‘a primary aspect of their business.’’ Thus, the filing proposes to create a de minimis exemption from the Test for Market-Makers that have total contract volume of less than 1000 contracts in an options class for a calendar quarter. This filing comports to Linkage Plan Joint Amendment No. 17, which is currently pending Commission approval. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 4 in general and furthers the objectives of Section 6(b)(5) 5 in particular in that it should promote just and equitable principles of trade, serve to remove impediments to and perfect the mechanism of a free and open market and a national market system, 3 A Principal Order is an order for the account of an Eligible Market-Maker that does not relate to a customer order the Market-Maker is holding. See Exchange Rule 6.80(12)(ii). 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00084 43473 Sfmt 4703 E:\FR\FM\27JYN1.SGM 27JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43472-43473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3982]



[[Page 43472]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52071; File No. SR-BSE-2005-16]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Establishing a De Minimus 
Exception to the 80/20 Test Relating to Linkage Trades on the Boston 
Options Exchange

July 20, 2005.
    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 May 19, 2005, 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 BSE. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend its rules governing its operation of 
intermarket linkage (``Linkage'') on the Boston Options Exchange 
(``BOX''). Specifically, the Exchange is proposing to amend Chapter 
XII, Section 5(b) of the BOX Rules to establish a ``de minimis'' 
exception to the limitation on Principal Order access imposed by the 
Plan for the Purpose of Creating and Operating an Intermarket Option 
Linkage (``Linkage Plan'') \3\ and related rules. The proposed change 
would provide a de minimis exception from the 80/20 Test, which 
provides that Market Makers effecting transactions that represent 20 
percent or more of their contract volume in a particular calendar 
quarter by sending Principal Orders \4\ to other exchanges via the 
Linkage may not send Principal Orders in that option during the 
following calendar quarter.
---------------------------------------------------------------------------

    \3\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by the American Stock 
Exchange, LLC, Chicago Board Options Exchange, Inc. and the 
International Securities Exchange, Inc. See Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). 
Subsequently, the Philadelphia Stock Exchange, Inc., the Pacific 
Exchange, Inc. and the BSE joined the Linkage Plan. See Securities 
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70851 
(November 28, 2000); 43574 (November 16, 2000), 65 FR 70850 
(November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \4\ The Exchange defines a Principal Order as an order for the 
principal account of a market maker that does not relate to a 
customer order the market maker is holding. See Chapter XII, Section 
I (j)(ii) of the BOX Rules.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the BSE's Web 
site at https://www.bostonstock.com, the BSE's Office of the Secretary, 
and at the Commission's Public Reference Room.

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 Exchange 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 purpose of this proposed rule change is to implement proposed 
Joint Amendment No. 17 to the Linkage Plan. Section 8(b)(iii) of the 
Linkage Plan provides that Eligible Market Makers should send Principal 
Orders through the Linkage on a limited basis and not as a primary 
aspect of their business. Joint Amendment No. 17, together with this 
proposed rule change, would change Chapter XII, Section 5(b) of the BOX 
Rules to establish an exemption from the provision in the rule that 
states that a Market Maker that effected 20 percent or more of its 
volume in a particular option by sending Principal Orders through the 
Linkage in a calendar quarter is prohibited from sending Principal 
Orders via the Linkage in such option during the following calendar 
quarter.
    The Exchange believes that applying the 80/20 Test has resulted in 
anomalies for Market Makers with limited volume in an eligible option 
class. Specifically, if a Market Maker has very little overall trading 
volume in an option, the execution of one or two Principal Orders 
during a calendar quarter could result in the Market Maker failing to 
meet the 80/20 Test. This would bar the Market Maker from using the 
Linkage to send Principal Orders for the following calendar quarter. It 
was not the intent of the BOX to bar Market Makers with limited volume 
from sending Principal Orders through the Linkage in these 
circumstances, since such trading does not constitute a primary aspect 
of their business.
    Thus, the Exchange's proposed rule would create a de minimus 
exemption from the 80/20 Test for Market Makers that have a total 
contract volume of less than 1,000 contracts in an options class for a 
calendar quarter.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general and furthers the objectives 
of Section 6(b)(5) \6\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The BSE does not believe that the proposed rule change will impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 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 90 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 Exchange 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:

[[Page 43473]]

Electronic Comments

     Use the Commission's Internet comment form at https://
www.sec.gov/rules/sro.shtml or send an e-mail to rule-comments@sec.gov. 
Please include File No. SR-BSE-2005-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File No. SR-BSE-2005-16. 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 (https://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. 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-2005-16 and 
should be submitted on or before August 17, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3982 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P

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