Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change To Establish Certain Fees With Respect to Transactions Executed Through the Intermarket Trading System, 61854-61857 [E5-5921]

Download as PDF 61854 Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices Section 17(b) of the Act and that the requested orders should be granted. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jonathan G. Katz, Secretary. [FR Doc. E5–5944 Filed 10–25–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52646; File No. SR–Amex– 2005–068] Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Amendments to Amex Rules 26 and 27 October 20, 2005. On June 17, 2005, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to: (i) Combine the Equities, Options and Special Allocations Committees into a single Allocations Committee; (ii) change the composition of the new Allocations Committee; and (iii) provide the Performance Committee with sole authority to reallocate securities in connection with specialist unit transfers resulting from business transactions. On June 30, 2005, Amex filed Amendment No. 1 to the proposed rule change.3 On August 19, 2005, Amex filed Amendment No. 2 to the proposed rule change.4 The proposed rule change, as amended, was published for comment in the Federal Register on September 1, 2005.5 The Commission received no comments on the proposal. This order approves the proposed rule change, as amended. The proposed rule change would combine the existing Equity, Options 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, the Exchange made a technical correction to the proposed amendment to Amex Rule 26 and proposed to amend Amex Rule 27 to reflect that, in the case of an equity security, the list of qualified specialists shall consist of five specialists. 4 In Amendment No. 2, the Exchange proposed to amend Amex Rule 27 to clarify: (1) the composition of the Allocations Committee for equities and other securities admitted for trading on the Exchange except Exchange Traded Funds (‘‘ETFs’’) and options; and (2) that the Allocations Committee may be chaired by the Chief Executive Officer’s designee. 5 See Securities Exchange Act Release No. 52334 (August 25, 2005), 70 FR 52146. 2 17 VerDate Aug<31>2005 16:26 Oct 25, 2005 Jkt 208001 and Special Allocations Committees into a single Allocations Committee for equities, options and other listed securities. The proposal would create a single Allocations Committee consisting of the Chief Executive Officer (or his or her designee 6), a representative of an upstairs member firm and either: (i) Four (4) brokers for equities and other securities admitted to trading on the Exchange except for Exchange Traded Funds and options; (ii) two (2) brokers and two (2) Registered Traders for ETFs; or (iii) two (2) brokers and two (2) Registered Options Traders for options. The Chief Executive Officer (or his or her designee) would chair the Allocations Committee and would not vote except to make or break a tie. In the absence of the Chief Executive Officer (or his or her designee), a Floor Governor or a Senior Floor Official may chair the Allocation Committee. In addition, the Exchange proposes to permit the Performance Committee to reallocate securities in connection with specialist unit transfers resulting from business transactions. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of section 6 of the Act,7 and the rules and regulations thereunder applicable to a national securities exchange.8 In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act,9 which requires, among other things, that the Exchange’s rules be 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 facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Commission believes that, by combining the Equities, Options and Special Allocations Committees into a single Allocations Committee and streamlining the composition of the Allocations Committee, the proposed rule change is designed to reduce potential inefficiencies in connection 6 The Exchange represents that the designee of the Chief Executive Officer would be an Exchange employee knowledgeable about the securities business and capable of representing the views of the Chief Executive Officer. Telephone conversation of October 12, 2005, between Jeffery Burns, Associate General Counsel, Amex, and David Michehl, Attorney, Division of Market Regulation, Commission. 7 15 U.S.C. 78f(b). 8 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 with the securities allocation process. In addition, the Commission believes that, by providing the Performance Committee with the sole authority to reallocate securities in connection with specialist unit transfers, the proposed rule change is designed to streamline the reallocation process in these special circumstances. It is therefore ordered, pursuant to section 19(b)(2) of the Act,10 that the proposed rule change (SR–Amex–2005– 068), as amended, is approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Jonathan G. Katz, Secretary. [FR Doc. E5–5946 Filed 10–25–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52639; File No. SR–BSE– 2005–41] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change To Establish Certain Fees With Respect to Transactions Executed Through the Intermarket Trading System October 19, 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 September 9, 2005, the Boston Stock Exchange, Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) the proposed rule change as described in Items I and II 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, and is approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to enter into arrangements with other national securities exchanges to pass certain fees they have collected from members for transactions executed on another exchange through the Intermarket Trading System (‘‘ITS’’). This proposal 10 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 11 17 E:\FR\FM\26OCN1.SGM 26OCN1 Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices does not require changes to BSE rule text. 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 Exchange 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 III 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 Section 31 of the Act 3 requires each national securities exchange to pay the Commission a fee based on the aggregate dollar amount of certain sales of securities (‘‘covered sales’’). Rules 31 and 31T, adopted by the Commission in June 2004,4 established procedures for the calculation and collection of Section 31 fees on such covered sales. Rule 31 requires each national securities exchange that owes Section 31 fees to submit a completed Form R31 to the Commission each month, beginning with July 2004. Rule 31T required each exchange to submit a completed Form R31 for each of the months September 2003 to June 2004, inclusive. Each national securities exchange must report its covered sales volume based on the data from a designated clearing agency, when available. The designated clearing agency for covered sales of equity securities is the National Securities Clearing Corporation (‘‘NSCC’’). These covered sales are reported in Part I of Form R31, and each exchange is required to ‘‘provide in Part I only the data supplied to it by a designated clearing agency.’’ 5 The data supplied by NSCC for the period September 2003 through August 2004 did not accurately reflect the aggregate dollar value of the covered sales occurring on each exchange to permit reports to be made in accordance with new Rules 31 and 31T. In particular, the data NSCC reported to each national securities exchange included non-covered sales 3 15 U.S.C. 78ee. Securities Exchange Act Release No. 49928 (June 28, 2004), 69 FR 41060 (July 7, 2004) (‘‘Adopting Release’’). 5 17 CFR 240.31(b)(5). 4 See VerDate Aug<31>2005 16:26 Oct 25, 2005 Jkt 208001 data for sales originating on one exchange and executed on another exchange through the ITS.6 Section 31 requires that national securities exchanges pay a fee based on the aggregate dollar amount of sales of securities transacted on the exchange. Given the specific language of Section 31, the Commission in the Adopting Release for Rules 31 and 31T advised that the current methodology for treating sales of securities that occur through ITS 7 was no longer appropriate and that ‘‘it would be simpler and more transparent for each covered [selfregulatory organization (‘‘SRO’’)] to report all covered sales that occur on its market.’’ The Commission further stated: The Commission acknowledges that a covered SRO on which a covered sale occurs as a result of an incoming ITS order may not be able to collect funds to pay the Section 31 fee from one of its own members. However, Section 31 does not address the manner or extent to which covered SROs may seek to recover the amounts that they pay pursuant to Section 31 from their members. Covered SROs may wish to devise new arrangements for passing fees between themselves so that the funds are collected from the covered SRO that originated the ITS order.8 The Commission further noted that any such arrangements devised by the SROs would have to be established pursuant to Section 19(b) of the Act and Rule 19b–4 thereunder. A subcommittee of the ITS Operating Committee 9 (‘‘Subcommittee’’) has had 6 As a result of this and other inaccuracies in the data reported by NSCC, the national securities exchanges were unable to report accurate information on Form R31, unless they made adjustments to the NSCC data based on data other than that provided by NSCC. On October 6, 2004, the Commission’s Division of Market Regulation (‘‘Division’’) issued a ‘‘no-action’’ letter advising exchanges for whom NSCC acts as a designated clearing agency under Rule 31, that the Division staff would not recommend that the Commission take enforcement action if a national securities exchange adjusts the data provided by NSCC to accurately reflect covered sales occurring on the national securities exchange. See letter from Robert L.D. Colby, Deputy Director, Division, Commission to Ellen J. Neely, Senior Vice President and General Counsel, Chicago Stock Exchange, Inc. (‘‘CHX’’), dated October 6, 2004. 7 In the Adopting Release, the Commission described the current methodology: ‘‘SRO A sends an ITS commitment to a member of SRO B to sell a security, and the commitment is executed on SRO B. Under existing arrangements, SRO A pays the Section 31 fee arising from this trade and passes the fee to its member that initiated the trade. * * * [T]he SROs devised this system because SRO B does not have the ability to require members of SRO A to reimburse it for the cost of its Section 31 fees.’’ Adopting Release, 69 FR at 41067. 8 Id. 9 The ITS participants are American Stock Exchange LLC, BSE, Chicago Board Options Exchange, CHX, National Association of Securities Dealers (‘‘NASD’’), National Stock Exchange, New York Stock Exchange (‘‘NYSE’’), Pacific Exchange, and Philadelphia Stock Exchange. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 61855 discussions in order to devise new arrangements for passing fees between the ITS participants that (1) were collected from their members for the months of September 2003 through August 2004; and (2) are being collected from their members beginning in September 2004 and continuing. This proposed rule change is being submitted by the BSE with the understanding that the other exchanges participating in the proposed arrangement devised by the subcommittee will be submitting substantially similar rule change proposals.10 Pursuant to the new arrangement being proposed, each ITS participant exchange determines whether it has received and executed more in dollar value of covered sales than it has originated and sent to each other ITS participant exchange. For example, for the historical period, September 2003 through August 2004, SRO A sent ITS commitments for covered sales whose dollar value was $150 million to SRO B for execution. SRO A collected fees from its members to fund its Section 31 obligation for those covered sales executed on SRO B. SRO B, as the executing market center, is obligated to pay the Section 31 fee to the SEC. During the same period, SRO B sent ITS commitments for covered sales whose dollar value was $210 million to SRO A. SRO B collected fees from its members for those covered sales executed on SRO A. SRO A, as the executing market center, is obligated to pay the Section 31 fee to the SEC. Since SRO A executed a greater dollar value of covered sales from SRO B than it sent to SRO B, the proposed arrangement requires SRO A to determine the amount of the fees collected by SRO B from its members based on the aggregate dollar value of covered sales from SRO B and executed on SRO A through ITS commitments. When invoicing SRO B, SRO A will deduct the amount of the fee it owes to SRO B (i.e., the fee amount based on SRO A’s $210 million in aggregate covered sales less the fee amount based on SRO B’s $150 million in aggregate covered sales) and will invoice only for the difference of $60 million. Once the fees have been invoiced and paid for the historical period, the ITS participant exchanges plan to use the same arrangement for the period beginning September 2004 and continuing. It is anticipated that the invoicing process will occur twice yearly to coincide with the March 15 10 NASD has determined not to participate in the arrangement for passing fees between exchanges although they participated in many of the conference calls regarding the proposed arrangement. E:\FR\FM\26OCN1.SGM 26OCN1 61856 Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices and September 30 payment schedule for Section 31 fees set forth in the Act. To implement this proposed arrangement, an ITS participant exchange will require access to the aggregate dollar value of buy and sell transactions occurring through ITS. Under the proposed arrangement for fees collected for the months of September 2003 through August 2004, an ITS participant exchange may choose to use data obtained from the Intermarket Surveillance Information System (‘‘ISIS’’) or data that provides comparable information that includes aggregate dollar value of ITS transactions.11 The ISIS data is sorted by originating market center (i.e., the sender of an ITS commitment) and receiving market center (i.e., the market center that executes the ITS commitment). Using this data, each ITS participant exchange can determine on a monthly basis the dollar value of all executed commitments sent to and received from another ITS participant exchange. At its meeting on February 23, 2005, the Subcommittee asked the Securities Industry Automation Corporation (‘‘SIAC’’) to determine the time and expense involved for SIAC to use the ITS database that it maintains to provide reports of the aggregate dollar value of buy and sell transactions occurring through ITS to the ITS participants. On March 15, 2005, representatives of the Subcommittee authorized SIAC to develop new reports. SIAC has developed these reports. Once a parallel testing period for the new reports in concluded, it will no longer be necessary for ISIS data to be used. The new reports provided by SIAC will be used by ITS participants in connection with determining which ITS participant exchange will pay the fee for transactions occurring through ITS and which ITS participant exchange has collected the fee from its members. The BSE believes that the proposed arrangement is a fair and efficient means for passing fees collected at one ITS participant exchange based upon executions of covered sales occurring at another ITS participant exchange. The BSE acknowledges that the legal duty to report and pay the Section 31 fee remains with the ITS participant on which the sale was in fact transacted. 2. Statutory Basis This proposal would establish a process for SROs to enter into arrangements to pass fees they have 11 The NYSE has made available to the ITS participants spreadsheets for each month in the period using the ISIS data. VerDate Aug<31>2005 16:26 Oct 25, 2005 Jkt 208001 collected from members for transactions executed on another SRO through ITS. For these reasons, the Exchange believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder that are applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act.12 Specifically, the Exchange believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,13 in that it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. In addition, the Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b)(4) of the Act,14 which requires that the rules of an exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. 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 No written comments were solicited or received with respect to the proposed rule change. III. 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 rulecomments@sec.gov. Please include File Number SR–BSE–2005–41 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). 14 15 U.S.C. 78f(b)(4). Frm 00080 Fmt 4703 IV. Commission’s Findings and Order Granting Accelerated Approval of a Proposed Rule Change After careful consideration, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.15 In particular, the Commission believes that the proposal is consistent with Section 6(b)(4) of the Act,16 which requires that the rules of an exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. National securities exchanges obtain funds to pay their Section 31 fees to the Commission by charging fees to broker-dealers who generate the covered sales on which Section 31 fees are based. An exchange can obtain most of these funds by imposing a fee on one of its members whenever the member is on 15 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 16 15 U.S.C. 78f(b)(4). 12 15 PO 00000 Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–BSE–2005–41. 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–2005–41 and should be submitted on or before November 16, 2005. Sfmt 4703 E:\FR\FM\26OCN1.SGM 26OCN1 Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices the sell side of a transaction. However, when the exchange accepts an ITS commitment to buy, the ultimate seller is a party on another market. The exchange lacks the ability to pass a fee to that seller directly, because the seller may not be a member of the exchange. Under the proposed arrangement, which the Commission understands will be adopted by each of the ITS participant exchanges,17 the exchange that routed the ITS commitment away will continue to collect a fee from the broker-dealer that placed the sell order. Then, with respect to each ITS participant exchange, the exchange will determine whether it is a net sender or net receiver of ITS trades and send fees to or accept fees from each other exchange accordingly. The Commission believes this is an equitable manner for the exchanges to obtain funds to pay their Section 31 fees on covered sales resulting from ITS trades. Under Section 19(b)(2) of the Act,18 the Commission may not approve any proposed rule change prior to the thirtieth day after the date of publication of the notice of filing thereof, unless the Commission finds good cause for so doing. The Commission hereby finds good cause for approving the proposed rule change prior to the thirtieth day after publishing notice of filing thereof in the Federal Register. In this case, the Commission does not believe a comment period is necessary because all of the parties affected by the proposed fee—the other ITS participant exchanges—have already consented to and will adopt the same fee arrangement.19 For the reasons set forth above, the Commission finds good cause to accelerate approval of the proposed rule change pursuant to Section 19(b)(2) of the Act.20 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,21 that the proposed rule change (SR–BSE–2005– 41) is hereby approved on an accelerated basis. 17 See letter from George W. Mann, Jr., Executive Vice President and General Counsel, BSE, and Chairman, Subcommittee, to Michael Gaw, Assistant Director, Division, Commission, dated September 29, 2005. 18 15 U.S.C. 78s(b)(2). 19 See supra note 17. 20 Id. 21 Id. VerDate Aug<31>2005 16:26 Oct 25, 2005 Jkt 208001 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.22 Jonathan G. Katz, Secretary. [FR Doc. E5–5921 Filed 10–25–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52643; File No. SR–CBOE– 2005–71] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Transaction Fees Assessed on DIAMONDS Options October 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 September 1, 2005, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ 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 CBOE. On September 8, 2005, the CBOE submitted Amendment No. 1 to the proposed rule change.3 On October 17, 2005, the CBOE submitted Amendment No. 2 to the proposed rule change.4 The CBOE has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the CBOE under section 19(b)(3)(A)(ii) of the Act,5 and Rule 19b–4(f)(2) thereunder,6 which renders the proposal effective upon filing with the Commission.7 The Commission is 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, the Exchange made a technical change to the proposed rule text. 4 In Amendment No. 2, the Exchange revised the proposed rule text to amend the transaction fees assessed to non-member market makers for orders in DIA options sent to CBOE through the Intermarket Options Linkage (‘‘Linkage’’) and outside of Linkage. The Exchange states that the transaction fees assessed to non-member marketmakers for orders in DIA options sent to CBOE through Linkage or outside of Linkage will be implemented on November 1, 2005. 5 15 U.S.C. 78s(b)(3)(A)(ii). 6 17 CFR 240.19b–4(f)(2). 7 The effective date of the original proposed rule change is September 1, 2005, the effective date of Amendment No. 1 is September 8, 2005, and the effective date of Amendment No. 2 is October 17, 2005. For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change, as amended, under Section 19(b)(3)(C) of the Act, the 1 15 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 61857 publishing this notice to solicit comments on the proposed rule change, as amended, 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 Fees Schedule relating to fees for options on the DIAMONDS  (‘‘DIA’’). The text of the proposed rule change is available on the Exchange’s Web site (http://www.cboe.com), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. The text of the proposed rule change is also included below. Proposed new language is italicized; proposed deletions are in [brackets]. Chicago Board Options Exchange, Inc.— Fees Schedule [August 24]September 1, 2005 1. Options Transaction Fees (1)(3)(4)(7)(16): Per Contract. Equity Options (13): I.–IX. Unchanged. QQQQ and SPDR OPTIONS: I.–VII. Unchanged. INDEX OPTIONS (includes Dow Jones DIAMONDS, OEF and other ETF and HOLDRs options): I. CUSTOMER (2): S&P 100, PREMIUM > or = $1 ... S&P 100, PREMIUM < $1 ........... MNX and NDX ............................. RUT and [REDUCED VALUE RUSSELL 2000]RMN .............. ETF and HOLDRs options [(except DIA)] ........................... OTHER INDEXES, PREMIUM > OR = $1 ................................... OTHER INDEXES, PREMIUM < $1 ............................................. II. MARKET-MAKER AND DPM—EXCLUDING DOW JONES PRODUCTS: OTHER THAN DIA (10) .............. MARKET-MAKER—DOW JONES PRODUCTS (except DIA) (10) .................................. III. MEMBER FIRM PROPRIETARY: (11) FACILITATION OF CUSTOMER ORDER, MNX and NDX .......... FACILITATION OF CUSTOMER ORDER, OTHER INDEXES .... NON-FACILITATION ORDER ..... IV. BROKER-DEALER (EXCLUDING THE PRODUCTS BELOW) INDEX CUSTOMER RATES: ETF (except DIA), HOLDRS, RUT and [REDUCED VALUE RUSSELL 2000]RMN, PREMIUM > or = $1 ....................... $.35 .20 .15 .15 .15 .45 .25 .24 .34 .24 .20 .24 .45 Commission considers the period to commence on October 17, 2005, the date on which the Exchange submitted Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C). E:\FR\FM\26OCN1.SGM 26OCN1

Agencies

[Federal Register Volume 70, Number 206 (Wednesday, October 26, 2005)]
[Notices]
[Pages 61854-61857]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5921]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52639; File No. SR-BSE-2005-41]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to Proposed 
Rule Change To Establish Certain Fees With Respect to Transactions 
Executed Through the Intermarket Trading System

October 19, 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 September 9, 2005, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II 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, and is approving the 
proposal on an accelerated basis.
---------------------------------------------------------------------------

    \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 enter into arrangements with other 
national securities exchanges to pass certain fees they have collected 
from members for transactions executed on another exchange through the 
Intermarket Trading System (``ITS''). This proposal

[[Page 61855]]

does not require changes to BSE rule text.

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 Exchange 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 III 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
    Section 31 of the Act \3\ requires each national securities 
exchange to pay the Commission a fee based on the aggregate dollar 
amount of certain sales of securities (``covered sales''). Rules 31 and 
31T, adopted by the Commission in June 2004,\4\ established procedures 
for the calculation and collection of Section 31 fees on such covered 
sales. Rule 31 requires each national securities exchange that owes 
Section 31 fees to submit a completed Form R31 to the Commission each 
month, beginning with July 2004. Rule 31T required each exchange to 
submit a completed Form R31 for each of the months September 2003 to 
June 2004, inclusive. Each national securities exchange must report its 
covered sales volume based on the data from a designated clearing 
agency, when available. The designated clearing agency for covered 
sales of equity securities is the National Securities Clearing 
Corporation (``NSCC''). These covered sales are reported in Part I of 
Form R31, and each exchange is required to ``provide in Part I only the 
data supplied to it by a designated clearing agency.'' \5\ The data 
supplied by NSCC for the period September 2003 through August 2004 did 
not accurately reflect the aggregate dollar value of the covered sales 
occurring on each exchange to permit reports to be made in accordance 
with new Rules 31 and 31T. In particular, the data NSCC reported to 
each national securities exchange included non-covered sales data for 
sales originating on one exchange and executed on another exchange 
through the ITS.\6\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78ee.
    \4\ See Securities Exchange Act Release No. 49928 (June 28, 
2004), 69 FR 41060 (July 7, 2004) (``Adopting Release'').
    \5\ 17 CFR 240.31(b)(5).
    \6\ As a result of this and other inaccuracies in the data 
reported by NSCC, the national securities exchanges were unable to 
report accurate information on Form R31, unless they made 
adjustments to the NSCC data based on data other than that provided 
by NSCC. On October 6, 2004, the Commission's Division of Market 
Regulation (``Division'') issued a ``no-action'' letter advising 
exchanges for whom NSCC acts as a designated clearing agency under 
Rule 31, that the Division staff would not recommend that the 
Commission take enforcement action if a national securities exchange 
adjusts the data provided by NSCC to accurately reflect covered 
sales occurring on the national securities exchange. See letter from 
Robert L.D. Colby, Deputy Director, Division, Commission to Ellen J. 
Neely, Senior Vice President and General Counsel, Chicago Stock 
Exchange, Inc. (``CHX''), dated October 6, 2004.
---------------------------------------------------------------------------

    Section 31 requires that national securities exchanges pay a fee 
based on the aggregate dollar amount of sales of securities transacted 
on the exchange. Given the specific language of Section 31, the 
Commission in the Adopting Release for Rules 31 and 31T advised that 
the current methodology for treating sales of securities that occur 
through ITS \7\ was no longer appropriate and that ``it would be 
simpler and more transparent for each covered [self-regulatory 
organization (``SRO'')] to report all covered sales that occur on its 
market.'' The Commission further stated:
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    \7\ In the Adopting Release, the Commission described the 
current methodology: ``SRO A sends an ITS commitment to a member of 
SRO B to sell a security, and the commitment is executed on SRO B. 
Under existing arrangements, SRO A pays the Section 31 fee arising 
from this trade and passes the fee to its member that initiated the 
trade. * * * [T]he SROs devised this system because SRO B does not 
have the ability to require members of SRO A to reimburse it for the 
cost of its Section 31 fees.'' Adopting Release, 69 FR at 41067.

    The Commission acknowledges that a covered SRO on which a 
covered sale occurs as a result of an incoming ITS order may not be 
able to collect funds to pay the Section 31 fee from one of its own 
members. However, Section 31 does not address the manner or extent 
to which covered SROs may seek to recover the amounts that they pay 
pursuant to Section 31 from their members. Covered SROs may wish to 
devise new arrangements for passing fees between themselves so that 
the funds are collected from the covered SRO that originated the ITS 
order.\8\
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    \8\ Id.

    The Commission further noted that any such arrangements devised by 
the SROs would have to be established pursuant to Section 19(b) of the 
Act and Rule 19b-4 thereunder.
    A subcommittee of the ITS Operating Committee \9\ 
(``Subcommittee'') has had discussions in order to devise new 
arrangements for passing fees between the ITS participants that (1) 
were collected from their members for the months of September 2003 
through August 2004; and (2) are being collected from their members 
beginning in September 2004 and continuing. This proposed rule change 
is being submitted by the BSE with the understanding that the other 
exchanges participating in the proposed arrangement devised by the 
subcommittee will be submitting substantially similar rule change 
proposals.\10\
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    \9\ The ITS participants are American Stock Exchange LLC, BSE, 
Chicago Board Options Exchange, CHX, National Association of 
Securities Dealers (``NASD''), National Stock Exchange, New York 
Stock Exchange (``NYSE''), Pacific Exchange, and Philadelphia Stock 
Exchange.
    \10\ NASD has determined not to participate in the arrangement 
for passing fees between exchanges although they participated in 
many of the conference calls regarding the proposed arrangement.
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    Pursuant to the new arrangement being proposed, each ITS 
participant exchange determines whether it has received and executed 
more in dollar value of covered sales than it has originated and sent 
to each other ITS participant exchange. For example, for the historical 
period, September 2003 through August 2004, SRO A sent ITS commitments 
for covered sales whose dollar value was $150 million to SRO B for 
execution. SRO A collected fees from its members to fund its Section 31 
obligation for those covered sales executed on SRO B. SRO B, as the 
executing market center, is obligated to pay the Section 31 fee to the 
SEC. During the same period, SRO B sent ITS commitments for covered 
sales whose dollar value was $210 million to SRO A. SRO B collected 
fees from its members for those covered sales executed on SRO A. SRO A, 
as the executing market center, is obligated to pay the Section 31 fee 
to the SEC. Since SRO A executed a greater dollar value of covered 
sales from SRO B than it sent to SRO B, the proposed arrangement 
requires SRO A to determine the amount of the fees collected by SRO B 
from its members based on the aggregate dollar value of covered sales 
from SRO B and executed on SRO A through ITS commitments. When 
invoicing SRO B, SRO A will deduct the amount of the fee it owes to SRO 
B (i.e., the fee amount based on SRO A's $210 million in aggregate 
covered sales less the fee amount based on SRO B's $150 million in 
aggregate covered sales) and will invoice only for the difference of 
$60 million.
    Once the fees have been invoiced and paid for the historical 
period, the ITS participant exchanges plan to use the same arrangement 
for the period beginning September 2004 and continuing. It is 
anticipated that the invoicing process will occur twice yearly to 
coincide with the March 15

[[Page 61856]]

and September 30 payment schedule for Section 31 fees set forth in the 
Act.
    To implement this proposed arrangement, an ITS participant exchange 
will require access to the aggregate dollar value of buy and sell 
transactions occurring through ITS. Under the proposed arrangement for 
fees collected for the months of September 2003 through August 2004, an 
ITS participant exchange may choose to use data obtained from the 
Inter-market Surveillance Information System (``ISIS'') or data that 
provides comparable information that includes aggregate dollar value of 
ITS transactions.\11\ The ISIS data is sorted by originating market 
center (i.e., the sender of an ITS commitment) and receiving market 
center (i.e., the market center that executes the ITS commitment). 
Using this data, each ITS participant exchange can determine on a 
monthly basis the dollar value of all executed commitments sent to and 
received from another ITS participant exchange.
    At its meeting on February 23, 2005, the Subcommittee asked the 
Securities Industry Automation Corporation (``SIAC'') to determine the 
time and expense involved for SIAC to use the ITS database that it 
maintains to provide reports of the aggregate dollar value of buy and 
sell transactions occurring through ITS to the ITS participants. On 
March 15, 2005, representatives of the Subcommittee authorized SIAC to 
develop new reports. SIAC has developed these reports. Once a parallel 
testing period for the new reports in concluded, it will no longer be 
necessary for ISIS data to be used. The new reports provided by SIAC 
will be used by ITS participants in connection with determining which 
ITS participant exchange will pay the fee for transactions occurring 
through ITS and which ITS participant exchange has collected the fee 
from its members.
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    \11\ The NYSE has made available to the ITS participants 
spreadsheets for each month in the period using the ISIS data.
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    The BSE believes that the proposed arrangement is a fair and 
efficient means for passing fees collected at one ITS participant 
exchange based upon executions of covered sales occurring at another 
ITS participant exchange. The BSE acknowledges that the legal duty to 
report and pay the Section 31 fee remains with the ITS participant on 
which the sale was in fact transacted.
2. Statutory Basis
    This proposal would establish a process for SROs to enter into 
arrangements to pass fees they have collected from members for 
transactions executed on another SRO through ITS. For these reasons, 
the Exchange believes that the proposed rule change is consistent with 
the Act and the rules and regulations thereunder that are applicable to 
a national securities exchange and, in particular, the requirements of 
Section 6(b) of the Act.\12\ Specifically, the Exchange believes the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\13\ in that it is designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts and practices, and, in general, to protect investors and the 
public interest. In addition, the Exchange believes that the proposed 
rule change is consistent with the provisions of Section 6(b)(4) of the 
Act,\14\ which requires that the rules of an exchange provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(4).
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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

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

III. 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-2005-41 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-BSE-2005-41. 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-2005-41 and should be submitted on or before 
November 16, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission believes that the proposal is consistent 
with Section 6(b)(4) of the Act,\16\ which requires that the rules of 
an exchange provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. National securities exchanges obtain funds to pay 
their Section 31 fees to the Commission by charging fees to broker-
dealers who generate the covered sales on which Section 31 fees are 
based. An exchange can obtain most of these funds by imposing a fee on 
one of its members whenever the member is on

[[Page 61857]]

the sell side of a transaction. However, when the exchange accepts an 
ITS commitment to buy, the ultimate seller is a party on another 
market. The exchange lacks the ability to pass a fee to that seller 
directly, because the seller may not be a member of the exchange. Under 
the proposed arrangement, which the Commission understands will be 
adopted by each of the ITS participant exchanges,\17\ the exchange that 
routed the ITS commitment away will continue to collect a fee from the 
broker-dealer that placed the sell order. Then, with respect to each 
ITS participant exchange, the exchange will determine whether it is a 
net sender or net receiver of ITS trades and send fees to or accept 
fees from each other exchange accordingly. The Commission believes this 
is an equitable manner for the exchanges to obtain funds to pay their 
Section 31 fees on covered sales resulting from ITS trades.
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    \15\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ See letter from George W. Mann, Jr., Executive Vice 
President and General Counsel, BSE, and Chairman, Subcommittee, to 
Michael Gaw, Assistant Director, Division, Commission, dated 
September 29, 2005.
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    Under Section 19(b)(2) of the Act,\18\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so doing. The Commission hereby finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after publishing notice of filing thereof in the Federal 
Register. In this case, the Commission does not believe a comment 
period is necessary because all of the parties affected by the proposed 
fee--the other ITS participant exchanges--have already consented to and 
will adopt the same fee arrangement.\19\
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ See supra note 17.
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    For the reasons set forth above, the Commission finds good cause to 
accelerate approval of the proposed rule change pursuant to Section 
19(b)(2) of the Act.\20\
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    \20\ Id.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-BSE-2005-41) is hereby 
approved on an accelerated basis.
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    \21\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-5921 Filed 10-25-05; 8:45 am]
BILLING CODE 8010-01-P