Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto To Implement the Boston Equities Exchange (“BeX”) Trading System, 37140-37147 [E6-10242]
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37140
Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Notices
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 Exchange. All
comments received will be posted
without change, the Commission does
not edit personal identifying
information from submission. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–BSE–20067–20 and should
be submitted on or before July 20, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.21
Nancy M. Morris,
Secretary
[FR Doc. 06–5793 Filed 6–28–06; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54034; File No. SR–BSE–
2006–22]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
of Proposed Rule Change and
Amendment Nos. 1, 2, and 3 Thereto
To Implement the Boston Equities
Exchange (‘‘BeX’’) Trading System
June 22, 2006.
jlentini on PROD1PC65 with NOTICES
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 10,
2006, the Boston Stock Exchange, Inc.
(‘‘BSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II
and III below, which Items have been
prepared by the BSE. BSE filed
Amendment No. 1 to the proposed rule
change on June 2, 2006.3 BSE filed
Amendment No. 2 to the proposed rule
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces and supersedes the
original filing in its entirety.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing the
implementation of the Boston Equities
Exchange (‘‘BeX’’) trading system, a
fully-automated electronic book for the
display and execution of orders in
securities listed otherwise than on The
Nasdaq Stock Market (‘‘Nasdaq’’) for
which the BSE obtains unlisted trading
privileges (‘‘UTP’’) after June 30, 2006.6
The text of the proposed rule change
is available on the Exchange’s Web site
(https://www.bostonstock.com), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
The text of the proposed rule change
also appears below.7 Proposed new
language is italicized.
RULES OF THE BOSTON STOCK
EXCHANGE
BILLING CODE 8010–01–M
21 17
change on June 9, 2006.4 BSE filed
Amendment No. 3 to the proposed rule
change on June 15, 2006.5 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
Chapter II—Dealings on the Exchange
Sections 1 through 40. No Change.
SEC. 41. Minimum Price Variation
The Minimum Price Variation shall be
0.01. Those securities trading in
fractions shall continue to trade in
Minimum Price Variations as currently
approved by the Exchange. Mid-Point
Cross Orders may be executed and
reported in increments as small as onehalf of the Minimum Price Variation.
4 Amendment No. 2 replaces and supersedes the
original filing and Amendment No. 1 in their
entirety.
5 Amendment No. 3 replaces and supersedes the
original filing, Amendment No. 1 and Amendment
No. 2 in their entirety.
6 The rules governing trading in Nasdaq stocks
(BSE Rules, Chapter XXXV) and the rules governing
trading in listed securities assigned to a specialist
(BSE Rules, Chapters I, II, III, XV, XVI, XVII, XIX,
and XXXIII) remain unchanged. Separate from this
rule filing, the BSE intends to apply for UTP in all
stocks listed otherwise than on The Nasdaq Stock
Market for which we do not yet have UTP.
7 The Commission notes that the rule text
submitted by the Exchange contained several
technical errors, which, for the purpose of this
notice, have been corrected. In addition, the
reference to ‘‘Market’’ orders contained in the last
sentence of proposed Chapter XXXVII, Section
3(f)(ii) should instead be ‘‘At the Close’’ orders. The
Exchange has committed to address these errors
formally in an amendment to the proposed rule
change following publication of this notice.
Telephone conversation among John Curtain,
Assistant Vice President Corporate Legal and
Contracts Attorney, BSE; Jennifer Colihan, Special
Counsel, Division of Market Regulation
(‘‘Division’’), Commission; and David Michehl,
Special Counsel, Division, Commission on June 22,
2006.
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Sections 42 through 43. No Change.
Chapter XXXVII—Boston Equities
Exchange (‘‘BeX’’) Trading System
The Boston Equities Exchange
(‘‘BeX’’) trading system is a fullyautomated facility of the Exchange,
which allows eligible orders in eligible
securities to electronically match and
execute against one another.
Section 1. BeX Eligible Securities
(a) Eligible Securities. All securities
eligible for trading on the Exchange that
are listed otherwise than on The Nasdaq
Stock Market for which the BSE obtains
unlisted trading privileges (‘‘UTP’’) after
June 30, 2006 shall be eligible for
trading through BeX. Any specialist
request to remove a security from BeX
shall be considered by the appropriate
Board Committee.
Section 2. Eligible Orders
(a) All orders sent to BeX must be
round lot market or limit orders,
specifically designated in the manner
specified by the Exchange for trading in
BeX.
(b) All orders sent to BeX must be for
regular way settlement.
(c) Eligible order types:
(i) Orders eligible for execution in BeX
may be designated as one of the
following existing BSE order types as
defined in Chapter I, Section 3 except
that any reference in the existing BSE
Rules to the execution of Orders as soon
as ‘‘represented at the specialist’s post’’
shall for purposes of this Section be
understood to mean ‘‘entered in BeX’’:
(A) At the Opening or At the Opening
Only Order.
(B) Day Order.
(C) Do Not Increase (DNI).
(D) Do Not Reduce (DNR).
(E) Fill or Kill.
(F) Good ‘Till Cancel Order.
(G) Immediate or Cancel.
(H) Limit, Limited Order or Limited
Price Order.
(I) At the Close.
(J) Market Order.
(K) Stop Limit Order.
(L) Stop Order.
With the exception of Fill or Kill and
Immediate or Cancel Orders, a customer
may append to an Order an instruction
that the Order be cancelled or routed to
the market(s) displaying the National
Best Bid or Offer if the Order would
trade through the National Best Bid or
Offer if executed on the BeX.
(ii) Orders eligible for execution in
BeX may also be designated as one of
the following additional order types:
(A) ‘‘Cross’’: An order to buy and sell
the same security at a specific price
better than the best bid and offer
displayed in BeX and equal to or better
than the National Best Bid and Offer. A
Cross Order may represent interest of
one or more BSE Members.
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(B) ‘‘Cross with Size’’: A Cross Order
to buy and sell at least 5,000 shares of
the same security with a market value
of at least $100,000.00 (i) at a price
equal to or better than the best bid or
offer displayed in BeX and the National
Best Bid or Offer (ii) where the size of
the order is larger than the aggregate
size of all interest displayed in BeX at
that price; and (iii) where neither side of
the order is for the account of the BSE
Member sending the order to BeX.
(C) ‘‘Good ‘Till Date (GTD)’’: An order
to buy or sell that, if not executed,
expires at the end of date specified in
the order.
(D) ‘‘Good ‘Till Time (GTT)’’: An order
to buy or sell that, if not executed,
expires at the time specified in the
order.
(E) ‘‘Limit or Close’’: A limit order to
buy or sell that if not executed prior to
the Market on Close cutoff time of 3:40
p.m., pursuant to Chapter II, Section 22,
will automatically convert to an At the
Close Order for inclusion in the closing
process and if not so executed, at the
close, will be cancelled.
(F) ‘‘Mid-Point Cross’’: A two-sided
order with both a buy and sell
component combined that executes at
the midpoint of the National Best Bid or
Offer. A Mid-point Cross Order will be
rejected when a locked or crossed
market exists in that security at the time
the Order is received. Midpoint Cross
Orders may be executed and reported in
increments as small as one-half of the
Minimum Price Variation.
(d) Orders may be entered by a
Member on its own behalf, for the
account of another Member
(collectively, professional orders) or for
the account of a customer (an agency
order). In BeX, however, agency orders
are subject to the same display and
execution processes as professional
orders, and agency orders do not receive
any priority in order execution or
handling.
* * * Interpretations and Policies
.01 The terms ‘‘Best Bid’’ and ‘‘Best
Offer’’ shall mean, respectively, the
highest and lowest priced order to buy
and sell an eligible security in BeX.
.02 The terms ‘‘National Best Bid’’
and ‘‘National Best Offer’’ shall mean,
respectively, the highest and lowest
priced order or quote to buy and sell a
BeX eligible security displayed in the
consolidated quotation system for the
security.
Section 3. Operation of BeX
(a) Operating Hours. BeX will operate
from 7:30 a.m. until 4:30 p.m during the
Exchange’s Pre-Opening, Opening,
Primary and Post-Primary Trading
Sessions.
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(i) For purposes of this Chapter
XXXVII, the primary market for a
security is, unless otherwise designated
by the appropriate Board committee, the
listing market for a security; provided,
however, that if a security is traded by
the NYSE, then the primary market for
such security is the NYSE, and if a
security is not traded by the NYSE and
is traded by the Amex, then the primary
market for such security is the Amex. If
a security is solely listed on any other
Exchange, then the primary market for
such security is that market. If a security
is traded on both the NYSE and the
Amex, whichever of the two is the listing
market is the primary market.
(b) Pre-Opening. BeX will accept
orders each day during the Pre-Opening.
The Pre-Opening in BeX extends from
7:30 a.m. until 9:30 a.m. During the PreOpening, orders are placed on the BeX
but will not be matched and do not
generate trade executions. Market
participants are permitted to add,
modify or cancel orders. Cross, Cross
with Size, and Mid-point Cross Orders
do not participate in the opening and
are not accepted by the BeX trading
system during the Pre-Opening.
(c) Opening. BeX will open for trading
each day once the primary market for a
security opens its market on either a
displayed quote or trade.
Primary Market Opening Procedures
(PMOP). Where the opening price is
based on a trade print in the primary
market, the BeX opening price will
match the primary market opening price
for each individual security opened.
Once the BeX opening price has been
determined, all eligible orders priced
equal to or better than the BeX opening
price will be paired for execution at the
determined price following applicable
BeX priority rules.
Where the primary market opening is
based on a quote, the BeX will open as
follows:
(i)(a) Where there are orders in the
BeX that cannot be matched, the BeX
will open on a quote;
(i)(b) Where there are orders in the
BeX that can be matched, (such as a
Market Order to Market Order, Limit
Order to Market Order, or Limit Orders
that lock or cross) the BeX opening price
will be the Theoretical Opening Price
(‘‘TOP’’), provided the TOP is at or
within the National Best Bid and Offer;
(i)(c) Where there are orders in the
BeX that can be matched, and the TOP
is not at or within the National Best Bid
and Offer, the BeX opening trade price
will be at the National Best Bid or Offer
closest to the TOP so long as Orders can
be matched at that price. If Orders
cannot be matched at that price, the
BeX will open on a quote.
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37141
(ii) Following the opening execution
process in an individual security, all
orders remaining that are executable
against the National Best Bid and Offer
will be cancelled or routed in
accordance with the customer’s
instruction. All other Orders will be
booked on the BeX.
(iii) The TOP.
(a) The TOP is the price that
maximizes the quantity of orders traded
on the BeX at the opening;
(b) If multiple prices exist under
subparagraph (a), above, then the TOP
is the price that minimizes the quantity
of orders not traded;
(c) If multiple prices exist under
subparagraph (b), above, then the price
that minimizes any order imbalance is
the TOP;
(d) If multiple prices exist under
subparagraph (b) and there is no order
imbalance, the TOP is the price closest
to the previous day’s closing price.
(d) Primary Trading Session. BeX will
operate the Primary Trading Session
immediately following the opening for
individual securities where the primary
market is either the NYSE or AMEX.
During the primary session, orders are
automatically executed as soon as a
match can be found, following
applicable BeX priority rules.
(e) Trading Halts. BeX will halt
trading during regulatory trading halts
called by the primary or listing market
in a security. Additionally, BeX will halt
its operation during periods of unusual
market conditions pursuant to Chapter
II, Section 34A. If trading in an issue
has been halted, BeX will go through its
Pre-Opening and Opening procedures as
set forth above.
(f) Closing. BeX will close as follows:
(i) Market on Close Period: Beginning
at 3:40 p.m. (EST), BeX will broadcast
the imbalance between the At the Close
and Limit or Close Orders on the bid
side and the At the Close and Limit or
Close Orders on the sell side.
(A) During this period At the Close
Orders will only be accepted on the
imbalance side.
(B) During this period At the Close
and Limit or Close Orders cannot be
cancelled.
(ii) BeX will provide a group closing
by putting all eligible orders received by
4:00 p.m. into an ‘‘Authorized Reserve
State (ARS).’’ During ARS, BeX will not
accept any new orders, cancellations or
modifications. When BeX receives the
closing price message from the primary
market, as defined in Section 3(a)(i)
above, the BeX trading system will
complete the closing process for each
individual security. During the closing
process, all paired At the Close and
Limit or Close Orders are executed at
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the primary market closing price. If a
Market or Limit or Close Order is not
fully executed at the close, the part not
executed will be cancelled.
(g) Post-Primary Trading Session
(PPS). The BeX PPS will operate from
the time when the primary market
disseminates its closing price until 4:30
p.m. During the BeX PPS only cross
orders at a specific price may be
submitted.
(h) Receipt of Orders. Orders shall be
routed to BeX using one of the following
methods:
(i) Except for the orders described in
subparagraph (ii) below, all orders must
be sent to BeX through the Exchange’s
systems or through other
communication lines approved by the
Exchange for the delivery of orders by
its Members.
(ii) ITS commitments for ITS-eligible
securities traded in BeX shall be sent
through the ITS system.
(i) Ranking and Display of Orders.
Except for Cross, Cross with Size, and
Mid-point Cross Orders, which shall be
executed as described in Paragraph (k)
below, all orders sent to BeX shall be
ranked according to their price and time
of receipt, as follows:
(i) Limit Orders shall be ranked based
on their limit prices and times of receipt
by BeX.
(ii) All eligible orders shall be
immediately and publicly displayed
through the processes set out in the
appropriate transaction reporting plan
for each security when they constitute
the best bid or offer in BeX for that
security, provided, however, that an
order that would lock or cross another
ITS market shall be cancelled rather
than displayed.
(j) Automated Matching and
Execution of Orders. Orders shall
automatically be matched and executed
against each other, as follows:
(i) Except for Cross, Cross with Size,
and Mid-point Cross Orders, which shall
be executed as described in Paragraph
(k) below, an incoming order shall be
matched against one or more orders in
the BeX in the order of their ranking,
following price and time priority for the
full amount of shares available at that
price, or for the size of the incoming
order, if smaller. If an incoming Limit
Order would trade through (as defined
in the ITS Plan) the National Best Bid
or Offer if executed on the BeX at the
time of receipt, it will, at the instruction
of the Member entering the order, either
be cancelled or routed to the market(s)
displaying the National Best Bid or
Offer. If no instruction is provided, the
order will be returned to Member
entering the order.
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(ii) If an incoming Limit Order cannot
be matched when it is received and it is
not designated as a type that should be
immediately cancelled the order shall
be treated in accordance with Section 3,
Paragraph (i) above.
(iii) If an incoming Market Order
would trade-through (as defined in the
ITS Plan) the National Best Bid or Offer
if executed on the BeX at the time of
receipt, it will, at the instruction of the
Member entering the order, either be
cancelled or routed to the market(s)
displaying the National Best Bid or
Offer.
(iv) An inbound ITS commitment, if it
is priced at or better than the current
Best Bid or Offer in BeX, shall be
automatically executed against the
order(s) reflected in the Best Bid or
Offer, for the full amount of shares
available at that price, and any
remaining portion of the ITS
commitment shall be automatically
cancelled.
(v) Orders shall only be matched at
prices that are equal to, or better than,
the National Best Bid or Offer.
(k) Submission of Cross Orders. Cross,
Cross with Size, and Mid-point Cross
Orders shall be automatically executed
if they meet the requirements set out in
Section 2(c)(ii)(A), (B) and (F) above. If
an order designated as Cross, Cross with
Size, or Mid-point Cross does not meet
such requirements at the time it is
received by BeX, it shall be immediately
cancelled.
Section 4. Cancellation of Transactions
(a) Cancellation of Transactions. A
transaction made in demonstrable error
and cancelled by both parties may be
unwound, subject to the approval of the
Exchange. Unresolved controversies
relating to transactions that occur in
BeX, and which are not addressed
pursuant to the procedures in Section 5,
Paragraph (a) below shall be subject to
the arbitration rules of the Exchange set
out in Chapter XXXII of the Rules.
Section 5. Handling of Clearly
Erroneous Transactions
(a) Handling of Clearly Erroneous
Transactions. The Exchange will
respond to requests for review of clearly
erroneous transactions using the
following procedures:
(i) The terms of a transaction are
‘‘clearly erroneous’’ where there is an
obvious error in any term, such as price,
number of shares or other unit of
trading, or identification of the security.
(ii) Any Member may request a review
of an execution received through BeX
when the Member believes that the
terms of the transaction were clearly
erroneous when submitted.
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(A) The Member must make a request
for review immediately after the
execution and also must provide a
written request, by facsimile or by email, within 15 minutes after the
execution.
(B) The Exchange shall promptly
notify the other party to the transaction
of the request for review.
(C) The Member making a request for
review shall provide, within 30 minutes
after making the written request for
review (or within such longer period of
time specified by Exchange staff),
written documentation relating to the
disputed transaction that is reasonably
necessary for use by the Exchange in
resolving the matter. The other party to
the transaction shall provide, within 30
minutes after receiving notice from the
Exchange of the request for review (or
within such longer period of time
specified by Exchange staff), written
documentation relating to the disputed
transaction that is reasonably necessary
for use by the Exchange in resolving the
matter. Once a party has submitted its
documentation, and the period for
providing the documentation has ended
(or, if earlier, the party has notified the
Exchange that it has no further
information), the party may not provide
additional information unless requested
to do so by Exchange staff. Either party
to the transaction may request, and the
Exchange shall provide, the written
documentation submitted by the other
party.
(D) The Exchange’s Chief Regulatory
Officer (‘‘CRO’’) or another officer
designated by the CRO shall review the
transaction and determine whether it is
clearly erroneous. In making that
determination, the CRO or another
officer designated by the CRO shall
consider the goals of maintaining a fair
and orderly market and the protection
of investors and the public interest.
(E) If the CRO or another officer
designated by the CRO determines that
a transaction is not clearly erroneous,
the Exchange shall notify both parties,
in writing, that no action will be taken
with respect to the completed trade. If
the CRO or another officer designated
by the CRO determines that a
transaction is clearly erroneous, the
CRO or another officer designated by
the CRO shall declare the transaction
null and void or modify one or more of
the terms of the transaction with the aim
of trying to return the parties to the
positions that they would have been in
(or to positions reasonably similar to
those positions) if the error had not
occurred. The Exchange shall document
this decision in writing and provide
copies of the decision to all parties.
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(iii) Either party may appeal this
determination to a subcommittee of the
Exchange’s Regulatory Oversight
Committee (‘‘ROC’’) by submitting an
appeal to the Exchange’s Secretary, by
facsimile or in writing, within 30
minutes after receiving the Exchange’s
written decision or, if the Exchange
notifies parties of its decision after 4
p.m., by 9:30 a.m. the next trading day.
Once an appeal is received, the
Exchange shall notify the counterparty
to the trade and both parties and the
Exchange itself will be permitted to
submit any additional supporting
written materials up to the time that the
subcommittee considers the appeal.
Either party to a disputed trade may
request, and the Exchange shall provide,
the written documentation presented to
the subcommittee by the other party or
by the Exchange. An appeal does not
operate as a stay on the decision being
appealed. After consideration of any
written materials provided by the
parties or by the Exchange, and after
any hearings that the subcommittee may
hold, the subcommittee, using the
standards set out in this rule, shall
affirm, modify or reverse the original
decision. The subcommittee’s decision
on a matter shall be the final Exchange
action on the matter. Any decision by
the CRO or another officer designated
by the CRO under subparagraph (ii)
above or by the ROC subcommittees
under this subparagraph (iii) shall be
rendered without prejudice as to the
rights of the parties to the transaction to
submit their dispute to arbitration.
(iv) If there is any disruption or
malfunction in the use or operation of
BeX, or the communications systems
associated with BeX, the CRO or
another officer designated by the CRO
may declare any transaction arising out
of the use of BeX during the period of
the disruption or malfunction null and
void or may modify the terms of these
transactions. In making this decision,
the CRO, or any designee, must find that
the transactions were clearly erroneous
or that the actions are necessary for the
maintenance of a fair and orderly
market or the protection of investors
and the public interest. Absent
extraordinary circumstances, any action
by the CRO or other designee shall be
taken within 30 minutes of detection of
the erroneous transaction, but in no
event later than 3 p.m. on the trading
day following the date of the trade at
issue. The Exchange shall notify each
Member involved in the transaction as
soon as practicable following the
decision and any party to the
transaction may appeal that decision by
following the procedures set out above
in subparagraph (iii) of this rule.
Section 6. Orders To Be Reduced and
Increased on Ex-Date
(a) When a security is quoted exdividend, ex-distribution, ex-rights or
ex-interest, the following kinds of orders
shall be reduced by the value of the
payment or rights, and increased in
Price of order
divided by
Distribution
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5-for-4
4-for-3
3-for-2
5-for-3
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...........................................................................
...........................................................................
...........................................................................
If as a result of this calculation the
price is not equivalent to or is not a
multiple of the fraction of a dollar in
which bids and offers are made in the
particular security, the price should be
rounded to the next lower variation.
In reverse splits, all orders (including
open sell orders and open stop orders to
buy) should be cancelled.
(d) Procedure for increase in number
of shares. When there is a stock
dividend or stock distribution, open buy
orders and open stop orders to sell shall
be increased in shares as follows:
(i) When there is a stock dividend or
stock distribution which results in one
or more full shares for each share held,
the number of shares in open buy orders
and open stop orders to sell shall be
increased accordingly.
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125%
1331⁄3%
150%
1662⁄3%
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EXAMPLES:
A 3-for-1 stock distribution.
An order for 100 shares is increased
to 300 shares.
An order for 200 shares is increased
to 600 shares.
An order for 500 shares is increased
to 1500 shares.
(ii) When there is a stock dividend or
stock distribution of less than a one-forone basis and thus results in fractional
shares, open buy orders and open stop
orders to sell shall be increased to the
lowest full round-lot.
EXAMPLES:
A 25% stock dividend or a 5-for-4
stock distribution.
An order for 100 shares remains at
100 shares.
An order for 300 shares remains at
300 shares.
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shares in the case of stock dividends
and stock distributions which result in
round-lots, on the day the security sells
ex:
(i) Open buying orders;
(ii) Open stop orders to sell. (With
open stop limit orders to sell, the limit,
as well as the stop price, shall be
reduced.) The following shall not be
reduced:
(i) Open stop orders to buy;
(ii) Open selling orders.
(b) Reduction of orders, Odd amounts.
When the amount of a cash dividend is
not equivalent to or is not a multiple of
the fraction of a dollar in which bids
and offers are made in the particular
stock, orders shall be reduced by the
next higher variation.
(c) Reduction of orders, Proportional
procedure. Open buy orders and open
stop orders to sell shall be reduced by
the proportional value of a stock
dividend or stock distribution on the
day a security sells ex-dividend or exdistribution. The new price of the order
is determined by dividing the price of
the original order by 100% plus the
percentage value of the stock dividend
or stock distribution. For example, in a
stock dividend of 3%, the price of an
order would be divided by 103%.
The chart below lists, for the more
frequent stock distributions, the
percentages by which the prices of open
buy orders and open stop orders to sell
shall be divided to determine the new
order prices.
Distribution
2-for-1
5-for-2
3-for-1
4-for-1
Sfmt 4703
37143
Price of order
divided by
200%
250%
300%
400%
An order for 900 shares is increased
to 1100 shares.
An order for 2000 shares is increased
to 2500 shares.
(iii) When there is a stock dividend or
stock distribution which results in
fractional shares combined with full
shares, the number of shares in open
buy orders and open stop orders to sell
shall be increased to the lowest full
round-lot.
EXAMPLES:
A 5-for-2 stock distribution.
An order for 100 shares is increased
to 200 shares.
An order for 200 shares is increased
to 500 shares.
An order for 700 shares is increased
to 1700 shares.
An order for 1200 shares is increased
to 3000 shares.
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Section 7. Application of BSE Rules
(a) The rules and procedures in this
Chapter shall apply to trading
conducted in BeX. Unless otherwise
defined in this Chapter, terms used in
this Chapter shall have the same
meanings given them elsewhere in the
Rules. Except where the context requires
otherwise, the provisions of the bylaws
and all other Rules and policies of the
Board of Governors shall continue to be
applicable to trading that occurs on the
BeX. If any rule in this Chapter is
inconsistent with any other provision of
the Rules, the provisions of this Chapter
shall control and shall be deemed to
supplement or amend the inconsistent
provision.
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, as amended,
and discussed any comments it received
on the proposed rule change, as
amended. 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
jlentini on PROD1PC65 with NOTICES
1. Purpose
The BSE has proposed in a separate
rule filing, to create a new electronic
trading facility, as that term is defined
in section 3(a)(2) of the Act,8 called
BeX.9 BeX, which is to be developed,
owned and operated by BSX Group, LLC
(‘‘BSX’’), would be an electronic
securities communications and trading
facility intended for the use of BSE
Members and Electronic Access
Members and their customers. In this
rule filing relating to the initial phase of
the BeX facility, the Exchange proposes
8 Under the Act, the ‘‘term ‘facility’ when used
with respect to an exchange includes its premises,
tangible or intangible property whether on the
premises or not, any right to the use of such
premises or property or any service thereof for the
purpose of effecting or reporting a transaction on an
exchange (including, among other things, any
system of communication to or from the exchange,
by ticker or otherwise, maintained by or with the
consent of the exchange), and any right of the
exchange to the use of any property or service.’’ See
15 U.S.C. 78c(a)(2).
9 On May 5, 2006, the Exchange filed with the
Commission a proposed rule change that establishes
BeX and sets forth governance and membership
rules changes pertaining to BeX (SR–BSE–2006–20).
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to implement the BeX as a fullyautomated electronic book for the
display and execution of orders in
securities listed on any exchange other
than issues listed on Nasdaq for which
the BSE obtains unlisted trading
privileges after June 30, 2006. All such
issues would not be assigned to a
specialist. The rules would be located in
Chapter XXXVII of the Exchange’s Rules
of the Board of Governors.10
Under the Exchange’s current rules
there are no provisions for trading
securities that are not assigned to a
specialist. Rather than instituting a
‘‘Cabinet’’ rule, which the Exchange
considers to be manually intensive and
inefficient, the Exchange proposes to
institute rules governing the BeX as a
new fully-automated electronic book
that would display and match eligible
orders in these securities, without the
participation of a specialist. For
competitive reasons, the Exchange
considers this proposal to be vitally
important to its ability to attract to, and
retain order flow by, the BSE.
Currently, BSE Specialists quote and
trade approximately 300 securities. The
BSE Floor Broker community routinely
receives baskets of securities that
contain orders and cross trades in
securities that are not quoted by BSE
Specialists. As such, the orders and
cross trades for securities that are not
traded on the BSE must be routed to
other market centers for execution.
Thus, the Exchange is not able to retain
order flow that has been directed to the
BSE. Moreover, BSE Floor Brokers are
hampered in their ability to attract more
sources of order flow to the Exchange,
because a percentage of the order flow
they do attract is eventually routed to
other market centers for execution. The
other market centers include those
centers that have the capability to post
and execute orders in securities that are
not continuously quoted or traded by
any member in a market making
capacity, including other exchanges that
have rules governing the same type of
electronic book functionality that the
BSE is now seeking to employ.11
As described below, BeX would allow
Exchange Members, whether or not they
are on the Exchange’s floor, to enter
orders into the BeX for possible
execution.
Eligible securities and eligible orders.
Under the proposed rules, all securities
eligible for trading on the Exchange that
are not assigned to a Specialist would be
traded in the BeX. Orders sent to BeX
10 See note 6, supra, for a description of the scope
of this proposal.
11 See, e.g., Chicago Stock Exchange (‘‘Chx’’)
Rules, Article XXA.
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Fmt 4703
Sfmt 4703
would be required to be specifically
designated for handling in BeX. BeX
would accept only round-lot market and
limit orders.12 No odd-lot, or mixed lot
orders would be accepted.
Orders eligible for execution in BeX
may be designated as one of the
following existing BSE order types: ‘‘at
the close,’’ ‘‘at the opening or at the
opening only,’’ ‘‘day,’’ ‘‘do not increase
(DNI),’’ ‘‘do not reduce (DNR),’’ ‘‘fill or
kill,’’ ‘‘good ‘till cancel,’’ ‘‘immediate or
cancel,’’ ‘‘limit, limited or limited
price,’’ ‘‘market,’’ ‘‘stop limit,’’ or ‘‘stop’’
orders. Orders may also be designated
one of the following new order types:
‘‘cross,’’ ‘‘cross with size,’’ ‘‘good ‘till
date (GTD),’’ ‘‘good ‘till time (GTT),’’
‘‘limit or close,’’ or ‘‘mid-point cross.’’
Descriptions of the eligible new order
types are as follows:
Cross: An order to buy and sell the
same security at a specific price better
than the best bid and offer displayed in
BeX and equal to or better than the
National Best Bid and Offer. A Cross
Order may represent interest of one or
more BSE Members.
Cross with Size: A Cross Order to buy
and sell at least 5,000 shares of the same
security with a market value of at least
$100,000.00 (i) at a price equal to or
better than the best bid or offer
displayed in BeX and the National Best
Bid or Offer; (ii) where the size of the
order is larger than the aggregate size of
all interest displayed in BeX at that
price; and (iii) where neither side of the
order is for the account of the BSE
Member sending the order to BeX. The
latter provision is intended to restrict
such orders to agency orders, similar to
the existing BSE, Chx, and American
Stock Exchange (‘‘Amex’’) rules.13
Good ‘Till Date (GTD): An order to
buy or sell that, if not executed, expires
at the end of the date specified in the
order.
Good ‘Till Time (GTT): An order to
buy or sell that, if not executed, expires
at the time specified in the order.
Limit or Close: A Limit Order to buy
or sell that if not executed prior to the
Market on Close cutoff time of 3:40
p.m., pursuant to Chapter II, Section 22,
will automatically convert to an At the
Close Order for inclusion in the closing
process, and if not so executed at the
close, will be cancelled.
Mid-Point Cross: A two-sided order
with both a buy and sell component
combined that trades at the midpoint of
the National Best Bid or Offer. A Midpoint Cross Order will be rejected when
12 Id.
13 BSE Rule Chapter II, Sec. 8 and Chapter XXV,
Sec. 6; Amex Rule Sec. 126.02, and Chx Rule
Article XXA, Rule 2(c)(4).
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Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Notices
a locked or crossed market exists in that
security at the time the Order is
received. Mid-point Cross Orders may
be executed and reported in increments
as small as one-half of the Minimum
Price Variation.
With the exception of Fill or Kill and
Immediate or Cancel Orders, a customer
may append to an Order an instruction
that the Order be cancelled or routed to
the market(s) displaying the National
Best Bid or Offer if the Order would
trade through the National Best Bid or
Offer if executed on the BeX.
Compliance with Intermarket Trading
System (‘‘ITS’’) Plan. To ensure
compliance with the ITS Plan,
otherwise eligible orders would be
cancelled or routed away in certain
circumstances. Specifically, if an order
in an ITS eligible security crosses or
locks the National Best Bid or Offer at
the time that it is received, the order
would be immediately cancelled to
ensure compliance with the ITS Plan’s
rules relating to locked markets.14
Marketable orders that would tradethough the National Best Bid or Offer
would either be cancelled or be routed
to the market(s) showing the National
Best Bid or Offer at the order-entering
firm’s instructions.15
Operating hours. Under the proposed
rules, BeX would operate during the
Exchange’s Pre-Opening, Opening,
Primary, and Post-Primary Trading
Sessions. Specifically, BeX would
accept orders each day during the PreOpening. BeX will open for trading each
day for a particular security once the
primary market in that security opens
on either a displayed quote or a trade.16
BeX would close at 4:30 p.m.
Pre-Opening. The Pre-Opening in BeX
would extend from 7:30 a.m. until 9:30
a.m., during which orders would be
entered on the BeX and market
participants would be able to add,
modify or cancel orders. There would be
jlentini on PROD1PC65 with NOTICES
14 Similarly,
if an order in a listed security locks
or crosses the Best Bid or Offer in BeX at the time
it is received, but not the National Best Bid or Offer,
the order would be executed according to BeX’s
matching algorithm, and any remaining portion
would be immediately cancelled, if it would lock
or cross the National Best Bid or Offer.
15 See proposed BSE Rule, Chapter XXXVII,
Section 3, Paragraph (j)(i) and (iii).
16 The proposed rules define the primary market
as the listing market for a security, unless otherwise
designated by the appropriate Board committee;
provided, however, that if a security is traded by
the New York Stock Exchange, Inc. (‘‘NYSE’’), then
the primary market for such security would be the
NYSE and if a security is traded by the Amex, then
the primary market for such security would be the
Amex. If a security is traded on both the NYSE and
the Amex, whichever of the two is the listing
market would be considered the primary market.
See proposed BSE Rule, Chapter XXXVII, Section
3, Paragraph (a)(i).
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17:03 Jun 28, 2006
Jkt 208001
no matching of orders during the PreOpening.
Opening. BeX will open based upon
the opening of the primary market for a
security.17 Where the opening price is
based on a trade print in the primary
market, the BeX opening price will
match the primary market opening price
for each individual security opened.
Where the opening is based on a quote
in the primary market, the BeX will
open in one of the following ways: (1)
Where there are orders in the BeX that
cannot be matched, the BeX will open
on a quote; (2) where there are orders in
the BeX that can be matched, the BeX
opening price will be the Theoretical
Opening Price (‘‘TOP’’), provided the
TOP is at or within the National Best
Bid and Offer; (3) where there are orders
in the BeX that can be matched, and the
TOP is not at or within the National
Best Bid and Offer, the BeX opening
trade price will be at the National Best
Bid or Offer closest to the TOP so long
as Orders can be matched at that price.
If Orders cannot be matched at that
price, the BeX will open on a quote; (4)
following the opening execution process
in an individual security all orders
remaining that are executable against
the National Best Bid and Offer will be
cancelled or routed in accordance with
the customer’s instruction. All other
Orders will be booked on the BeX.
Primary Trading Session. Once the
opening occurs for individual securities,
BeX will operate the Primary Trading
Session. All orders would automatically
be matched following price and time
priority as soon as they are entered in
the order book. Incoming orders will be
executed at or within the National Best
Bid and Offer.
Closing. BeX will close in two stages.
The first stage is the ‘‘Market on Close
Period’’. Beginning at 3:40 p.m. (EST),
BeX will broadcast the imbalance
between the At the Close and Limit or
Close Orders on the bid side and At the
Close and Limit on Close Orders on the
offer side.
Second, BeX will close based upon
the primary market close.18 BeX will
provide a group closing by putting all
eligible orders in such securities
received by 4 p.m. into an Authorized
Reserve State. When BeX receives the
closing price message from the primary
market, the BeX trading engine will
17 The primary market is defined as either the
NYSE, the Amex, or another exchange solely listing
a security (other than the BSE). Nasdaq securities
and BSE solely listed issues (which are assigned to
a specialist) will continue to trade under the BSE’s
existing rules, and not on BeX, so this rule proposal
does not provide opening or closing rules for such
securities.
18 Id.
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Fmt 4703
Sfmt 4703
complete the closing process for each
individual security.
Post-Primary Trading Session. The
Post-Primary Trading Session would
operate from the time when the primary
market disseminates its closing price
until 4:30. During the Post Primary
Trading Session only Cross Orders may
be submitted to BeX.
Receipt of orders. Orders could be
routed to BeX through the Exchange’s
systems or through other
communications lines approved by the
Exchange for the delivery of orders by
Exchange Members.19 BeX would also
accept and automatically execute
commitments sent by market centers
that participate in ITS.
Ranking and display of orders. Except
for Cross, Cross with Size, and Midpoint Cross Orders, all orders sent to
BeX would be ranked according to their
price and time of receipt and would be
displayed to the public when they
constitute the Best Bid or Offer in BeX
for a security.20
Automated matching of orders. In
BeX, orders would automatically match
against each other, in price/time
priority.21 Specifically, an incoming
order would be matched against one or
more orders in the BeX, in the order of
their ranking, at the price of each order,
for the full amount of shares available
at that price, or for the size of the
incoming order, if smaller. If an
incoming order could not be matched
when it is received, and it is not
designated as an order that should be
immediately cancelled, the order would
be placed in the BeX. For example:
Assume that BeX contains the
following bids and offers in a particular
security, AAA:
Buy
200 ..........
1,500 .......
Price
$47.50
47.00
Price
$48.20 .....
48.50 .......
Sell
400
700
19 See proposed BSE Rule, Chapter XXXVII,
Section 3, Paragraph (h)(i).
20 See proposed BSE Rule, Chapter XXXVII,
Section 3, Paragraph (i).
21 The only exception to this price/time priority
matching would occur when certain ‘‘cross with
size’’ orders are executed. In those instances,
eligible ‘‘cross with size’’ transactions—where there
is an order to buy and sell at least 5,000 shares of
the same security with a market value of at least
$100,000.00 (A) at a price equal to or better than
both the National Best Bid and Offer and the Best
Bid and Offer displayed in BeX; (B) where the size
of the order is larger than the aggregate size of all
interest displayed in BeX at that price; and (C)
where neither side of the order is for the account
of the BSE Member sending the order to BeX—
could execute at the price of orders in BeX, without
executing those earlier-received orders. Because
this type of crossing transaction is permitted on the
floor of the Exchange today, the Exchange believes
it is appropriate to include this transaction type in
BeX.
E:\FR\FM\29JNN1.SGM
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Buy
600 ..........
Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Notices
Price
46.75
Price
Sell
49.00 .......
100
jlentini on PROD1PC65 with NOTICES
—An incoming Limit Order to buy 500
shares at a price of $48.00 would
become the top-of-the-book best bid.
—An incoming Limit Order to buy 500
shares at a price of $48.20 would
match for 400 shares against the topof-the-book best offer at a price of
$48.20, leaving 100 shares to buy at
$48.20.
—Similarly, an incoming Limit Order to
buy 500 shares at a price of $48.50
would match for 400 shares against
the top-of-the-book best offer at a
price of $48.20 and would match for
100 shares at a price of $48.50.
Inbound ITS commitments, if priced
at or better than the current Best Bid or
Offer in BeX, would be automatically
executed against the order(s) reflected in
the Best Bid or Offer for the full amount
of shares at that price, and any
remaining portion of the ITS
commitment would be automatically
cancelled.22
Cross, Cross with Size and Mid-point
Cross Orders would be automatically
executed if they meet the requirements
for those types of orders. If they do not
meet applicable requirements, they
would be immediately cancelled.
No distinction between agency and
professional orders. Under the proposed
rules, agency orders (entered on behalf
of a customer) and professional or
proprietary orders (entered for the
account of a BSE Member (or other
broker-dealer)) would be handled in an
identical way in BeX’s matching
algorithms.23
Cancellations of transactions and
handling of clearly erroneous
transactions. Under the proposed rules,
Members that make a transaction in
demonstrable error could agree to cancel
and unwind the transaction, subject to
the approval of the Exchange.24 For
purposes of BeX, the Exchange also
proposes to adopt a policy for the
22 See proposed BSE Rule, Chapter XXXVII,
Section 3, Paragraph (j)(iii).
23 See proposed BSE Rule, Chapter XXXVII,
Section 2, paragraph (d). See also Chx Rule, Article
XXA, Rule 2, paragraph (d). The Exchange believes
that this handling is appropriate because BeX is a
fully-automated functionality of the Exchange.
Orders for BeX would be submitted directly and
electronically to the Exchange. Once transmitted, an
order could be cancelled, but a Member could not
influence the execution of that order in any way.
The orders would enter a line of other orders to be
matched against one another based on an
established algorithm. As did the Chx when it
proposed its Ebook rule change, the BSE is seeking
an exemption under Rule 11a2–2(T) for this part of
this rule filing.
24 See proposed BSE Rule, Chapter XXXVII,
Section 4, Paragraph (a).
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17:03 Jun 28, 2006
Jkt 208001
handling of clearly erroneous
transactions.25 This policy would allow
the Exchange’s Chief Regulatory Officer
(‘‘CRO’’) or another officer designated
by the CRO to (a) review and potentially
modify or cancel executions where one
party believes that the terms of the
transaction were clearly erroneous when
submitted; and (b) modify or cancel
executions that result from a disruption
or malfunction in the use or operation
of BeX, or any communications system
associated with the BeX.
The proposed rules set out procedures
for each of these reviews, including
specific means for Members to appeal
the Exchange’s decisions.26
Adjustment of Orders on Ex-Dates
The Exchange is proposing to adopt
the standard process for adjusting orders
on ex-dates.27 For example, open buy
orders are reduced by the value of a
cash dividend on the ex-dividend date.
If the amount of the cash dividend is not
equivalent to or is not a multiple of the
fraction of a dollar in which bids and
offers are made in the stock, open buy
orders will be reduced by the next
higher variation. The proposed rule text
sets forth charts and examples.
Conclusion
The Exchange represents that it has
designed BeX to be a fully-automated
system that would permit eligible orders
in eligible securities to match against
one another, without the required
participation of a Specialist. The
25 See proposed BSE Rule, Chapter XXXVII,
Section 5, Paragraph (a).
26 For example, a Member seeking review of a
‘‘clearly erroneous’’ transaction would be required
to notify the Exchange of the request, by telephone
and in writing, promptly after the execution. After
the CRO or another officer designated by the CRO
reviewed the transaction, the Exchange would
notify both parties of the CRO’s or designee’s
decision, in writing. Either party could appeal the
decision to a subcommittee of the Exchange’s
Regulatory Oversight Committee (‘‘ROC’’), whose
decision would be final. In making their decisions,
the CRO, CRO’s designee, and the ROC
Subcommittee would consider the goals of
maintaining a fair and orderly market and
protecting investors and the public interest. If it is
determined that a transaction was clearly
erroneous, the CRO, CRO designee, or the ROC
Subcommittee would try to return the parties to the
positions that they would have been in (or positions
reasonably similar to those positions) if the error
had not occurred. Similarly, in the event of
disruption or malfunction that impacts the
operation or use of BeX, the CRO or CRO designee
could act promptly to declare transactions void or
to modify transactions. The Exchange would be
required to notify each Member involved in the
transaction as soon as practicable after the CRO or
CRO designee makes any decision. Decisions could
be appealed using the procedure set out for the
review of decisions addressing clearly erroneous
transactions.
27 See proposed BSE Rules, Chapter XXXVII,
Section 6. These proposed rules are based on NYSE
Rule 118.
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Fmt 4703
Sfmt 4703
Exchange believes that this system
functionality would provide all
Exchange Members with an efficient
way to trade securities that would
protect investors and the public interest
by automatically handling orders in a
fair and reasonable manner.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) of the Act,28 in general, and
furthers the objectives of section
6(b)(5),29 in particular, in that it is
designed 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change, as amended,
will impose any burden on competition
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, as amended.
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 self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change, as amended; or
B. Institute proceedings to determine
whether the proposed rule change, as
amended, 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, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
28 15
29 15
E:\FR\FM\29JNN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
29JNN1
Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–BSE–2006–22 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–2006–22. 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. Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. 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–2006–22 and should
be submitted on or before July 20, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.30
Nancy M. Morris,
Secretary.
[FR Doc. E6–10242 Filed 6–28–06; 8:45 am]
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BILLING CODE 8010–01–P
30 17
CFR 200.30–3(a)(12).
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17:47 Jun 28, 2006
Jkt 208001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54029; File No. SR–NYSE–
2005–68]
Self-Regulatory Organizations; New
York Stock Exchange, Inc. (a/k/a New
York Stock Exchange LLC); Notice of
Filing of Proposed Rule Change
Relating to Annual Financial Statement
Distribution Requirements and Listed
Company Manual Sections 103.00,
203.00, 203.01, 203.02, 203.03, 204.00
Through .33, 303A.14, 313.00, 401.04,
and 703.09
June 21, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 30, 2005, the New York
Stock Exchange, Inc. (‘‘NYSE’’ 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 NYSE. On June 9, 2006,
the Exchange filed Amendment No. 1 to
the proposed rule change.3 The
Commission is 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’s proposed rule change
reflects amendments that eliminate the
current NYSE Listed Company Manual
requirement that listed companies
distribute an annual report to
shareholders, specify more precisely
certain requirements applicable to listed
foreign private issuers, amend the
Exchange’s requirements for notices to
and filings with the Exchange, add a
new section to the Listed Company
Manual that specifically requires listed
companies to have and maintain a Web
site, and reorganize and eliminate
certain sections of the Listed Company
Manual.4
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, the NYSE eliminated from
the present filing other proposed rule changes to
Sections 103 and 302 of the Listed Company
Manual, and clarified certain details of its proposal.
Amendment No. 1 replaced and superseded NYSE’s
original filing in its entirety.
4 See Telephone Conversation between
Annemarie Tierney, Assistant General Counsel,
NYSE, and Raymond Lombardo, Special Counsel,
Division of Market Regulation, Commission and
Rahman Harrison, Special Counsel, Division of
Market Regulation, Commission, on June 20, 2006.
2 17
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
37147
The text of the proposed rule change,
as amended, is available below.
Proposed new language is italicized;
proposed deletions are in [brackets].
*
*
*
*
*
Listed Company Manual
*
*
*
*
*
103.00 [Non-U.S. Companies] Foreign
Private Issuers
The Exchange welcomes listing
inquiries from [non-U.S. companies]
foreign private issuers. [It continues to
broaden its scope of trading in shares of
internationally respected companies
based in other countries. With the rapid
growth and need for capital of
multinational companies and the
interdependence of the world’s
economies, the Exchange is prepared to
be the global marketplace.]
Foreign private issuers [Non-U.S.
companies] may elect to qualify for
listing either under the Alternate Listing
Standards for foreign private issuers
[non-U.S. companies] or the Exchange’s
domestic listing criteria. [An applicant
company] The foreign private issuer
must meet all of the criteria within the
standards under which it seeks to
qualify for listing. For purposes of this
Listed Company Manual, the terms
‘‘foreign private issuer’’ and ‘‘non-U.S.
company’’ have the same meaning and
are defined in accordance with the
SEC’s definition of foreign private issuer
set out in Rule 3b–4(c) of the Securities
Exchange Act of 1934.
The Alternate Listing Standards are
designed to encourage major non-U.S.
companies to list their shares on the
Exchange. Domestic listing
requirements call for minimum
distribution of a company’s shares
within the United States, or in the case
of North American companies, within
North America. This is a major obstacle
for many large non-U.S. companies
which otherwise fulfill many times over
the normal size and earnings
requirements for listing on the
Exchange. The principal Alternate
Listing Standards focus on worldwide
rather than U.S. or North American
distribution of a non-U.S. company’s
shares.
In addition to the minimum
numerical standards for listing, the
Exchange has established policies and
requirements concerning certain
corporate governance practices and the
reporting of interim earnings. For
example, in many foreign countries,
controlling law or common practice
compel or permit the non-U.S. company
to issue interim earnings reports on a
semi-annual, as opposed to quarterly,
basis or to have a class or classes of
E:\FR\FM\29JNN1.SGM
29JNN1
]]>Agencies
[Federal Register Volume 71, Number 125 (Thursday, June 29, 2006)]
[Notices]
[Pages 37140-37147]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-10242]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54034; File No. SR-BSE-2006-22]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3
Thereto To Implement the Boston Equities Exchange (``BeX'') Trading
System
June 22, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 10, 2006, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the BSE.
BSE filed Amendment No. 1 to the proposed rule change on June 2,
2006.\3\ BSE filed Amendment No. 2 to the proposed rule change on June
9, 2006.\4\ BSE filed Amendment No. 3 to the proposed rule change on
June 15, 2006.\5\ 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\ Amendment No. 1 replaces and supersedes the original filing
in its entirety.
\4\ Amendment No. 2 replaces and supersedes the original filing
and Amendment No. 1 in their entirety.
\5\ Amendment No. 3 replaces and supersedes the original filing,
Amendment No. 1 and Amendment No. 2 in their entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing the implementation of the Boston Equities
Exchange (``BeX'') trading system, a fully-automated electronic book
for the display and execution of orders in securities listed otherwise
than on The Nasdaq Stock Market (``Nasdaq'') for which the BSE obtains
unlisted trading privileges (``UTP'') after June 30, 2006.\6\
---------------------------------------------------------------------------
\6\ The rules governing trading in Nasdaq stocks (BSE Rules,
Chapter XXXV) and the rules governing trading in listed securities
assigned to a specialist (BSE Rules, Chapters I, II, III, XV, XVI,
XVII, XIX, and XXXIII) remain unchanged. Separate from this rule
filing, the BSE intends to apply for UTP in all stocks listed
otherwise than on The Nasdaq Stock Market for which we do not yet
have UTP.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site (https://www.bostonstock.com), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
The text of the proposed rule change also appears below.\7\
Proposed new language is italicized.
---------------------------------------------------------------------------
\7\ The Commission notes that the rule text submitted by the
Exchange contained several technical errors, which, for the purpose
of this notice, have been corrected. In addition, the reference to
``Market'' orders contained in the last sentence of proposed Chapter
XXXVII, Section 3(f)(ii) should instead be ``At the Close'' orders.
The Exchange has committed to address these errors formally in an
amendment to the proposed rule change following publication of this
notice. Telephone conversation among John Curtain, Assistant Vice
President Corporate Legal and Contracts Attorney, BSE; Jennifer
Colihan, Special Counsel, Division of Market Regulation
(``Division''), Commission; and David Michehl, Special Counsel,
Division, Commission on June 22, 2006.
---------------------------------------------------------------------------
RULES OF THE BOSTON STOCK EXCHANGE
Chapter II--Dealings on the Exchange
Sections 1 through 40. No Change.
SEC. 41. Minimum Price Variation
The Minimum Price Variation shall be 0.01. Those securities trading
in fractions shall continue to trade in Minimum Price Variations as
currently approved by the Exchange. Mid-Point Cross Orders may be
executed and reported in increments as small as one-half of the Minimum
Price Variation.
Sections 42 through 43. No Change.
Chapter XXXVII--Boston Equities Exchange (``BeX'') Trading System
The Boston Equities Exchange (``BeX'') trading system is a fully-
automated facility of the Exchange, which allows eligible orders in
eligible securities to electronically match and execute against one
another.
Section 1. BeX Eligible Securities
(a) Eligible Securities. All securities eligible for trading on the
Exchange that are listed otherwise than on The Nasdaq Stock Market for
which the BSE obtains unlisted trading privileges (``UTP'') after June
30, 2006 shall be eligible for trading through BeX. Any specialist
request to remove a security from BeX shall be considered by the
appropriate Board Committee.
Section 2. Eligible Orders
(a) All orders sent to BeX must be round lot market or limit
orders, specifically designated in the manner specified by the Exchange
for trading in BeX.
(b) All orders sent to BeX must be for regular way settlement.
(c) Eligible order types:
(i) Orders eligible for execution in BeX may be designated as one
of the following existing BSE order types as defined in Chapter I,
Section 3 except that any reference in the existing BSE Rules to the
execution of Orders as soon as ``represented at the specialist's post''
shall for purposes of this Section be understood to mean ``entered in
BeX'':
(A) At the Opening or At the Opening Only Order.
(B) Day Order.
(C) Do Not Increase (DNI).
(D) Do Not Reduce (DNR).
(E) Fill or Kill.
(F) Good `Till Cancel Order.
(G) Immediate or Cancel.
(H) Limit, Limited Order or Limited Price Order.
(I) At the Close.
(J) Market Order.
(K) Stop Limit Order.
(L) Stop Order.
With the exception of Fill or Kill and Immediate or Cancel Orders,
a customer may append to an Order an instruction that the Order be
cancelled or routed to the market(s) displaying the National Best Bid
or Offer if the Order would trade through the National Best Bid or
Offer if executed on the BeX.
(ii) Orders eligible for execution in BeX may also be designated as
one of the following additional order types:
(A) ``Cross'': An order to buy and sell the same security at a
specific price better than the best bid and offer displayed in BeX and
equal to or better than the National Best Bid and Offer. A Cross Order
may represent interest of one or more BSE Members.
[[Page 37141]]
(B) ``Cross with Size'': A Cross Order to buy and sell at least
5,000 shares of the same security with a market value of at least
$100,000.00 (i) at a price equal to or better than the best bid or
offer displayed in BeX and the National Best Bid or Offer (ii) where
the size of the order is larger than the aggregate size of all interest
displayed in BeX at that price; and (iii) where neither side of the
order is for the account of the BSE Member sending the order to BeX.
(C) ``Good `Till Date (GTD)'': An order to buy or sell that, if not
executed, expires at the end of date specified in the order.
(D) ``Good `Till Time (GTT)'': An order to buy or sell that, if not
executed, expires at the time specified in the order.
(E) ``Limit or Close'': A limit order to buy or sell that if not
executed prior to the Market on Close cutoff time of 3:40 p.m.,
pursuant to Chapter II, Section 22, will automatically convert to an At
the Close Order for inclusion in the closing process and if not so
executed, at the close, will be cancelled.
(F) ``Mid-Point Cross'': A two-sided order with both a buy and sell
component combined that executes at the midpoint of the National Best
Bid or Offer. A Mid-point Cross Order will be rejected when a locked or
crossed market exists in that security at the time the Order is
received. Midpoint Cross Orders may be executed and reported in
increments as small as one-half of the Minimum Price Variation.
(d) Orders may be entered by a Member on its own behalf, for the
account of another Member (collectively, professional orders) or for
the account of a customer (an agency order). In BeX, however, agency
orders are subject to the same display and execution processes as
professional orders, and agency orders do not receive any priority in
order execution or handling.
* * * Interpretations and Policies
.01 The terms ``Best Bid'' and ``Best Offer'' shall mean,
respectively, the highest and lowest priced order to buy and sell an
eligible security in BeX.
.02 The terms ``National Best Bid'' and ``National Best Offer''
shall mean, respectively, the highest and lowest priced order or quote
to buy and sell a BeX eligible security displayed in the consolidated
quotation system for the security.
Section 3. Operation of BeX
(a) Operating Hours. BeX will operate from 7:30 a.m. until 4:30 p.m
during the Exchange's Pre-Opening, Opening, Primary and Post-Primary
Trading Sessions.
(i) For purposes of this Chapter XXXVII, the primary market for a
security is, unless otherwise designated by the appropriate Board
committee, the listing market for a security; provided, however, that
if a security is traded by the NYSE, then the primary market for such
security is the NYSE, and if a security is not traded by the NYSE and
is traded by the Amex, then the primary market for such security is the
Amex. If a security is solely listed on any other Exchange, then the
primary market for such security is that market. If a security is
traded on both the NYSE and the Amex, whichever of the two is the
listing market is the primary market.
(b) Pre-Opening. BeX will accept orders each day during the Pre-
Opening. The Pre-Opening in BeX extends from 7:30 a.m. until 9:30 a.m.
During the Pre-Opening, orders are placed on the BeX but will not be
matched and do not generate trade executions. Market participants are
permitted to add, modify or cancel orders. Cross, Cross with Size, and
Mid-point Cross Orders do not participate in the opening and are not
accepted by the BeX trading system during the Pre-Opening.
(c) Opening. BeX will open for trading each day once the primary
market for a security opens its market on either a displayed quote or
trade.
Primary Market Opening Procedures (PMOP). Where the opening price
is based on a trade print in the primary market, the BeX opening price
will match the primary market opening price for each individual
security opened. Once the BeX opening price has been determined, all
eligible orders priced equal to or better than the BeX opening price
will be paired for execution at the determined price following
applicable BeX priority rules.
Where the primary market opening is based on a quote, the BeX will
open as follows:
(i)(a) Where there are orders in the BeX that cannot be matched,
the BeX will open on a quote;
(i)(b) Where there are orders in the BeX that can be matched, (such
as a Market Order to Market Order, Limit Order to Market Order, or
Limit Orders that lock or cross) the BeX opening price will be the
Theoretical Opening Price (``TOP''), provided the TOP is at or within
the National Best Bid and Offer;
(i)(c) Where there are orders in the BeX that can be matched, and
the TOP is not at or within the National Best Bid and Offer, the BeX
opening trade price will be at the National Best Bid or Offer closest
to the TOP so long as Orders can be matched at that price. If Orders
cannot be matched at that price, the BeX will open on a quote.
(ii) Following the opening execution process in an individual
security, all orders remaining that are executable against the National
Best Bid and Offer will be cancelled or routed in accordance with the
customer's instruction. All other Orders will be booked on the BeX.
(iii) The TOP.
(a) The TOP is the price that maximizes the quantity of orders
traded on the BeX at the opening;
(b) If multiple prices exist under subparagraph (a), above, then
the TOP is the price that minimizes the quantity of orders not traded;
(c) If multiple prices exist under subparagraph (b), above, then
the price that minimizes any order imbalance is the TOP;
(d) If multiple prices exist under subparagraph (b) and there is no
order imbalance, the TOP is the price closest to the previous day's
closing price.
(d) Primary Trading Session. BeX will operate the Primary Trading
Session immediately following the opening for individual securities
where the primary market is either the NYSE or AMEX. During the primary
session, orders are automatically executed as soon as a match can be
found, following applicable BeX priority rules.
(e) Trading Halts. BeX will halt trading during regulatory trading
halts called by the primary or listing market in a security.
Additionally, BeX will halt its operation during periods of unusual
market conditions pursuant to Chapter II, Section 34A. If trading in an
issue has been halted, BeX will go through its Pre-Opening and Opening
procedures as set forth above.
(f) Closing. BeX will close as follows:
(i) Market on Close Period: Beginning at 3:40 p.m. (EST), BeX will
broadcast the imbalance between the At the Close and Limit or Close
Orders on the bid side and the At the Close and Limit or Close Orders
on the sell side.
(A) During this period At the Close Orders will only be accepted on
the imbalance side.
(B) During this period At the Close and Limit or Close Orders
cannot be cancelled.
(ii) BeX will provide a group closing by putting all eligible
orders received by 4:00 p.m. into an ``Authorized Reserve State
(ARS).'' During ARS, BeX will not accept any new orders, cancellations
or modifications. When BeX receives the closing price message from the
primary market, as defined in Section 3(a)(i) above, the BeX trading
system will complete the closing process for each individual security.
During the closing process, all paired At the Close and Limit or Close
Orders are executed at
[[Page 37142]]
the primary market closing price. If a Market or Limit or Close Order
is not fully executed at the close, the part not executed will be
cancelled.
(g) Post-Primary Trading Session (PPS). The BeX PPS will operate
from the time when the primary market disseminates its closing price
until 4:30 p.m. During the BeX PPS only cross orders at a specific
price may be submitted.
(h) Receipt of Orders. Orders shall be routed to BeX using one of
the following methods:
(i) Except for the orders described in subparagraph (ii) below, all
orders must be sent to BeX through the Exchange's systems or through
other communication lines approved by the Exchange for the delivery of
orders by its Members.
(ii) ITS commitments for ITS-eligible securities traded in BeX
shall be sent through the ITS system.
(i) Ranking and Display of Orders. Except for Cross, Cross with
Size, and Mid-point Cross Orders, which shall be executed as described
in Paragraph (k) below, all orders sent to BeX shall be ranked
according to their price and time of receipt, as follows:
(i) Limit Orders shall be ranked based on their limit prices and
times of receipt by BeX.
(ii) All eligible orders shall be immediately and publicly
displayed through the processes set out in the appropriate transaction
reporting plan for each security when they constitute the best bid or
offer in BeX for that security, provided, however, that an order that
would lock or cross another ITS market shall be cancelled rather than
displayed.
(j) Automated Matching and Execution of Orders. Orders shall
automatically be matched and executed against each other, as follows:
(i) Except for Cross, Cross with Size, and Mid-point Cross Orders,
which shall be executed as described in Paragraph (k) below, an
incoming order shall be matched against one or more orders in the BeX
in the order of their ranking, following price and time priority for
the full amount of shares available at that price, or for the size of
the incoming order, if smaller. If an incoming Limit Order would trade
through (as defined in the ITS Plan) the National Best Bid or Offer if
executed on the BeX at the time of receipt, it will, at the instruction
of the Member entering the order, either be cancelled or routed to the
market(s) displaying the National Best Bid or Offer. If no instruction
is provided, the order will be returned to Member entering the order.
(ii) If an incoming Limit Order cannot be matched when it is
received and it is not designated as a type that should be immediately
cancelled the order shall be treated in accordance with Section 3,
Paragraph (i) above.
(iii) If an incoming Market Order would trade-through (as defined
in the ITS Plan) the National Best Bid or Offer if executed on the BeX
at the time of receipt, it will, at the instruction of the Member
entering the order, either be cancelled or routed to the market(s)
displaying the National Best Bid or Offer.
(iv) An inbound ITS commitment, if it is priced at or better than
the current Best Bid or Offer in BeX, shall be automatically executed
against the order(s) reflected in the Best Bid or Offer, for the full
amount of shares available at that price, and any remaining portion of
the ITS commitment shall be automatically cancelled.
(v) Orders shall only be matched at prices that are equal to, or
better than, the National Best Bid or Offer.
(k) Submission of Cross Orders. Cross, Cross with Size, and Mid-
point Cross Orders shall be automatically executed if they meet the
requirements set out in Section 2(c)(ii)(A), (B) and (F) above. If an
order designated as Cross, Cross with Size, or Mid-point Cross does not
meet such requirements at the time it is received by BeX, it shall be
immediately cancelled.
Section 4. Cancellation of Transactions
(a) Cancellation of Transactions. A transaction made in
demonstrable error and cancelled by both parties may be unwound,
subject to the approval of the Exchange. Unresolved controversies
relating to transactions that occur in BeX, and which are not addressed
pursuant to the procedures in Section 5, Paragraph (a) below shall be
subject to the arbitration rules of the Exchange set out in Chapter
XXXII of the Rules.
Section 5. Handling of Clearly Erroneous Transactions
(a) Handling of Clearly Erroneous Transactions. The Exchange will
respond to requests for review of clearly erroneous transactions using
the following procedures:
(i) The terms of a transaction are ``clearly erroneous'' where
there is an obvious error in any term, such as price, number of shares
or other unit of trading, or identification of the security.
(ii) Any Member may request a review of an execution received
through BeX when the Member believes that the terms of the transaction
were clearly erroneous when submitted.
(A) The Member must make a request for review immediately after the
execution and also must provide a written request, by facsimile or by
e-mail, within 15 minutes after the execution.
(B) The Exchange shall promptly notify the other party to the
transaction of the request for review.
(C) The Member making a request for review shall provide, within 30
minutes after making the written request for review (or within such
longer period of time specified by Exchange staff), written
documentation relating to the disputed transaction that is reasonably
necessary for use by the Exchange in resolving the matter. The other
party to the transaction shall provide, within 30 minutes after
receiving notice from the Exchange of the request for review (or within
such longer period of time specified by Exchange staff), written
documentation relating to the disputed transaction that is reasonably
necessary for use by the Exchange in resolving the matter. Once a party
has submitted its documentation, and the period for providing the
documentation has ended (or, if earlier, the party has notified the
Exchange that it has no further information), the party may not provide
additional information unless requested to do so by Exchange staff.
Either party to the transaction may request, and the Exchange shall
provide, the written documentation submitted by the other party.
(D) The Exchange's Chief Regulatory Officer (``CRO'') or another
officer designated by the CRO shall review the transaction and
determine whether it is clearly erroneous. In making that
determination, the CRO or another officer designated by the CRO shall
consider the goals of maintaining a fair and orderly market and the
protection of investors and the public interest.
(E) If the CRO or another officer designated by the CRO determines
that a transaction is not clearly erroneous, the Exchange shall notify
both parties, in writing, that no action will be taken with respect to
the completed trade. If the CRO or another officer designated by the
CRO determines that a transaction is clearly erroneous, the CRO or
another officer designated by the CRO shall declare the transaction
null and void or modify one or more of the terms of the transaction
with the aim of trying to return the parties to the positions that they
would have been in (or to positions reasonably similar to those
positions) if the error had not occurred. The Exchange shall document
this decision in writing and provide copies of the decision to all
parties.
[[Page 37143]]
(iii) Either party may appeal this determination to a subcommittee
of the Exchange's Regulatory Oversight Committee (``ROC'') by
submitting an appeal to the Exchange's Secretary, by facsimile or in
writing, within 30 minutes after receiving the Exchange's written
decision or, if the Exchange notifies parties of its decision after 4
p.m., by 9:30 a.m. the next trading day. Once an appeal is received,
the Exchange shall notify the counterparty to the trade and both
parties and the Exchange itself will be permitted to submit any
additional supporting written materials up to the time that the
subcommittee considers the appeal. Either party to a disputed trade may
request, and the Exchange shall provide, the written documentation
presented to the subcommittee by the other party or by the Exchange. An
appeal does not operate as a stay on the decision being appealed. After
consideration of any written materials provided by the parties or by
the Exchange, and after any hearings that the subcommittee may hold,
the subcommittee, using the standards set out in this rule, shall
affirm, modify or reverse the original decision. The subcommittee's
decision on a matter shall be the final Exchange action on the matter.
Any decision by the CRO or another officer designated by the CRO under
subparagraph (ii) above or by the ROC subcommittees under this
subparagraph (iii) shall be rendered without prejudice as to the rights
of the parties to the transaction to submit their dispute to
arbitration.
(iv) If there is any disruption or malfunction in the use or
operation of BeX, or the communications systems associated with BeX,
the CRO or another officer designated by the CRO may declare any
transaction arising out of the use of BeX during the period of the
disruption or malfunction null and void or may modify the terms of
these transactions. In making this decision, the CRO, or any designee,
must find that the transactions were clearly erroneous or that the
actions are necessary for the maintenance of a fair and orderly market
or the protection of investors and the public interest. Absent
extraordinary circumstances, any action by the CRO or other designee
shall be taken within 30 minutes of detection of the erroneous
transaction, but in no event later than 3 p.m. on the trading day
following the date of the trade at issue. The Exchange shall notify
each Member involved in the transaction as soon as practicable
following the decision and any party to the transaction may appeal that
decision by following the procedures set out above in subparagraph
(iii) of this rule.
Section 6. Orders To Be Reduced and Increased on Ex-Date
(a) When a security is quoted ex-dividend, ex-distribution, ex-
rights or ex-interest, the following kinds of orders shall be reduced
by the value of the payment or rights, and increased in shares in the
case of stock dividends and stock distributions which result in round-
lots, on the day the security sells ex:
(i) Open buying orders;
(ii) Open stop orders to sell. (With open stop limit orders to
sell, the limit, as well as the stop price, shall be reduced.) The
following shall not be reduced:
(i) Open stop orders to buy;
(ii) Open selling orders.
(b) Reduction of orders, Odd amounts. When the amount of a cash
dividend is not equivalent to or is not a multiple of the fraction of a
dollar in which bids and offers are made in the particular stock,
orders shall be reduced by the next higher variation.
(c) Reduction of orders, Proportional procedure. Open buy orders
and open stop orders to sell shall be reduced by the proportional value
of a stock dividend or stock distribution on the day a security sells
ex-dividend or ex-distribution. The new price of the order is
determined by dividing the price of the original order by 100% plus the
percentage value of the stock dividend or stock distribution. For
example, in a stock dividend of 3%, the price of an order would be
divided by 103%.
The chart below lists, for the more frequent stock distributions,
the percentages by which the prices of open buy orders and open stop
orders to sell shall be divided to determine the new order prices.
----------------------------------------------------------------------------------------------------------------
Price of order Price of order
Distribution divided by Distribution divided by
----------------------------------------------------------------------------------------------------------------
5-for-4...................................... 125% 2-for-1......................... 200%
4-for-3...................................... 133\1/3\% 5-for-2......................... 250%
3-for-2...................................... 150% 3-for-1......................... 300%
5-for-3...................................... 166\2/3\% 4-for-1......................... 400%
----------------------------------------------------------------------------------------------------------------
If as a result of this calculation the price is not equivalent to
or is not a multiple of the fraction of a dollar in which bids and
offers are made in the particular security, the price should be rounded
to the next lower variation.
In reverse splits, all orders (including open sell orders and open
stop orders to buy) should be cancelled.
(d) Procedure for increase in number of shares. When there is a
stock dividend or stock distribution, open buy orders and open stop
orders to sell shall be increased in shares as follows:
(i) When there is a stock dividend or stock distribution which
results in one or more full shares for each share held, the number of
shares in open buy orders and open stop orders to sell shall be
increased accordingly.
EXAMPLES:
A 3-for-1 stock distribution.
An order for 100 shares is increased to 300 shares.
An order for 200 shares is increased to 600 shares.
An order for 500 shares is increased to 1500 shares.
(ii) When there is a stock dividend or stock distribution of less
than a one-for-one basis and thus results in fractional shares, open
buy orders and open stop orders to sell shall be increased to the
lowest full round-lot.
EXAMPLES:
A 25% stock dividend or a 5-for-4 stock distribution.
An order for 100 shares remains at 100 shares.
An order for 300 shares remains at 300 shares.
An order for 900 shares is increased to 1100 shares.
An order for 2000 shares is increased to 2500 shares.
(iii) When there is a stock dividend or stock distribution which
results in fractional shares combined with full shares, the number of
shares in open buy orders and open stop orders to sell shall be
increased to the lowest full round-lot.
EXAMPLES:
A 5-for-2 stock distribution.
An order for 100 shares is increased to 200 shares.
An order for 200 shares is increased to 500 shares.
An order for 700 shares is increased to 1700 shares.
An order for 1200 shares is increased to 3000 shares.
[[Page 37144]]
Section 7. Application of BSE Rules
(a) The rules and procedures in this Chapter shall apply to trading
conducted in BeX. Unless otherwise defined in this Chapter, terms used
in this Chapter shall have the same meanings given them elsewhere in
the Rules. Except where the context requires otherwise, the provisions
of the bylaws and all other Rules and policies of the Board of
Governors shall continue to be applicable to trading that occurs on the
BeX. If any rule in this Chapter is inconsistent with any other
provision of the Rules, the provisions of this Chapter shall control
and shall be deemed to supplement or amend the inconsistent provision.
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, as
amended, and discussed any comments it received on the proposed rule
change, as amended. 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 BSE has proposed in a separate rule filing, to create a new
electronic trading facility, as that term is defined in section 3(a)(2)
of the Act,\8\ called BeX.\9\ BeX, which is to be developed, owned and
operated by BSX Group, LLC (``BSX''), would be an electronic securities
communications and trading facility intended for the use of BSE Members
and Electronic Access Members and their customers. In this rule filing
relating to the initial phase of the BeX facility, the Exchange
proposes to implement the BeX as a fully-automated electronic book for
the display and execution of orders in securities listed on any
exchange other than issues listed on Nasdaq for which the BSE obtains
unlisted trading privileges after June 30, 2006. All such issues would
not be assigned to a specialist. The rules would be located in Chapter
XXXVII of the Exchange's Rules of the Board of Governors.\10\
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\8\ Under the Act, the ``term `facility' when used with respect
to an exchange includes its premises, tangible or intangible
property whether on the premises or not, any right to the use of
such premises or property or any service thereof for the purpose of
effecting or reporting a transaction on an exchange (including,
among other things, any system of communication to or from the
exchange, by ticker or otherwise, maintained by or with the consent
of the exchange), and any right of the exchange to the use of any
property or service.'' See 15 U.S.C. 78c(a)(2).
\9\ On May 5, 2006, the Exchange filed with the Commission a
proposed rule change that establishes BeX and sets forth governance
and membership rules changes pertaining to BeX (SR-BSE-2006-20).
\10\ See note 6, supra, for a description of the scope of this
proposal.
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Under the Exchange's current rules there are no provisions for
trading securities that are not assigned to a specialist. Rather than
instituting a ``Cabinet'' rule, which the Exchange considers to be
manually intensive and inefficient, the Exchange proposes to institute
rules governing the BeX as a new fully-automated electronic book that
would display and match eligible orders in these securities, without
the participation of a specialist. For competitive reasons, the
Exchange considers this proposal to be vitally important to its ability
to attract to, and retain order flow by, the BSE.
Currently, BSE Specialists quote and trade approximately 300
securities. The BSE Floor Broker community routinely receives baskets
of securities that contain orders and cross trades in securities that
are not quoted by BSE Specialists. As such, the orders and cross trades
for securities that are not traded on the BSE must be routed to other
market centers for execution. Thus, the Exchange is not able to retain
order flow that has been directed to the BSE. Moreover, BSE Floor
Brokers are hampered in their ability to attract more sources of order
flow to the Exchange, because a percentage of the order flow they do
attract is eventually routed to other market centers for execution. The
other market centers include those centers that have the capability to
post and execute orders in securities that are not continuously quoted
or traded by any member in a market making capacity, including other
exchanges that have rules governing the same type of electronic book
functionality that the BSE is now seeking to employ.\11\
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\11\ See, e.g., Chicago Stock Exchange (``Chx'') Rules, Article
XXA.
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As described below, BeX would allow Exchange Members, whether or
not they are on the Exchange's floor, to enter orders into the BeX for
possible execution.
Eligible securities and eligible orders. Under the proposed rules,
all securities eligible for trading on the Exchange that are not
assigned to a Specialist would be traded in the BeX. Orders sent to BeX
would be required to be specifically designated for handling in BeX.
BeX would accept only round-lot market and limit orders.\12\ No odd-
lot, or mixed lot orders would be accepted.
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\12\ Id.
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Orders eligible for execution in BeX may be designated as one of
the following existing BSE order types: ``at the close,'' ``at the
opening or at the opening only,'' ``day,'' ``do not increase (DNI),''
``do not reduce (DNR),'' ``fill or kill,'' ``good `till cancel,''
``immediate or cancel,'' ``limit, limited or limited price,''
``market,'' ``stop limit,'' or ``stop'' orders. Orders may also be
designated one of the following new order types: ``cross,'' ``cross
with size,'' ``good `till date (GTD),'' ``good `till time (GTT),''
``limit or close,'' or ``mid-point cross.'' Descriptions of the
eligible new order types are as follows:
Cross: An order to buy and sell the same security at a specific
price better than the best bid and offer displayed in BeX and equal to
or better than the National Best Bid and Offer. A Cross Order may
represent interest of one or more BSE Members.
Cross with Size: A Cross Order to buy and sell at least 5,000
shares of the same security with a market value of at least $100,000.00
(i) at a price equal to or better than the best bid or offer displayed
in BeX and the National Best Bid or Offer; (ii) where the size of the
order is larger than the aggregate size of all interest displayed in
BeX at that price; and (iii) where neither side of the order is for the
account of the BSE Member sending the order to BeX. The latter
provision is intended to restrict such orders to agency orders, similar
to the existing BSE, Chx, and American Stock Exchange (``Amex'')
rules.\13\
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\13\ BSE Rule Chapter II, Sec. 8 and Chapter XXV, Sec. 6; Amex
Rule Sec. 126.02, and Chx Rule Article XXA, Rule 2(c)(4).
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Good `Till Date (GTD): An order to buy or sell that, if not
executed, expires at the end of the date specified in the order.
Good `Till Time (GTT): An order to buy or sell that, if not
executed, expires at the time specified in the order.
Limit or Close: A Limit Order to buy or sell that if not executed
prior to the Market on Close cutoff time of 3:40 p.m., pursuant to
Chapter II, Section 22, will automatically convert to an At the Close
Order for inclusion in the closing process, and if not so executed at
the close, will be cancelled.
Mid-Point Cross: A two-sided order with both a buy and sell
component combined that trades at the midpoint of the National Best Bid
or Offer. A Mid-point Cross Order will be rejected when
[[Page 37145]]
a locked or crossed market exists in that security at the time the
Order is received. Mid-point Cross Orders may be executed and reported
in increments as small as one-half of the Minimum Price Variation.
With the exception of Fill or Kill and Immediate or Cancel Orders,
a customer may append to an Order an instruction that the Order be
cancelled or routed to the market(s) displaying the National Best Bid
or Offer if the Order would trade through the National Best Bid or
Offer if executed on the BeX.
Compliance with Intermarket Trading System (``ITS'') Plan. To
ensure compliance with the ITS Plan, otherwise eligible orders would be
cancelled or routed away in certain circumstances. Specifically, if an
order in an ITS eligible security crosses or locks the National Best
Bid or Offer at the time that it is received, the order would be
immediately cancelled to ensure compliance with the ITS Plan's rules
relating to locked markets.\14\ Marketable orders that would trade-
though the National Best Bid or Offer would either be cancelled or be
routed to the market(s) showing the National Best Bid or Offer at the
order-entering firm's instructions.\15\
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\14\ Similarly, if an order in a listed security locks or
crosses the Best Bid or Offer in BeX at the time it is received, but
not the National Best Bid or Offer, the order would be executed
according to BeX's matching algorithm, and any remaining portion
would be immediately cancelled, if it would lock or cross the
National Best Bid or Offer.
\15\ See proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph
(j)(i) and (iii).
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Operating hours. Under the proposed rules, BeX would operate during
the Exchange's Pre-Opening, Opening, Primary, and Post-Primary Trading
Sessions. Specifically, BeX would accept orders each day during the
Pre-Opening. BeX will open for trading each day for a particular
security once the primary market in that security opens on either a
displayed quote or a trade.\16\ BeX would close at 4:30 p.m.
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\16\ The proposed rules define the primary market as the listing
market for a security, unless otherwise designated by the
appropriate Board committee; provided, however, that if a security
is traded by the New York Stock Exchange, Inc. (``NYSE''), then the
primary market for such security would be the NYSE and if a security
is traded by the Amex, then the primary market for such security
would be the Amex. If a security is traded on both the NYSE and the
Amex, whichever of the two is the listing market would be considered
the primary market. See proposed BSE Rule, Chapter XXXVII, Section
3, Paragraph (a)(i).
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Pre-Opening. The Pre-Opening in BeX would extend from 7:30 a.m.
until 9:30 a.m., during which orders would be entered on the BeX and
market participants would be able to add, modify or cancel orders.
There would be no matching of orders during the Pre-Opening.
Opening. BeX will open based upon the opening of the primary market
for a security.\17\ Where the opening price is based on a trade print
in the primary market, the BeX opening price will match the primary
market opening price for each individual security opened. Where the
opening is based on a quote in the primary market, the BeX will open in
one of the following ways: (1) Where there are orders in the BeX that
cannot be matched, the BeX will open on a quote; (2) where there are
orders in the BeX that can be matched, the BeX opening price will be
the Theoretical Opening Price (``TOP''), provided the TOP is at or
within the National Best Bid and Offer; (3) where there are orders in
the BeX that can be matched, and the TOP is not at or within the
National Best Bid and Offer, the BeX opening trade price will be at the
National Best Bid or Offer closest to the TOP so long as Orders can be
matched at that price. If Orders cannot be matched at that price, the
BeX will open on a quote; (4) following the opening execution process
in an individual security all orders remaining that are executable
against the National Best Bid and Offer will be cancelled or routed in
accordance with the customer's instruction. All other Orders will be
booked on the BeX.
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\17\ The primary market is defined as either the NYSE, the Amex,
or another exchange solely listing a security (other than the BSE).
Nasdaq securities and BSE solely listed issues (which are assigned
to a specialist) will continue to trade under the BSE's existing
rules, and not on BeX, so this rule proposal does not provide
opening or closing rules for such securities.
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Primary Trading Session. Once the opening occurs for individual
securities, BeX will operate the Primary Trading Session. All orders
would automatically be matched following price and time priority as
soon as they are entered in the order book. Incoming orders will be
executed at or within the National Best Bid and Offer.
Closing. BeX will close in two stages. The first stage is the
``Market on Close Period''. Beginning at 3:40 p.m. (EST), BeX will
broadcast the imbalance between the At the Close and Limit or Close
Orders on the bid side and At the Close and Limit on Close Orders on
the offer side.
Second, BeX will close based upon the primary market close.\18\ BeX
will provide a group closing by putting all eligible orders in such
securities received by 4 p.m. into an Authorized Reserve State. When
BeX receives the closing price message from the primary market, the BeX
trading engine will complete the closing process for each individual
security.
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\18\ Id.
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Post-Primary Trading Session. The Post-Primary Trading Session
would operate from the time when the primary market disseminates its
closing price until 4:30. During the Post Primary Trading Session only
Cross Orders may be submitted to BeX.
Receipt of orders. Orders could be routed to BeX through the
Exchange's systems or through other communications lines approved by
the Exchange for the delivery of orders by Exchange Members.\19\ BeX
would also accept and automatically execute commitments sent by market
centers that participate in ITS.
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\19\ See proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph
(h)(i).
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Ranking and display of orders. Except for Cross, Cross with Size,
and Mid-point Cross Orders, all orders sent to BeX would be ranked
according to their price and time of receipt and would be displayed to
the public when they constitute the Best Bid or Offer in BeX for a
security.\20\
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\20\ See proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph
(i).
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Automated matching of orders. In BeX, orders would automatically
match against each other, in price/time priority.\21\ Specifically, an
incoming order would be matched against one or more orders in the BeX,
in the order of their ranking, at the price of each order, for the full
amount of shares available at that price, or for the size of the
incoming order, if smaller. If an incoming order could not be matched
when it is received, and it is not designated as an order that should
be immediately cancelled, the order would be placed in the BeX. For
example:
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\21\ The only exception to this price/time priority matching
would occur when certain ``cross with size'' orders are executed. In
those instances, eligible ``cross with size'' transactions--where
there is an order to buy and sell at least 5,000 shares of the same
security with a market value of at least $100,000.00 (A) at a price
equal to or better than both the National Best Bid and Offer and the
Best Bid and Offer displayed in BeX; (B) where the size of the order
is larger than the aggregate size of all interest displayed in BeX
at that price; and (C) where neither side of the order is for the
account of the BSE Member sending the order to BeX--could execute at
the price of orders in BeX, without executing those earlier-received
orders. Because this type of crossing transaction is permitted on
the floor of the Exchange today, the Exchange believes it is
appropriate to include this transaction type in BeX.
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Assume that BeX contains the following bids and offers in a
particular security, AAA:
------------------------------------------------------------------------
Buy Price Price Sell
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200............................ $47.50 $48.20............ 400
1,500.......................... 47.00 48.50............. 700
[[Page 37146]]
600............................ 46.75 49.00............. 100
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--An incoming Limit Order to buy 500 shares at a price of $48.00 would
become the top-of-the-book best bid.
--An incoming Limit Order to buy 500 shares at a price of $48.20 would
match for 400 shares against the top-of-the-book best offer at a price
of $48.20, leaving 100 shares to buy at $48.20.
--Similarly, an incoming Limit Order to buy 500 shares at a price of
$48.50 would match for 400 shares against the top-of-the-book best
offer at a price of $48.20 and would match for 100 shares at a price of
$48.50.
Inbound ITS commitments, if priced at or better than the current
Best Bid or Offer in BeX, would be automatically executed against the
order(s) reflected in the Best Bid or Offer for the full amount of
shares at that price, and any remaining portion of the ITS commitment
would be automatically cancelled.\22\
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\22\ See proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph
(j)(iii).
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Cross, Cross with Size and Mid-point Cross Orders would be
automatically executed if they meet the requirements for those types of
orders. If they do not meet applicable requirements, they would be
immediately cancelled.
No distinction between agency and professional orders. Under the
proposed rules, agency orders (entered on behalf of a customer) and
professional or proprietary orders (entered for the account of a BSE
Member (or other broker-dealer)) would be handled in an identical way
in BeX's matching algorithms.\23\
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\23\ See proposed BSE Rule, Chapter XXXVII, Section 2, paragraph
(d). See also Chx Rule, Article XXA, Rule 2, paragraph (d). The
Exchange believes that this handling is appropriate because BeX is a
fully-automated functionality of the Exchange. Orders for BeX would
be submitted directly and electronically to the Exchange. Once
transmitted, an order could be cancelled, but a Member could not
influence the execution of that order in any way. The orders would
enter a line of other orders to be matched against one another based
on an established algorithm. As did the Chx when it proposed its
Ebook rule change, the BSE is seeking an exemption under Rule 11a2-
2(T) for this part of this rule filing.
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Cancellations of transactions and handling of clearly erroneous
transactions. Under the proposed rules, Members that make a transaction
in demonstrable error could agree to cancel and unwind the transaction,
subject to the approval of the Exchange.\24\ For purposes of BeX, the
Exchange also proposes to adopt a policy for the handling of clearly
erroneous transactions.\25\ This policy would allow the Exchange's
Chief Regulatory Officer (``CRO'') or another officer designated by the
CRO to (a) review and potentially modify or cancel executions where one
party believes that the terms of the transaction were clearly erroneous
when submitted; and (b) modify or cancel executions that result from a
disruption or malfunction in the use or operation of BeX, or any
communications system associated with the BeX.
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\24\ See proposed BSE Rule, Chapter XXXVII, Section 4, Paragraph
(a).
\25\ See proposed BSE Rule, Chapter XXXVII, Section 5, Paragraph
(a).
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The proposed rules set out procedures for each of these reviews,
including specific means for Members to appeal the Exchange's
decisions.\26\
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\26\ For example, a Member seeking review of a ``clearly
erroneous'' transaction would be required to notify the Exchange of
the request, by telephone and in writing, promptly after the
execution. After the CRO or another officer designated by the CRO
reviewed the transaction, the Exchange would notify both parties of
the CRO's or designee's decision, in writing. Either party could
appeal the decision to a subcommittee of the Exchange's Regulatory
Oversight Committee (``ROC''), whose decision would be final. In
making their decisions, the CRO, CRO's designee, and the ROC
Subcommittee would consider the goals of maintaining a fair and
orderly market and protecting investors and the public interest. If
it is determined that a transaction was clearly erroneous, the CRO,
CRO designee, or the ROC Subcommittee would try to return the
parties to the positions that they would have been in (or positions
reasonably similar to those positions) if the error had not
occurred. Similarly, in the event of disruption or malfunction that
impacts the operation or use of BeX, the CRO or CRO designee could
act promptly to declare transactions void or to modify transactions.
The Exchange would be required to notify each Member involved in the
transaction as soon as practicable after the CRO or CRO designee
makes any decision. Decisions could be appealed using the procedure
set out for the review of decisions addressing clearly erroneous
transactions.
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Adjustment of Orders on Ex-Dates
The Exchange is proposing to adopt the standard process for
adjusting orders on ex-dates.\27\ For example, open buy orders are
reduced by the value of a cash dividend on the ex-dividend date. If the
amount of the cash dividend is not equivalent to or is not a multiple
of the fraction of a dollar in which bids and offers are made in the
stock, open buy orders will be reduced by the next higher variation.
The proposed rule text sets forth charts and examples.
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\27\ See proposed BSE Rules, Chapter XXXVII, Section 6. These
proposed rules are based on NYSE Rule 118.
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Conclusion
The Exchange represents that it has designed BeX to be a fully-
automated system that would permit eligible orders in eligible
securities to match against one another, without the required
participation of a Specialist. The Exchange believes that this system
functionality would provide all Exchange Members with an efficient way
to trade securities that would protect investors and the public
interest by automatically handling orders in a fair and reasonable
manner.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\28\ in general, and furthers the
objectives of section 6(b)(5),\29\ in particular, in that it is
designed 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.
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\28\ 15 U.S.C. 78f(b).
\29\ 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, as
amended, will impose any burden on competition 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, as amended.
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 self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, as amended; or
B. Institute proceedings to determine whether the proposed rule
change, as amended, 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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
[[Page 37147]]
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-BSE-2006-22 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-2006-22. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. 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-2006-22 and should be submitted on or before July
20, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-10242 Filed 6-28-06; 8:45 am]
BILLING CODE 8010-01-P
