Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend the Existing Fee Schedules, 46116-46117 [E7-16054]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 158 (Thursday, August 16, 2007)]
[Notices]
[Pages 46116-46117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-16054]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56235; File No. SR-BSE-2007-37]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Amend the Existing Fee 
Schedules

August 9, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 18, 2007, the Boston Stock Exchange, Inc. (``BSE''), 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 substantially prepared by BSE. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    The BSE proposes amending certain transaction fees set forth in the 
Boston Equities Exchange (``BeX'') fee schedule. The text of the 
proposed rule change is available at https://www.bostonstock.com, at the 
BSE, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item 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 Exchange is proposing to amend the revenue sharing provision of 
the BeX fee schedule for the revenue sharing program. BeX proposes to 
share fifty percent of gross revenues generated from the Liquidity 
Taker transaction fees for each symbol traded. The revenue would be 
shared with the top three liquidity-providing Member Firms based on 
monthly BeX executed share volume in each security. Cross trade volume 
would not be eligible to be counted for purposes of determining BeX 
executed share volume in this revenue sharing program. In addition, 
Chapter II ``Dealings on the Exchange'', section 26 ``Anti-Manipulative 
Provisions'' of the BSE rules prohibits firms from executing wash sale 
trades. If the Exchange determines that a wash sale trade has occurred, 
the volume from such a trade would not be counted for the purposes of 
determining BeX executed share volume for this revenue sharing 
program.\3\
---------------------------------------------------------------------------

    \3\ Telephone conversation between Kathy Marshall, Vice 
President, Business Strategist, BSE and Jennifer Colihan, Special 
Counsel, Division of Market Regulation, Commission on August 9, 
2007.
---------------------------------------------------------------------------

    The new revenue sharing program would work as follows: First, total 
monthly BeX generated liquidity taking revenues would be determined on 
a per symbol basis; Second, the total monthly BeX generated liquidity 
taking revenues would be split in half, with fifty percent going to BeX 
and fifty percent to be allocated among the top three liquidity 
providing Member Firms in each security (``Eligible Revenues''). BeX 
would split the pool of Eligible Revenues with the top three liquidity 
providers in each security as follows: In each calendar month, each of 
the top three providers would share in the pool of Eligible Revenues on 
a pro-rata basis based on their percentage of executed liquidity versus 
the total executed liquidity for the top three providers. Additionally, 
a minimum of 25,000 total monthly BeX executed shares must be executed 
by a liquidity provider to be eligible to participate in the revenue 
sharing program for any specific security.
    The following is an example of how the revenue sharing program 
would work for any one security: Assume 1,125,000 total shares of 
liquidity were provided and executed by five separate firms for the 
month. Of the 1,125,000 total shares, the top three liquidity providers 
represented 1,000,000 shares with the top firm providing 700,000, the 
second place firm providing 200,000 and the third place firm providing 
100,000. Since the top firm represented seventy percent of the total 
liquidity provided by the top three firms (700,000 of the 1,000,000 
shares), this firm would receive seventy percent of the Eligible 
Revenues. The second place firm would receive twenty percent of the 
Eligible Revenues and the third place firm would receive ten percent of 
the Eligible Revenues.
    In the event firms are tied at certain volume levels, those firms 
would share the applicable percentage of Eligible Revenues among all 
firms that are tied at the same levels. The following is an example of 
how this would work: Assume 1,200,000 total shares of liquidity were 
provided and executed by seven separate firms for the month. Of the 
1,200,000 total shares, the top three liquidity providers represented 
1,000,000 with the top firm providing 700,000, and the second, third, 
and fourth place firms providing 150,000 shares each. In this example, 
the top firm would receive seventy percent of the Eligible Revenue. The 
remaining thirty percent of Eligible Revenue would be shared equally 
with the three firms, each of whom had executed 150,000 shares. Each of 
the three firms would receive ten percent of the Eligible Revenue.
    BeX would also report BeX-provided liquidity information daily on 
its Web site, accumulated on a month-to-date basis. This would show the 
total liquidity provided in each security and would be updated at the 
close of each business day. This information would also be updated 
hourly on the last trading day of the month. In addition, all of the 
different firms providing liquidity, as well as the individual levels 
of liquidity provided, would be reported on an anonymous basis (i.e.,

[[Page 46117]]

Firm A, Firm B, Firm C, etc.) in a matrix format by security and by 
firm.\4\ This would allow firms to determine their ranking in a 
security at any given point during the month and at any given hour on 
the last trading day of the month. To maintain a fair and equitable 
distribution of information, BeX staff would be prohibited from 
communicating, outside of the publicly available Web site information 
as described above, with any Member Firms regarding their liquidity 
providing levels as well as the levels of any other Member Firms.
---------------------------------------------------------------------------

    \4\ The matrix will list in the left column each individual 
security in which liquidity has been provided over the course of the 
month. Listed to the right of each security will be total liquidity 
provided on a month to date (MTD) basis. The exception to this will 
be the last trading day of the month in which total MTD liquidity 
provided will be reflected on an hourly basis. Across the top of the 
matrix, anonymous firm names will be listed with Firm A always 
representing the top liquidity provider in each issue, Firm B always 
representing the second top provider and Firm C always representing 
the third top provider and will continue through Firm Z. In the 
event that more than 26 firms provide liquidity in a security, the 
firm names will continue with Firm AA and so on. To the extent that 
fewer than 26 firms have provided liquidity in a security, those 
firms that have not provided liquidity will be assigned a zero value 
in the matrix. See E-mail from Kathy Marshall, Vice President, 
Business Strategist, BSE, to Jennifer Colihan, Special Counsel, 
Division of Market Regulation, Commission dated July 26, 2007.
---------------------------------------------------------------------------

    This proposed method of revenue sharing is designed to attract 
volume to BeX. Firms do not need to reach high overall volume levels in 
an effort to participate in this revenue sharing program. It is 
designed to provide incentives for competitive quoting as well as 
liquidity provision in less active securities. BeX believes that this 
proposal is fair and equitable and would lead to broad participation by 
firms of all sizes with varied business models.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of section 6(b) of the Act,\5\ in general, and further the 
objectives of section 6(b)(4) of the Act,\6\ in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among member and issues and other persons using 
Exchange facilities. The Exchange believes that sharing revenue with 
the top three liquidity providers creates a more competitive 
environment than sharing revenue, on a pro-rata basis, with all 
participants because it creates an incentive for firms to provide 
competitive quotes in order to participate. The Exchange also believes 
that sharing revenue across all participants, on a pro-rata basis, 
would dilute the amount shared and thus make it non-competitive with 
prevailing fee structures of other market centers. In addition, the 
Exchange believes that sharing on a per symbol basis (as opposed to an 
aggregate basis) allows for a broader participation of firms with 
various business models, as opposed to the typical larger firms, with 
high volumes, who are generally eligible to participate in programs 
with tiered volume structures.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    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, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-2007-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BSE-2007-37. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the BSE. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BSE-2007-37 and should be 
submitted on or before September 6, 2007.

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

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

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-16054 Filed 8-15-07; 8:45 am]
BILLING CODE 8010-01-P