Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating To Doing Business With the Public, 44296-44300 [E8-17428]

Download as PDF 44296 Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices Notice of request for extension of OMB approval, with modifications. mstockstill on PROD1PC66 with NOTICES ACTION: SUMMARY: Pension Benefit Guaranty Corporation (PBGC) is requesting that the Office of Management and Budget (OMB) extend its approval, with modifications, of a collection of information under the Paperwork Reduction Act (OMB control number 1212–0055, expires August 31, 2008). The purpose of the information collection is to enable PBGC to locate and pay benefits to participants and beneficiaries in plans covered by the PBGC insurance program, as well as other pension plans that will be covered by PBGC’s expanded Missing Participant program under the Pension Protection Act of 2006. This notice informs the public of PBGC’s request and solicits public comment on the collection of information. DATES: Comments should be submitted by August 29, 2008. ADDRESSES: Comments should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Pension Benefit Guaranty Corporation, via electronic mail at OIRA_DOCKET@omb.eop.gov or by fax to (202) 395–6974. Copies of the collection of information may also be obtained without charge by writing to the Disclosure Division of the Office of the General Counsel of PBGC at the above address or by visiting the Disclosure Division or calling 202–326–4040 during normal business hours. (TTY and TDD users may call the Federal relay service toll-free at 1–800–877–8339 and ask to be connected to 202–326–4040.) The Disclosure Division will e-mail, fax, or mail the requested information to you, as you request. FOR FURTHER INFORMATION CONTACT: Jo Amato Burns, Attorney, or Catherine B. Klion, Manager, Regulatory and Policy Division, Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005–4026, 202–326– 4024. (For TTY/TDD users, call the Federal relay service toll-free at 1–800– 877–8339 and ask to be connected to 202–326–4024.) SUPPLEMENTARY INFORMATION: PBGC is requesting that OMB extend its approval, with modifications, of a collection of information needed to pay participants and beneficiaries who may be entitled to pension benefits under a defined benefit plan that has terminated. The collection consists of information participants and beneficiaries are asked to provide in VerDate Aug<31>2005 23:06 Jul 29, 2008 Jkt 214001 connection with applications for benefits. In addition, in some instances, as part of a search for participants and beneficiaries who may be entitled to benefits, PBGC requests individuals to provide identifying information that the individual would provide as part of an initial contact with PBGC. The information collection also includes My Pension Benefit Account (My PBA), an application on PBGC’s Web site, https://www.pbgc.gov, through which plan participants and beneficiaries may conduct electronic transactions with PBGC, including applying for pension benefits, designating a beneficiary, granting a power of attorney, changing contact information, and applying for electronic direct deposit. All requested information is needed to enable PBGC to determine benefit entitlements and to make appropriate payments, or to provide respondents with specific information about their pension plan to enable them to obtain a rough estimate of their benefit. This collection of information has been approved by OMB under control number 1212–0055 (expires August 31, 2008). PBGC is requesting that OMB extend its approval for three years. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. For plans covered by the PBGC insurance program, PBGC estimates that 84,800 benefit application or information forms will be filed annually by individuals entitled to benefits from PBGC and that the associated burden is 63,550 hours and $3,100. PBGC further estimates that 12,000 individuals annually will provide PBGC with identifying information as part of an initial contact and that the associated burden is 3,500 hours. Thus, for plans covered by the PBGC insurance program, the total estimated annual burden associated with this collection of information is 67,050 hours and $3,100. Section 410 of the Pension Protection Act of 2006 allows certain terminating plans not covered by the existing Missing Participants program to participate in that program. Once final regulations are issued, the program will cover multiemployer plans, small professional service employer plans (25 or fewer active participants), and individual account plans. PBGC anticipates issuing final regulations in 2009. PBGC estimates that 6,400 benefit application or information forms will be filed annually by missing participants in plans that are not covered by the existing Missing Participant program, PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 and that the associated burden is 6,400 hours. PBGC further estimates that 12,000 individuals annually will provide the PBGC with identifying information as part of an initial contact and that the associated burden is 3,000 hours. Thus, over the next three years, the total estimated annual burden associated with this collection of information is 73,300 hours and $3,100. Issued in Washington, DC, this 25th day of July, 2008. Catherine B. Klion, Manager, Regulatory and Policy Division, Legislative and Regulatory Department, Pension Benefit Guaranty Corporation. [FR Doc. E8–17470 Filed 7–29–08; 8:45 am] BILLING CODE 7709–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58221; File No. SR–BSE– 2008–29] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating To Doing Business With the Public July 24, 2008. 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 14, 2008, the Boston Stock Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BSE’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. This order provides notice of the proposed rule change and approves the proposed rule change on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend certain rules that govern an Exchange member’s conduct of doing business with the public. Specifically, the proposed rule change would require participants to integrate the responsibility for supervision of their public customer options business into their overall supervisory and compliance programs. In addition, the proposal would require members to strengthen their supervisory procedures 1 15 2 17 E:\FR\FM\30JYN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 30JYN1 Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices and internal controls as related to their public customer options business. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and at https://www.bostonstock.com/ BostonstockPDF/Legal/filings/200829.pdf. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose mstockstill on PROD1PC66 with NOTICES a. Integration of Options Supervision The purpose of the proposed rule change is to create a supervisory structure for options that is similar to that required by New York Stock Exchange, LLC (‘‘NYSE’’) Rule 342 and National Association of Securities Dealers, Inc. (‘‘NASD’’) (n/k/a Financial Industry Regulatory, Inc. (‘‘FINRA’’)) Rule 3010. The proposed rule change would also conform Boston Options Exchange Group, LLC (‘‘BOX’’) rules to those of the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), which has recently eliminated the requirement that participants qualified to do a public customer business in options designate a single person to act as a Senior Registered Options Principal (‘‘SROP’’) for the participant and that each such participant designate a specific individual as a Compliance Registered Options Principal (‘‘CROP’’).3 Instead, the rule requires participants to integrate the SROP and CROP functions into their overall supervisory and compliance programs. The SROP concept was first introduced during the early years of development of the listed options market. Previously, participants were required to designate one or more persons qualified as Registered Options 3 See Securities Exchange Act Release No. 56492 (September 21, 2007) 72 FR 54952 (September 27, 2007) (SR–CBOE–2007–106) (approval order). VerDate Aug<31>2005 23:06 Jul 29, 2008 Jkt 214001 Principals (‘‘ROPs’’) to have supervisory responsibilities with respect to the firms’ options business. As the number of ROPs at larger firms began to increase, an additional requirement was imposed that firms designate one of their ROPs as the SROP. This was intended to eliminate confusion as to where the compliance and supervisory responsibilities lay by centralizing in a single supervisory officer overall responsibility for the supervision of a firm’s options activities.4 Subsequently, following the recommendation of the Special Study, the options exchanges required firms to designate a CROP to be responsible for each firm’s overall compliance program with respect to its options activities.5 The CROP could be the same person designated as a SROP, but while the CROP generally was not permitted to have sales functions in the firm, the SROP was not so restricted. Since the SROP and CROP requirements were first imposed, the supervisory function with respect to options activities of most securities firms has been integrated into the matrix of supervisory and compliance functions in respect of the firms’ other securities activities. This not only reflects the maturity of the options market, but also recognizes the ways in which the uses of options themselves have become more integrated with other securities in the implementation of particular strategies. To further reflect the trend toward integration, and to conform BOX rules to the recently amended FINRA rules, the proposed change designates all options principals as Registered Options and Security Futures Principals (‘‘ROSFPs’’).6 By permitting supervision of a firm’s options activities to be handled in the same manner as the supervision of its securities and futures activities, the proposed rule change would ensure that supervisory responsibility over each segment of a firm’s business is assigned to the best qualified persons in the firm, thereby enhancing the overall quality of supervision and compliance. The proposed rule change would allow firms the flexibility to assign such 4 Securities and Exchange Commission, 96th Cong., 1st Sess., Report of the Special Study of the Options Markets (Comm. Print 1978) (‘‘Special Study’’) p. 316 fn. 11. 5 Id. at 335. 6 See Securities Exchange Act Release No. 57775 (May 5, 2008) 73 FR 26453 (May 9, 2008) (SR– FINRA–2007–035) (approval order). See also Securities Exchange Act Release No. 56663 (October 15, 2002) 67 FR 64944 (October 22, 2002) (approval order) (modifying and broadening NASD registration categories to include security futures activities by, among other things, amending the title of the Series 4 registration to Registered Options and Security Futures Principal). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 44297 supervisory and compliance responsibilities, which formerly resided with the SROP and/or CROP, to more than one individual. For example, the proposed rule change would permit a participant firm to designate certain ROSFPs to be responsible for a variety of supervisory compliance functions such as approving acceptance of discretionary accounts 7 and exceptions to a participant firm’s suitability standards for trading uncovered short options.8 A firm would be likely to do this in instances where it believes it advantageous to do so to enhance its supervisory or compliance structure. Typically, a firm may also wish to divide these functions on the basis of geographic region or functional considerations. BOX Rule, Chapter XI, Sec. 2 would be amended to clarify the qualification requirements of individuals designated as ROSFPs.9 BOX Rule, Chapter XI, Sec. 3 would be amended to specify the registration requirements of individuals who accept orders from non-broker-dealer customers.10 The proposed rule change would require options discretionary accounts to be accepted by individuals who are qualified ROSFPs. The proposed rule change would eliminate the requirement that discretionary options orders be approved on the day of entry by a ROSFP (with one exception as discussed below). This requirement predates the Special Study and is not consistent with the use of supervisory tools in computerized format or exception reports after the close of a trading day. No similar requirement exists for supervision of other securities accounts that are handled on a discretionary basis.11 Discretionary orders must be reviewed in accordance with a participant’s written supervisory procedures. The proposed rule change would ensure that supervisory responsibilities are assigned to specific ROSFP-qualified individuals, thereby enhancing the quality of supervision. BOX Rule, Chapter XI, Sec. 12 would be revised by adding the requirement that any participant that does not utilize computerized surveillance tools for the frequent and appropriate review of discretionary account activity must establish and implement procedures to require ROSFP-qualified individuals who have been designated to review discretionary accounts to approve and 7 See proposed BOX Rule Chapter XI, Sec. 12. proposed BOX Rule Chapter XI, Sec. 9(f)(iii). 9 See proposed BOX Rule Chapter XI, Sec.2(d) and (e). 10 See proposed BOX Rule Chapter XI, Sec. 3(d). 11 See, e.g., NYSE Rule 408. 8 See E:\FR\FM\30JYN1.SGM 30JYN1 mstockstill on PROD1PC66 with NOTICES 44298 Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices initial each discretionary order on the day entered. The Exchange believes that any firm that does not utilize computerized surveillance tools to monitor discretionary account activity should continue to be required to perform the daily manual review of discretionary orders. Under the proposed rule change, firms would continue to be required to designate ROSFP-qualified individuals to provide frequent appropriate supervisory review of options discretionary accounts. This includes a review of the accounts in order to determine whether the ROSFP accepting the account had a reasonable basis for believing that the customer was able to understand and bear the risks of the proposed strategies or transactions. This requirement would provide an additional level of supervisory audit over options discretionary accounts that do not exist for other securities discretionary accounts. In addition, the proposed rule change would require that each participant submit to the Exchange a written report by April 1 of each year that details the participant’s supervision and compliance effort, including its options compliance program, during the preceding year and reports on the adequacy of the participant’s ongoing compliance processes and procedures.12 Proposed BOX Rule Chapter XI, Sec. 10(h) would require that each participant submit, by April 1 of each year, a copy of the BOX Rule Chapter XI, Sec. 10(g) annual report to one or more of its control persons or, if the participant has no control person, to the audit committee of its board of directors or its equivalent committee or group.13 Further, the proposed rule would provide that a participant that specifically includes its options compliance program in a report that complies with substantially similar NYSE and NASD rules would be deemed to have satisfied the requirements of BOX Rules, Chapter XI, Sec. 10(g) and (h). Participants would be required to designate a single general partner or executive officer to assume overall authority and responsibility for internal supervision, control of the organization and compliance with securities laws and regulations.14 Participants would also be required to designate specific qualified individuals as having supervisory or compliance 12 See proposed BOX Rule, Chapter XI, Sec. 10(g), which is modeled after NYSE Rule 342.30. 13 See proposed BOX Rule, Chapter XI, Sec. 10(h), which is modeled after NYSE Rule 354. 14 See proposed BOX Rule, Chapter XI, Sec. 10(a). VerDate Aug<31>2005 23:06 Jul 29, 2008 Jkt 214001 responsibilities over each aspect of the firm’s options activities and to set forth the names and titles of these individuals in their written supervisory procedures.15 The Exchange believes the proposed rule changes would increase accountability and eliminate impractical and unrealistic supervisory standards applicable solely to listed options. The Exchange believes that the proposed rule changes are appropriate and would not materially alter the supervisory operations of firms. b. Supervisory Procedures and Internal Controls The Exchange is also proposing to amend certain rules to strengthen participants’ supervisory procedures and internal controls relating to a participant’s public customer options business. The proposed rule changes discussed below are modeled after NYSE and NASD rules approved by the Commission in 2004.16 This proposal is appropriate and consistent with the proposal discussed above to integrate the responsibility for supervision of a participant firm’s public customer options business into its overall supervisory and compliance program. The Exchange is proposing to revise BOX Rule, Chapter XI, Sec. 10(a) to require the development and implementation of written policies and procedures reasonably designed to supervise sales managers and other supervisory personnel who service customer options accounts.17 This requirement would apply to branch office managers, sales managers, regional/district sales managers, or any person performing a similar supervisory function. Such policies and procedures are expected to encompass all options sales-related activities. Proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(i) would require that supervisory reviews of producing sales managers be conducted by a qualified ROSFP who is either senior to, or otherwise ‘‘independent of,’’ the producing manager under review. This provision is intended to ensure that all options sales activity of a producing manager is monitored by persons who do not have a personal interest in such activity. Proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(ii) would provide an exception for participants so limited in size and proposed BOX Rule, Chapter XI, Sec. 10(i). Securities Exchange Act Release Nos. 49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) (SR–NYSE–2002–36 (approval order), 49883 (June 17, 2004), 69 FR (June 23, 2004) (SR–NASD–2002– 162) (approval order). 17 Proposed BOX Rule, Chapter XI, Sec. 10(a) is modeled after NYSE Rule 342.19. PO 00000 15 See 16 See Frm 00088 Fmt 4703 Sfmt 4703 resources that there is no qualified person senior to, or otherwise independent of, the producing manager to conduct the review. In this case, the review would be conducted by a qualified ROSFP to the extent practicable. Under proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(iii), a participant relying on the limited size and resources exception must document the factors used to determine that compliance with each of the ‘‘senior’’ or ‘‘otherwise independent’’ standards of proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(i) is not possible, and that the required supervisory systems and procedures in place, with respect to any producing manager, comply with the provisions of proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(i) to the extent practical.18 Proposed BOX Rule, Chapter XI, Sec. 10(c)(1) would require participants to develop and maintain adequate controls over each of their business activities. The proposed rule would further require that such controls include the establishment of procedures to independently verify and test the supervisory systems and procedures for those business activities. A participant would be required to include in the annual report, prepared pursuant to proposed BOX Rule, Chapter XI, Sec. 10(g), a review of the participant’s efforts in this regard, including a summary of the tests conducted and significant exceptions identified. The Exchange believes proposed BOX Rule, Chapter XI, Sec. 10(c)(1) would enhance the overall quality of each participant’s supervision and compliance function.19 Proposed BOX Rule, Chapter XI, Sec. 10(d) would establish requirements for branch office inspections similar to the requirements of NYSE Rule 342.24. Specifically BOX Rule, Chapter XI, Sec. 10(d) would require a participant to inspect, at least annually, each supervisory branch office and inspect each non-supervisory branch office at least once every three years.20 The 18 Proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(iv) would provide that a participant that complies with the NYSE or NASD rules that are substantially similar to the requirements in BOX Rules, Chapter XI, Secs. 10(a)(3)(1) and (a)(3)(2) and (a)(3)(3) will be deemed to have met such requirements. 19 Proposed BOX Rule, Chapter XI, Sec. 10(c)(1) is modeled after NYSE Rule 342.23. Paragraph (c)(2) of proposed BOX Rule, Chapter XI, Sec. 10(c)(1) would provide that a participant that complies with NYSE or NASD rules that are substantially similar to the requirements in paragraph (c)(1) of proposed BOX Rule, Chapter XI, Sec 10 will be deemed to have met such requirements. 20 Proposed BOX Rules, Chapter XI, Secs. 10(d)(1)(i) and (ii) would provide members with two exceptions from the annual supervisory branch office inspection requirements. E:\FR\FM\30JYN1.SGM 30JYN1 mstockstill on PROD1PC66 with NOTICES Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices proposed rule would further require persons who conduct a participant’s annual branch office inspection to be independent of the direct supervision or control of the branch office (i.e., not the branch office manager, or any person who directly or indirectly reports to such manager, or any person to whom such manager directly reports). The Exchange believes that requiring branch office inspections to be conducted by someone who has no significant financial interest in the success of a branch office should lead to more objective and vigorous inspections. Under proposed BOX Rule, Chapter XI, Sec. 10(e), any firm seeking an exemption, pursuant to BOX Rule, Chapter XI, Sec. 10(d)(1)(ii), from the annual branch office inspection requirement would be required to submit to the Exchange written policies and procedures for systematic riskbased surveillance of its branch offices, as defined in BOX Rule, Chapter XI, Sec. 10(e). Proposed BOX Rule, Chapter XI, Sec. 10(f) would require the annual branch office inspection program to include, at a minimum, testing and verification of specified internal controls.21 Proposed BOX Rule, Chapter XI, Sec. 10(d)(3) would provide that a participant that complies with the requirements of NASD or the NYSE that are substantially similar to the requirements of BOX Rule, Chapter XI, Sec. 10(d)(e) and (f) would be deemed to have met such requirements. The Exchange is also proposing to amend BOX Rule, Chapter XI, Sec. 10 to define ‘‘branch office’’ in a way that is substantially similar to the definition of branch office in NYSE Rule 342.10. Proposed BOX Rule, Chapter XI, Sec. 10(g)(4) would require a firm to designate a Chief Compliance Officer (CCO). Proposed BOX Rule, Chapter XI, Sec. 10(g)(5) would require each firm’s Chief Executive Officer (CEO), or equivalent, to certify annually that the participant organization has in place processes to: (1) Establish and maintain policies and procedures reasonably designed to achieve compliance with applicable Exchange rules and federal securities laws and regulations, (2) modify such policies and procedures as business, regulatory, and legislative changes and events dictate, and (3) test the effectiveness of such policies and procedures on a regular basis, the timing of which is reasonably designed to ensure continuing compliance with 21 Proposed BOX Rule, Chapter XI, Sec. 10(f) is modeled after NYSE Rules 342.25 and 342.26. VerDate Aug<31>2005 23:06 Jul 29, 2008 Jkt 214001 Exchange rules and federal securities laws and regulations.22 Proposed BOX Rule, Chapter XI, Sec. 10(g)(5) would also require the CEO to attest (1) That the CEO has conducted one or more meetings with the CCO in the preceding 12 months to discuss the compliance processes in proposed BOX Rule, Chapter XI, Sec. 10(g)(5)(i), (2) that he or she has consulted with the CCO and other officers to the extent necessary to attest to the statements in the certification, and (3) that the compliance processes are evidenced in a report, reviewed by the CEO, CCO and such other officers as the participant firm deems necessary to make the certification, that is provided to the participant firm’s board of directors and audit committee (if such committee exists). Under proposed BOX Rule, Chapter XI, Sec. 10(b)(2)(g), a participant, upon a customer’s written instructions, may hold mail for a customer who will not be at his or her usual address for no longer than two months if the customer is on vacation or traveling, or for three months if the customer is going abroad. This provision would help ensure that participants that hold mail, for customers who are away from their usual addresses, do so only pursuant to the customer’s written instructions and for a specified, relatively short period of time.23 Proposed BOX Rule, Chapter XI, Sec. 10(b)(3) would require that, before a customer options order is executed, the account name or designation must be placed upon the memorandum for each transaction. In addition, only a qualified ROSFP would be permitted to approve any changes in account names or designations. The ROSFP would be required to document the essential facts relied upon in approving the changes and maintain the record in an easily accessible place. A participant would be required to preserve any documentation which provides for an account designation change for a period of not less than three years, with the documentation preserved for the first two years in an easily accessible place, as the term ‘‘easily accessible place’’ is used in Rule17a–4 of the Act. The Exchange believes the proposed rule would help to protect account name and designation information from possible fraudulent activity.24 22 Proposed BOX Rule, Chapter XI, Sec. 10(g)(5) is modeled after NASD Rule 3013 and NYSE Rule 342.30(e). 23 Proposed BOX Rule, Chapter XI, Sec. 10(b)(2)(g) is modeled after NASD Rule 3110(i). 24 Proposed BOX Rule, Chapter XI, Sec. 10(b)(3) is modeled after NASD Rule 3110(j). PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 44299 Proposed BOX Rule, Chapter XI, Sec. 12(d) would allow a participant to exercise time and price discretion on orders for the purchase or sale of a definite number of options contracts in a specified security. The Exchange proposes to limit the duration of this discretionary authority to the day it is granted, absent written authorization to the contrary. Additionally, the proposed rule would require any exercise of time and price discretion to be reflected on the customer order ticket. The proposed one-day limitation would not apply to time and price discretion exercised for orders effected with or for an institutional account (as defined in the Rule) pursuant to valid Good-TillCancelled instructions issued on a ‘‘not held’’ basis. The Exchange believes that investors will receive greater protection by clarifying the time such discretionary orders may remain pending.25 The Exchange believes the proposed rule changes recognize that options have become more integrated with other securities in the implementation of particular strategies, and thus should not continue to be regulated as though they are a new and experimental product. The Exchange further asserts that the supervisory and compliance structure in place for non-options products at most participant firms is not materially different from the structure in place for options. The proposed rule change would also provide conformity of the BOX Rules to those of the CBOE. Accordingly, the Exchange submits that the proposed rule changes are appropriate and would not materially alter the supervisory operations of participants. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,26 in general, and Section 6(b)(5) of the Act,27 in particular, in that it will result in consistency and uniformity among the competing options exchanges and it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, 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. Specifically, the Exchange believes this proposed rule change would achieve these ends by integrating the supervision and compliance functions relating to 25 Proposed BOX Rule, Chapter XI, Sec. 12(d) is modeled after NASD Rule 2510(d)(1). 26 15 U.S.C. 78f(b). 27 15 U.S.C. 78f(b)(5). E:\FR\FM\30JYN1.SGM 30JYN1 44300 Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Notices participants’ public customer options activities into their overall supervisory structure, thereby eliminating any uncertainty over where supervisory responsibility lies, and by fostering the strengthening of participant organizations’ internal controls and supervisory systems. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. mstockstill on PROD1PC66 with NOTICES 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. 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 BSE, located at 100 Franklin Street, Boston, MA 02110. 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–2008–29 and should be submitted on or before August 20, 2008. IV. Commission Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules III. Solicitation of Comments and regulations thereunder applicable to Interested persons are invited to a national securities exchange.28 In submit written data, views and particular, the Commission believes that arguments concerning the foregoing, the proposed rule change would help to including whether the proposed rule better integrate the supervisory and change is consistent with the Act. compliance functions of a firm’s public Comments may be submitted by any of customer options activities into the the following methods: firm’s overall supervisory and compliance functions, thereby Electronic Comments eliminating any uncertainty about • Use the Commission’s Internet where supervisory responsibility lies. comment form https://www.sec.gov/ Therefore, the Commission finds that rules.sro.shtml); or the proposed rule change is consistent • Send an e-mail to rulewith Section 6(b)(5) of the Act,29 which comments@sec.gov. Please include File requires, among other things, that Number SR–BSE–2008–29 on the Exchange rules be designed to prevent subject line. fraudulent and manipulative acts and practices, to promote just and equitable Paper Comments principles of trade, and, in general, to • Send paper comments in triplicate protect investors and the public interest. to Secretary, Securities and Exchange The Commission also finds good Commission, 100 F Street, NE., cause to approve the proposed rule Washington, DC 20549–1090. change prior to the thirtieth day after All submissions should refer to File the date of publication of notice of filing Number SR–BSE–2008–29. This file in the Federal Register. The proposed number should be included on the rule change is substantially similar to subject line if e-mail is used. To help the recent CBOE and FINRA rule Commission process and review your amendments concerning options comments more efficiently, please use supervision, which were approved by only one method. The Commission will the Commission.30 The Commission post all comments on the Commission’s believes that approving the proposed Internet Web site (https://www.sec.gov/ rule change will simplify firms’ compliance, and is consistent with the rules/sro.shtml). Copies of the public interest and the investor submission, all subsequent amendments, all written statements 28 In approving the proposed rule change, the with respect to the proposed rule Commission considered the proposal’s impact on change that are filed with the efficiency, competition, and capital formation. 15 Commission, and all written U.S.C. 78c(f). 29 15 U.S.C. 78f(b)(4). communications relating to the 30 See Securities Exchange Act Release No. 56971 proposed rule change between the Commission and any person, other than (December 14, 2007), 72 FR 72804 (December 21, 2007) (approval order for File No. SR–CBOE–2007– those that may be withheld from the 106) and Securities Exchange Act Release No. public in accordance with the 57775 (May 5, 2008) 73 FR 26453 (May 9, 2008) (approval order for File No. SR–FINRA–2007–035). provisions of 5 U.S.C. 552, will be VerDate Aug<31>2005 23:06 Jul 29, 2008 Jkt 214001 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 protection goals of the Act. Finally, the Commission finds that it is in the public interest to approve the proposed rule change as soon as possible to expedite its implementation. Accordingly, the Commission believes good cause exists, consistent with Sections 19(b)(2) of the Act,31 to approve the proposed rule change on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR– BSE–2008–29) be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Florence E. Harmon, Acting Secretary. [FR Doc. E8–17428 Filed 7–29–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58215; File No. SR–FINRA– 2008–035] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the Addition of Fees Imposed for the Series 14 and Series 16 Examinations to FINRA’s Fee Schedule July 23, 2008. 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 June 26, 2008, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) 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 FINRA. This order provides notice of the proposed rule change and approves the proposed rule change on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend Section 4(c) of Schedule A to the FINRA ByLaws (‘‘Schedule A’’) to add the fees 31 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 32 17 E:\FR\FM\30JYN1.SGM 30JYN1

Agencies

[Federal Register Volume 73, Number 147 (Wednesday, July 30, 2008)]
[Notices]
[Pages 44296-44300]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-17428]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58221; File No. SR-BSE-2008-29]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating To Doing Business With the Public

July 24, 2008.
    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 14, 2008, the Boston Stock Exchange, Inc. (the ``Exchange'' or 
``BSE''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
This order provides notice of the proposed rule change and approves the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend certain rules that govern an 
Exchange member's conduct of doing business with the public. 
Specifically, the proposed rule change would require participants to 
integrate the responsibility for supervision of their public customer 
options business into their overall supervisory and compliance 
programs. In addition, the proposal would require members to strengthen 
their supervisory procedures

[[Page 44297]]

and internal controls as related to their public customer options 
business. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and at https://
www.bostonstock.com/BostonstockPDF/Legal/filings/2008-29.pdf.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
a. Integration of Options Supervision
    The purpose of the proposed rule change is to create a supervisory 
structure for options that is similar to that required by New York 
Stock Exchange, LLC (``NYSE'') Rule 342 and National Association of 
Securities Dealers, Inc. (``NASD'') (n/k/a Financial Industry 
Regulatory, Inc. (``FINRA'')) Rule 3010. The proposed rule change would 
also conform Boston Options Exchange Group, LLC (``BOX'') rules to 
those of the Chicago Board Options Exchange, Incorporated (``CBOE''), 
which has recently eliminated the requirement that participants 
qualified to do a public customer business in options designate a 
single person to act as a Senior Registered Options Principal 
(``SROP'') for the participant and that each such participant designate 
a specific individual as a Compliance Registered Options Principal 
(``CROP'').\3\ Instead, the rule requires participants to integrate the 
SROP and CROP functions into their overall supervisory and compliance 
programs.
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    \3\ See Securities Exchange Act Release No. 56492 (September 21, 
2007) 72 FR 54952 (September 27, 2007) (SR-CBOE-2007-106) (approval 
order).
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    The SROP concept was first introduced during the early years of 
development of the listed options market. Previously, participants were 
required to designate one or more persons qualified as Registered 
Options Principals (``ROPs'') to have supervisory responsibilities with 
respect to the firms' options business. As the number of ROPs at larger 
firms began to increase, an additional requirement was imposed that 
firms designate one of their ROPs as the SROP. This was intended to 
eliminate confusion as to where the compliance and supervisory 
responsibilities lay by centralizing in a single supervisory officer 
overall responsibility for the supervision of a firm's options 
activities.\4\ Subsequently, following the recommendation of the 
Special Study, the options exchanges required firms to designate a CROP 
to be responsible for each firm's overall compliance program with 
respect to its options activities.\5\ The CROP could be the same person 
designated as a SROP, but while the CROP generally was not permitted to 
have sales functions in the firm, the SROP was not so restricted.
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    \4\ Securities and Exchange Commission, 96th Cong., 1st Sess., 
Report of the Special Study of the Options Markets (Comm. Print 
1978) (``Special Study'') p. 316 fn. 11.
    \5\ Id. at 335.
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    Since the SROP and CROP requirements were first imposed, the 
supervisory function with respect to options activities of most 
securities firms has been integrated into the matrix of supervisory and 
compliance functions in respect of the firms' other securities 
activities. This not only reflects the maturity of the options market, 
but also recognizes the ways in which the uses of options themselves 
have become more integrated with other securities in the implementation 
of particular strategies. To further reflect the trend toward 
integration, and to conform BOX rules to the recently amended FINRA 
rules, the proposed change designates all options principals as 
Registered Options and Security Futures Principals (``ROSFPs'').\6\ By 
permitting supervision of a firm's options activities to be handled in 
the same manner as the supervision of its securities and futures 
activities, the proposed rule change would ensure that supervisory 
responsibility over each segment of a firm's business is assigned to 
the best qualified persons in the firm, thereby enhancing the overall 
quality of supervision and compliance.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 57775 (May 5, 2008) 
73 FR 26453 (May 9, 2008) (SR-FINRA-2007-035) (approval order). See 
also Securities Exchange Act Release No. 56663 (October 15, 2002) 67 
FR 64944 (October 22, 2002) (approval order) (modifying and 
broadening NASD registration categories to include security futures 
activities by, among other things, amending the title of the Series 
4 registration to Registered Options and Security Futures 
Principal).
---------------------------------------------------------------------------

    The proposed rule change would allow firms the flexibility to 
assign such supervisory and compliance responsibilities, which formerly 
resided with the SROP and/or CROP, to more than one individual. For 
example, the proposed rule change would permit a participant firm to 
designate certain ROSFPs to be responsible for a variety of supervisory 
compliance functions such as approving acceptance of discretionary 
accounts \7\ and exceptions to a participant firm's suitability 
standards for trading uncovered short options.\8\ A firm would be 
likely to do this in instances where it believes it advantageous to do 
so to enhance its supervisory or compliance structure. Typically, a 
firm may also wish to divide these functions on the basis of geographic 
region or functional considerations. BOX Rule, Chapter XI, Sec. 2 would 
be amended to clarify the qualification requirements of individuals 
designated as ROSFPs.\9\ BOX Rule, Chapter XI, Sec. 3 would be amended 
to specify the registration requirements of individuals who accept 
orders from non-broker-dealer customers.\10\
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    \7\ See proposed BOX Rule Chapter XI, Sec. 12.
    \8\ See proposed BOX Rule Chapter XI, Sec. 9(f)(iii).
    \9\ See proposed BOX Rule Chapter XI, Sec.2(d) and (e).
    \10\ See proposed BOX Rule Chapter XI, Sec. 3(d).
---------------------------------------------------------------------------

    The proposed rule change would require options discretionary 
accounts to be accepted by individuals who are qualified ROSFPs. The 
proposed rule change would eliminate the requirement that discretionary 
options orders be approved on the day of entry by a ROSFP (with one 
exception as discussed below). This requirement predates the Special 
Study and is not consistent with the use of supervisory tools in 
computerized format or exception reports after the close of a trading 
day. No similar requirement exists for supervision of other securities 
accounts that are handled on a discretionary basis.\11\ Discretionary 
orders must be reviewed in accordance with a participant's written 
supervisory procedures. The proposed rule change would ensure that 
supervisory responsibilities are assigned to specific ROSFP-qualified 
individuals, thereby enhancing the quality of supervision.
---------------------------------------------------------------------------

    \11\ See, e.g., NYSE Rule 408.
---------------------------------------------------------------------------

    BOX Rule, Chapter XI, Sec. 12 would be revised by adding the 
requirement that any participant that does not utilize computerized 
surveillance tools for the frequent and appropriate review of 
discretionary account activity must establish and implement procedures 
to require ROSFP-qualified individuals who have been designated to 
review discretionary accounts to approve and

[[Page 44298]]

initial each discretionary order on the day entered. The Exchange 
believes that any firm that does not utilize computerized surveillance 
tools to monitor discretionary account activity should continue to be 
required to perform the daily manual review of discretionary orders.
    Under the proposed rule change, firms would continue to be required 
to designate ROSFP-qualified individuals to provide frequent 
appropriate supervisory review of options discretionary accounts. This 
includes a review of the accounts in order to determine whether the 
ROSFP accepting the account had a reasonable basis for believing that 
the customer was able to understand and bear the risks of the proposed 
strategies or transactions. This requirement would provide an 
additional level of supervisory audit over options discretionary 
accounts that do not exist for other securities discretionary accounts.
    In addition, the proposed rule change would require that each 
participant submit to the Exchange a written report by April 1 of each 
year that details the participant's supervision and compliance effort, 
including its options compliance program, during the preceding year and 
reports on the adequacy of the participant's ongoing compliance 
processes and procedures.\12\
---------------------------------------------------------------------------

    \12\ See proposed BOX Rule, Chapter XI, Sec. 10(g), which is 
modeled after NYSE Rule 342.30.
---------------------------------------------------------------------------

    Proposed BOX Rule Chapter XI, Sec. 10(h) would require that each 
participant submit, by April 1 of each year, a copy of the BOX Rule 
Chapter XI, Sec. 10(g) annual report to one or more of its control 
persons or, if the participant has no control person, to the audit 
committee of its board of directors or its equivalent committee or 
group.\13\ Further, the proposed rule would provide that a participant 
that specifically includes its options compliance program in a report 
that complies with substantially similar NYSE and NASD rules would be 
deemed to have satisfied the requirements of BOX Rules, Chapter XI, 
Sec. 10(g) and (h).
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    \13\ See proposed BOX Rule, Chapter XI, Sec. 10(h), which is 
modeled after NYSE Rule 354.
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    Participants would be required to designate a single general 
partner or executive officer to assume overall authority and 
responsibility for internal supervision, control of the organization 
and compliance with securities laws and regulations.\14\ Participants 
would also be required to designate specific qualified individuals as 
having supervisory or compliance responsibilities over each aspect of 
the firm's options activities and to set forth the names and titles of 
these individuals in their written supervisory procedures.\15\
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    \14\ See proposed BOX Rule, Chapter XI, Sec. 10(a).
    \15\ See proposed BOX Rule, Chapter XI, Sec. 10(i).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule changes would increase 
accountability and eliminate impractical and unrealistic supervisory 
standards applicable solely to listed options. The Exchange believes 
that the proposed rule changes are appropriate and would not materially 
alter the supervisory operations of firms.
b. Supervisory Procedures and Internal Controls
    The Exchange is also proposing to amend certain rules to strengthen 
participants' supervisory procedures and internal controls relating to 
a participant's public customer options business. The proposed rule 
changes discussed below are modeled after NYSE and NASD rules approved 
by the Commission in 2004.\16\ This proposal is appropriate and 
consistent with the proposal discussed above to integrate the 
responsibility for supervision of a participant firm's public customer 
options business into its overall supervisory and compliance program.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release Nos. 49882 (June 17, 
2004), 69 FR 35108 (June 23, 2004) (SR-NYSE-2002-36 (approval 
order), 49883 (June 17, 2004), 69 FR (June 23, 2004) (SR-NASD-2002-
162) (approval order).
---------------------------------------------------------------------------

    The Exchange is proposing to revise BOX Rule, Chapter XI, Sec. 
10(a) to require the development and implementation of written policies 
and procedures reasonably designed to supervise sales managers and 
other supervisory personnel who service customer options accounts.\17\ 
This requirement would apply to branch office managers, sales managers, 
regional/district sales managers, or any person performing a similar 
supervisory function. Such policies and procedures are expected to 
encompass all options sales-related activities. Proposed BOX Rule, 
Chapter XI, Sec. 10(a)(3)(i) would require that supervisory reviews of 
producing sales managers be conducted by a qualified ROSFP who is 
either senior to, or otherwise ``independent of,'' the producing 
manager under review. This provision is intended to ensure that all 
options sales activity of a producing manager is monitored by persons 
who do not have a personal interest in such activity.
---------------------------------------------------------------------------

    \17\ Proposed BOX Rule, Chapter XI, Sec. 10(a) is modeled after 
NYSE Rule 342.19.
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(ii) would provide an 
exception for participants so limited in size and resources that there 
is no qualified person senior to, or otherwise independent of, the 
producing manager to conduct the review. In this case, the review would 
be conducted by a qualified ROSFP to the extent practicable. Under 
proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(iii), a participant 
relying on the limited size and resources exception must document the 
factors used to determine that compliance with each of the ``senior'' 
or ``otherwise independent'' standards of proposed BOX Rule, Chapter 
XI, Sec. 10(a)(3)(i) is not possible, and that the required supervisory 
systems and procedures in place, with respect to any producing manager, 
comply with the provisions of proposed BOX Rule, Chapter XI, Sec. 
10(a)(3)(i) to the extent practical.\18\
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    \18\ Proposed BOX Rule, Chapter XI, Sec. 10(a)(3)(iv) would 
provide that a participant that complies with the NYSE or NASD rules 
that are substantially similar to the requirements in BOX Rules, 
Chapter XI, Secs. 10(a)(3)(1) and (a)(3)(2) and (a)(3)(3) will be 
deemed to have met such requirements.
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(c)(1) would require 
participants to develop and maintain adequate controls over each of 
their business activities. The proposed rule would further require that 
such controls include the establishment of procedures to independently 
verify and test the supervisory systems and procedures for those 
business activities. A participant would be required to include in the 
annual report, prepared pursuant to proposed BOX Rule, Chapter XI, Sec. 
10(g), a review of the participant's efforts in this regard, including 
a summary of the tests conducted and significant exceptions identified. 
The Exchange believes proposed BOX Rule, Chapter XI, Sec. 10(c)(1) 
would enhance the overall quality of each participant's supervision and 
compliance function.\19\
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    \19\ Proposed BOX Rule, Chapter XI, Sec. 10(c)(1) is modeled 
after NYSE Rule 342.23. Paragraph (c)(2) of proposed BOX Rule, 
Chapter XI, Sec. 10(c)(1) would provide that a participant that 
complies with NYSE or NASD rules that are substantially similar to 
the requirements in paragraph (c)(1) of proposed BOX Rule, Chapter 
XI, Sec 10 will be deemed to have met such requirements.
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(d) would establish 
requirements for branch office inspections similar to the requirements 
of NYSE Rule 342.24. Specifically BOX Rule, Chapter XI, Sec. 10(d) 
would require a participant to inspect, at least annually, each 
supervisory branch office and inspect each non-supervisory branch 
office at least once every three years.\20\ The

[[Page 44299]]

proposed rule would further require persons who conduct a participant's 
annual branch office inspection to be independent of the direct 
supervision or control of the branch office (i.e., not the branch 
office manager, or any person who directly or indirectly reports to 
such manager, or any person to whom such manager directly reports). The 
Exchange believes that requiring branch office inspections to be 
conducted by someone who has no significant financial interest in the 
success of a branch office should lead to more objective and vigorous 
inspections.
---------------------------------------------------------------------------

    \20\ Proposed BOX Rules, Chapter XI, Secs. 10(d)(1)(i) and (ii) 
would provide members with two exceptions from the annual 
supervisory branch office inspection requirements.
---------------------------------------------------------------------------

    Under proposed BOX Rule, Chapter XI, Sec. 10(e), any firm seeking 
an exemption, pursuant to BOX Rule, Chapter XI, Sec. 10(d)(1)(ii), from 
the annual branch office inspection requirement would be required to 
submit to the Exchange written policies and procedures for systematic 
risk-based surveillance of its branch offices, as defined in BOX Rule, 
Chapter XI, Sec. 10(e). Proposed BOX Rule, Chapter XI, Sec. 10(f) would 
require the annual branch office inspection program to include, at a 
minimum, testing and verification of specified internal controls.\21\ 
Proposed BOX Rule, Chapter XI, Sec. 10(d)(3) would provide that a 
participant that complies with the requirements of NASD or the NYSE 
that are substantially similar to the requirements of BOX Rule, Chapter 
XI, Sec. 10(d)(e) and (f) would be deemed to have met such 
requirements. The Exchange is also proposing to amend BOX Rule, Chapter 
XI, Sec. 10 to define ``branch office'' in a way that is substantially 
similar to the definition of branch office in NYSE Rule 342.10.
---------------------------------------------------------------------------

    \21\ Proposed BOX Rule, Chapter XI, Sec. 10(f) is modeled after 
NYSE Rules 342.25 and 342.26.
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(g)(4) would require a firm 
to designate a Chief Compliance Officer (CCO). Proposed BOX Rule, 
Chapter XI, Sec. 10(g)(5) would require each firm's Chief Executive 
Officer (CEO), or equivalent, to certify annually that the participant 
organization has in place processes to: (1) Establish and maintain 
policies and procedures reasonably designed to achieve compliance with 
applicable Exchange rules and federal securities laws and regulations, 
(2) modify such policies and procedures as business, regulatory, and 
legislative changes and events dictate, and (3) test the effectiveness 
of such policies and procedures on a regular basis, the timing of which 
is reasonably designed to ensure continuing compliance with Exchange 
rules and federal securities laws and regulations.\22\
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    \22\ Proposed BOX Rule, Chapter XI, Sec. 10(g)(5) is modeled 
after NASD Rule 3013 and NYSE Rule 342.30(e).
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(g)(5) would also require the 
CEO to attest (1) That the CEO has conducted one or more meetings with 
the CCO in the preceding 12 months to discuss the compliance processes 
in proposed BOX Rule, Chapter XI, Sec. 10(g)(5)(i), (2) that he or she 
has consulted with the CCO and other officers to the extent necessary 
to attest to the statements in the certification, and (3) that the 
compliance processes are evidenced in a report, reviewed by the CEO, 
CCO and such other officers as the participant firm deems necessary to 
make the certification, that is provided to the participant firm's 
board of directors and audit committee (if such committee exists).
    Under proposed BOX Rule, Chapter XI, Sec. 10(b)(2)(g), a 
participant, upon a customer's written instructions, may hold mail for 
a customer who will not be at his or her usual address for no longer 
than two months if the customer is on vacation or traveling, or for 
three months if the customer is going abroad. This provision would help 
ensure that participants that hold mail, for customers who are away 
from their usual addresses, do so only pursuant to the customer's 
written instructions and for a specified, relatively short period of 
time.\23\
---------------------------------------------------------------------------

    \23\ Proposed BOX Rule, Chapter XI, Sec. 10(b)(2)(g) is modeled 
after NASD Rule 3110(i).
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 10(b)(3) would require that, 
before a customer options order is executed, the account name or 
designation must be placed upon the memorandum for each transaction. In 
addition, only a qualified ROSFP would be permitted to approve any 
changes in account names or designations. The ROSFP would be required 
to document the essential facts relied upon in approving the changes 
and maintain the record in an easily accessible place. A participant 
would be required to preserve any documentation which provides for an 
account designation change for a period of not less than three years, 
with the documentation preserved for the first two years in an easily 
accessible place, as the term ``easily accessible place'' is used in 
Rule17a-4 of the Act. The Exchange believes the proposed rule would 
help to protect account name and designation information from possible 
fraudulent activity.\24\
---------------------------------------------------------------------------

    \24\ Proposed BOX Rule, Chapter XI, Sec. 10(b)(3) is modeled 
after NASD Rule 3110(j).
---------------------------------------------------------------------------

    Proposed BOX Rule, Chapter XI, Sec. 12(d) would allow a participant 
to exercise time and price discretion on orders for the purchase or 
sale of a definite number of options contracts in a specified security. 
The Exchange proposes to limit the duration of this discretionary 
authority to the day it is granted, absent written authorization to the 
contrary. Additionally, the proposed rule would require any exercise of 
time and price discretion to be reflected on the customer order ticket. 
The proposed one-day limitation would not apply to time and price 
discretion exercised for orders effected with or for an institutional 
account (as defined in the Rule) pursuant to valid Good-Till-Cancelled 
instructions issued on a ``not held'' basis. The Exchange believes that 
investors will receive greater protection by clarifying the time such 
discretionary orders may remain pending.\25\
---------------------------------------------------------------------------

    \25\ Proposed BOX Rule, Chapter XI, Sec. 12(d) is modeled after 
NASD Rule 2510(d)(1).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule changes recognize that 
options have become more integrated with other securities in the 
implementation of particular strategies, and thus should not continue 
to be regulated as though they are a new and experimental product. The 
Exchange further asserts that the supervisory and compliance structure 
in place for non-options products at most participant firms is not 
materially different from the structure in place for options. The 
proposed rule change would also provide conformity of the BOX Rules to 
those of the CBOE. Accordingly, the Exchange submits that the proposed 
rule changes are appropriate and would not materially alter the 
supervisory operations of participants.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\26\ in general, and Section 
6(b)(5) of the Act,\27\ in particular, in that it will result in 
consistency and uniformity among the competing options exchanges and it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts, 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. 
Specifically, the Exchange believes this proposed rule change would 
achieve these ends by integrating the supervision and compliance 
functions relating to

[[Page 44300]]

participants' public customer options activities into their overall 
supervisory structure, thereby eliminating any uncertainty over where 
supervisory responsibility lies, and by fostering the strengthening of 
participant organizations' internal controls and supervisory systems.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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. 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-2008-29 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BSE-2008-29. 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 BSE, located at 100 
Franklin Street, Boston, MA 02110. 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-2008-29 and should be submitted on or before August 
20, 2008.

IV. Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\28\ In particular, the Commission believes that the proposed 
rule change would help to better integrate the supervisory and 
compliance functions of a firm's public customer options activities 
into the firm's overall supervisory and compliance functions, thereby 
eliminating any uncertainty about where supervisory responsibility 
lies. Therefore, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\29\ which requires, among 
other things, that Exchange rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \28\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \29\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Commission also finds good cause to approve the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing in the Federal Register. The proposed rule change is 
substantially similar to recent CBOE and FINRA rule amendments 
concerning options supervision, which were approved by the 
Commission.\30\ The Commission believes that approving the proposed 
rule change will simplify firms' compliance, and is consistent with the 
public interest and the investor protection goals of the Act. Finally, 
the Commission finds that it is in the public interest to approve the 
proposed rule change as soon as possible to expedite its 
implementation.
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release No. 56971 (December 14, 
2007), 72 FR 72804 (December 21, 2007) (approval order for File No. 
SR-CBOE-2007-106) and Securities Exchange Act Release No. 57775 (May 
5, 2008) 73 FR 26453 (May 9, 2008) (approval order for File No. SR-
FINRA-2007-035).
---------------------------------------------------------------------------

    Accordingly, the Commission believes good cause exists, consistent 
with Sections 19(b)(2) of the Act,\31\ to approve the proposed rule 
change on an accelerated basis.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-BSE-2008-29) be, and hereby 
is, approved on an accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-17428 Filed 7-29-08; 8:45 am]
BILLING CODE 8010-01-P
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