[Federal Register Volume 68, Number 199 (Wednesday, October 15, 2003)]
[Notices]
[Pages 59435-59437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25975]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48596; File No. SR-BSE-2003-08]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Boston Stock Exchange, Inc.
Relating to the Exchange's Instant Liquidity Access Service for Certain
Limit Orders
October 7, 2003.
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, 2003, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. On
September 8, 2003, the Exchange submitted an amendment to the
filing.\3\
[[Page 59436]]
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from John Boese, Vice President, Legal and
Compliance, BSE, to Nancy Sanow, Assistant Director, Division of
Market Regulation, Commission, dated September 5, 2003 (``Amendment
No. 1''). In Amendment No. 1, the BSE: (1) Clarified that the
proposal is substantially similar to the New York Stock Exchange,
Inc. (``NYSE'') rule related to the NYSE's Direct+ execution
functionality; (2) corrected typographical errors in the purpose
section; (3) clarified how trades will be reported to the
Consolidated Tape Association; (4) noted that the proposed rule will
be replacing an obsolete BSE rule related to year 2000 testing; and
(5) and inserted a cross reference to other BSE rules that clarify
instances in which BSE published quotes might not be ``firm.''
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to add provisions to its rules governing a
new service that will provide for the instant execution of certain
limit orders of a specified size. The text of the proposed rule change
is below. Proposed new language is in italics; proposed deletions are
in brackets.
* * * * *
Chapter I
Definitions
Sec. 3.
Instant Liquidity Access (``ILA'') Order
An ILA order is a round-lot limit order of no less than 100, nor
more than 1000, shares priced at the Exchange's published offer (in the
case of a buy) or at the Exchange's published bid (in the case of an
order to sell), which a member or member-organization has entered for
immediate execution in accordance with, and to the extent provided by,
Chapter XXXIII, Section 8 (Instant Liquidity Access) of these Rules.
* * * * *
Chapter XXXIII
Beacon
Sec. 8. [Year 2000 testing] Instant Liquidity Access (a) Each
member and member organization shall participate in testing of computer
systems designed to prepare for Year 2000, in a manner and frequency
prescribed by the Exchange, and shall provide to the Exchange reports
related to such testing as requested by the Exchange.
(b) The Exchange may exempt a member or member organization from
this requirement if that member cannot be accommodated in the testing
schedule by the organization conducting the test, if the member does
not employ computers in its business, or for other good reasons.
(c) Every member of the Exchange that clears securities
transactions on behalf of other broker-dealers must take reasonable
measures to ensure that each broker-dealer for which it clears
securities transactions conducts testing with such member.
Adopted.
December 31, 1998.]
This section applies to the facilitation of orders through Instant
Liquidity Access, a mechanism offered by the Exchange. All other
provisions of the Constitution and Rules of the Exchange are applicable
unless superseded by this section.
(a) Only straight limit orders without tick restrictions are
eligible for entry as instant execution or Instant Liquidity Access
(``ILA'') orders. ILA orders to buy shall be priced at the price of the
published BSE offer. ILA orders to sell shall be priced at the price of
the BSE bid. An ILA order shall receive an immediate, instant execution
against orders reflected in the Exchange's published quotation and
shall be immediately reported as BSE transactions, unless:
(i) the BSE's published quotation is not firm (in accordance with
Rule 11Ac1-1 of the Act, as set forth in these Rules in Chapter III,
``Dealings on the Exchange'', Section 7, ``Dissemination of
Quotations'');
(ii) the primary market's published quotation is spread away from
the BSE quotation in an amount, as determined by the Market Performance
Committee of the Exchange, which would warrant curtailing the
availability of instant executions in a particular security (currently
$0.25). Such an amount can be altered by the Market Performance
Committee, as market conditions warrant, from time to time;
(iii) with respect to a single-sided ILA order, a better price
exists in another ITS participating market center;
(iv) with respect to a single-sided ILA order, the BSE's published
bid or offer is 100 shares;
(v) trading in the subject security has been halted;
(vi) the primary market has executed a block size trade at a price
inferior to the BSE bid or offer.
ILA orders that cannot be immediately executed shall be cancelled.
(b) Availability of ILA feature. ILA orders in a particular stock
shall be eligible to receive an instant execution if entered after the
Exchange has disseminated a published bid or offer in that stock until
4:00 p.m. or any other closing time of the exchange's floor market.
(c) Orders may not be broken into smaller amounts. An ILA order for
any account in which the same person is directly or indirectly
interested may only be entered at intervals of no less that 30 seconds
between the entry of each such order in the book.
(d) Interaction with ITS orders. If an inbound ITS commitment has
been processed and apportioned according to the rules set forth in
Chapter XXXI, Intermarket Trading Sysem, herein, based on orders in the
BSE book, an ILA execution cannot take place against the same order.
(e) Partial executions. An ILA order which is for a size greater
than that displayed on the BSE book will receive an instant execution
up to the displayed size of the BSE quotation. Any excess will
automatically be cancelled.
* * * * *
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 purpose of the proposed rule change is to add new sections to
its rules concerning new trading system functionality to provide for
the instant execution of limit orders of 1000 shares or less against
trading interest in the Exchange's published quotation. This new
functionality, Instant Liquidity Access (``ILA''), will accommodate
Exchange customers seeking immediate execution or cancel, similar to
services offered by other exchanges and Electronic Communications
Networks (``ECNs''), such as the New York Stock Exchange's Direct+
service.\4\
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\4\ As noted above, the BSE's proposal is substantially similar
to the existing NYSE Direct+ automatic execution functionality. It
does, however, differ in the following four respects. First, inbound
ILA orders to sell must be priced ``at'' (while the NYSE rule
requires orders to be priced ``at or above'') the BSE published bid
price and inbound orders to buy must be priced ``at'' (while the
NYSE rule requires orders to be priced ``at or below'') the BSE
published ask price. Second, the NYSE rule includes an exclusion,
relating to an automatic execution trade being more than 5 cents
away from the previous trade in that security executed on the NYSE.
Third, the NYSE rule requires the display of any unexecuted portion
of a Direct+ order or any Direct+ orders that cannot be immediately
filled as limit orders regular way. The BSE proposal requires that
such orders be canceled if not immediately filled. Finally, the BSE
proposal includes an exclusion for such instances when the national
best bid or offer spread is $0.25 or more. Teleconference between
John Boese, Vice President, Legal and Compliance, BSE, and
Christopher B. Stone, Special Counsel, Division of Market
Regulation, Commission (September 30, 2003).
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[[Page 59437]]
It would not be mandatory that all limit orders of 1000 shares or
less be entered as ILA orders; rather, the member organization entering
the order can choose to enter an ILA order when such member
organization believes that the speed and certainty of an execution at
the Exchange's published bid or offer price is in its customer's best
interest. In such a case, the member organization would enter an ILA
order priced at the Exchange's published offer price (in the case of an
ILA order to buy), or an ILA order priced at the Exchange's published
bid price (in the case of an ILA order to sell). The ILA order would
then receive an instant execution without being exposed to the auction
market, provided the bid or offer is still available. If the ILA
feature is not available for any reason, the ILA order will be
cancelled. Moreover, any member organization that believes in any
particular case that the customer's interests would be best served by
affording the customer's order the opportunity for price improvement
may enter a limit or market order into BEACON for representation in the
auction market, rather than an ILA order.
ILA orders will be reported to the Consolidated Tape Association
with a unique identifier, a ``.e'', to denote that they were instantly
executed. The Exchange's published bid or offer would be automatically
decremented to the extent of the size of the ILA order to reflect the
ILA execution. The contra side of the ILA order would be the trading
interest reflected in the Exchange's bid or offer, with such interest
participating in the execution according to the Exchange's auction
market principles of priority and parity. Additionally, if an inbound
ITS commitment has been processed and apportioned according to the
rules set forth in Chapter XXXI, Intermarket Trading System, based on
orders on the BSE book, an ILA execution cannot take place against that
same order. Finally, any ILA order, which is for a size greater than
that displayed in the BSE book will receive an instant execution up to
the displayed size of the BSE quotation. Any excess will automatically
be cancelled.
The Exchange's proposal would implement a new set of rules, set
forth in Section 8 of Chapter XXXIII, BEACON \5\, and an addition to
Chapter 1, Definitions, Section 3, Orders.
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\5\ The existing language in this Section will be deleted, as it
applied to Y2K systems testing requirements, and replaced with
provisions detailing the instant proposal.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) of the Act \6\ and Section 6(b)(5)
of the Act,\7\ in particular, which requires, among other things, that
the rules of an exchange be 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; and is not
designed to permit unfair discrimination between brokers or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes that the proposed rule change is
designed to support the principles of section 11A(a)(1) of the Act \8\
in that it seeks to assure economically efficient execution of
securities transactions, makes it practicable for brokers to execute
investor's orders in the best market and provide an opportunity for
investors' orders to be executed without the participation of a dealer.
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\8\ 17 U.S.C. 78k-l(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written 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 Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-BSE-2003-08 and
should be submitted by November 5, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25975 Filed 10-14-03; 8:45 am]
BILLING CODE 8010-01-P