[Federal Register Volume 62, Number 225 (Friday, November 21, 1997)]
[Notices]
[Pages 62381-62382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30627]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39327; File No. SR-BSE-97-7]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Boston
Stock Exchange, Inc. to Extend a Pilot Program Relating to Market-On-
Close Orders
November 14, 1997.
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 November 5, 1997,\3\ 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 and
II below, which Items have been prepared by the self-regulatory
organization. The Exchange has requested accelerated approval for the
proposal, as amended. This order approves the Exchange's proposal, as
amended, on an accelerated basis, and solicits comments from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4.
\3\ On November 10, 1997, the Exchange submitted an amendment to
the filing, clarifying that the requested extension of the pilot was
through October 31, 1998. See letter from Karen Aluise, Exchange to
Mike Walinskas, Commission, dated November 10, 1997 (``Amendment No.
1'').
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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 extend its pilot program for the
handling of Market-on-Close (``MOC'') orders through October 31,
1998.\4\ The Exchange's pilot program procedures mirror the procedures
in place on the primary markets, including the New York Stock Exchange,
Inc. (``NYSE''), in order to ensure equal treatment of MOC orders.
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\4\ See Amendment No. 1, infra note 3.
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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 self-regulatory organization
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 self-regulatory
organization 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 extend the Exchange's
pilot program \5\ for the handling of MOC orders on expiration days,\6\
non-expiration days, and when NYSE Rule 80A is in effect. The pilot
program, as previously approved by the Commission,\7\ mirrors the
procedures of the primary markets (including the NYSE) so that the
Exchange does not become a haven for MOC orders for pilot stocks that
are prohibited on the primary markets. In this way, all orders sent to
the Exchange will receive equal treatment to orders sent to the primary
markets. The term ``pilot stocks'' refers to the list of stocks
designated by the NYSE as pilot stocks for purposes of its auxiliary
closing procedures.
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\5\ The pilot program has not been altered since its initial
approval by the Commission. Phone conversation between Karen Aluise,
Exchange and Janice Mitnick, Commission on November 10, 1997. See
Release No. 34-37478 (July 25, 1996), 61 FR 40268 (August 1, 1996)
(approving SR-BSE-96-8 relating to the Exchange's MOC pilot
program).
\6\ The term ``expiration days'' refers to both: (1) the trading
day, usually the third Friday of the month, when some stock index
options, stock index futures, and options on stock index futures
expire or settle concurrently and (2) the trading day on which end
of calendar quarter index options expire.
\7\ See Release No. 34-37478 (July 25, 1996), 61 FR 40268
(August 1, 1996), infra note 5.
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On non-expiration days, these procedures include: (a) Providing a
3:50 p.m. deadline for the entry of all MOC orders in all stocks; (b)
prohibiting the cancellation or reduction of any MOC order in any stock
after 3:50 p.m.; (c) publishing order imbalances of 50,000 shares or
more as soon as practicable after 3:50 p.m. in the pilot stocks, stocks
being added to or dropped from an index, and in any other stock with
the approval of a floor official; and (d) limiting the entry of MOC
orders after 3:50 p.m. to offsetting published imbalances. With respect
to item (b) above, the Exchange will permit cancellations of MOC orders
after 3:50 p.m. in those instances where legitimate error has been
made.
If an MOC index arbitrage order to buy (sell), to establish or
increase a position (to eliminate or reduce a position), is entered and
NYSE Rule 80A subsequently goes into effect because of significant
upward (downward) market movement, the MOC order must be canceled
regardless of the time NYSE Rule 80A goes into effect. If NYSE Rule 80A
goes into effect prior to 3:50 p.m., the MOC order may be re-entered
with the instruction ``buy minus'' (``sell plus''). If NYSE Rule 80A
goes into effect after 3:50 p.m. and there is a published imbalance in
the subject stock, the MOC order may be re-entered with the instruction
``buy minus'' (``sell plus'') to offset the imbalance.
On expiration days, the pilot procedures include: (a) Providing a
3:40 p.m. deadline for the entry of all MOC orders in all stocks; (b)
prohibiting the cancellation or reduction of any MOC order in any stock
after 3:40 p.m.; (c) publishing order imbalances of 50,000 shares or
more as soon as practicable after 3:40 p.m. in the pilot stocks, stocks
being added to or dropped from an index and, upon the request of a
specialist, any other stock with the approval of a floor official; and
(d) limiting the entry of MOC orders after 3:40 p.m. to offsetting
published imbalances. With respect to item (b) above, the Exchange will
permit cancellations of MOC orders after 3:40 p.m. in those instances
where a legitimate error has been made.
If an MOC index arbitrage order to buy (sell), to establish or
increase a position (to eliminate or reduce a position), is entered and
NYSE Rule 80A subsequently goes into effect because of significant
upward (downward) market movement, the MOC order must be canceled
regardless
[[Page 62382]]
of the time NYSE Rule 80A goes into effect. If NYSE Rule 80A goes into
effect prior to 3:40 p.m., the MOC order may be re-entered with the
instruction ``buy minus'' (``sell plus''). If NYSE Rule 80A goes into
effect after 3:40 p.m. and there is a published imbalance in the
subject stock, the MOC order may be re-entered with the instruction
``buy minus'' (``sell plus'') to offset the imbalance.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5), in particular in
that the rule is designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and national market system, and in general, to protect investors
and the public interest, and is not designed to permit unfair
discrimination between customers, issuers, brokers, and dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange states that it does not believe that the proposed rule
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 states that no written comments were solicited or
received with respect to the proposed rule change.
III. Solicitation of Comments
Interested person are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule changes that are filed
with the Commission, and all written communications relating to the
proposed rule changes 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 at the Commission's Public Reference Room. Copies of such
filings also will be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-BSE-97-7, and should be submitted by December 12, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the Act and the rule and regulations thereunder applicable to a
national securities exchange, and, in particular, the requirements of
Section 6(b)(5) thereunder.\8\ Specifically, the Commission believes
that the proposal is consistent with the Section 6(b)(5) requirements
that the rules of an exchange be designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, and,
in general, to protect investors and the public interest.
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\8\ In approving this proposal, the Commission notes that it has
considered the proposal's impact on efficiency, competion, and
capital formation. 15 U.S.C. 78c(f).
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In recent years, the exchanges instituted certain safeguards
(including the creation of auxiliary closing procedures on expiration
days) to minimize excess market volatility that may arise from the
liquidation of stock positions related to trading strategies involving
index derivative products. The Commission believes that the MOC order
handling requirements instituted by the Exchange, as well as those
instituted by other exchanges, work relatively well and may result in
more orderly markets at the close on expiration days. In addition,
under current competitive market conditions, a regional exchange which
trades NYSE-listed stocks but does not have comparable auxiliary
closing procedures could be utilized by market participants to enter
MOC orders that would be prohibited on the NYSE. Although the
Commission has no reason to believe that the Exchange has or will
become a significant alternative market to enter otherwise prohibited
MOC orders, the Commission agrees with the Exchange that if this did
occur, it could have a negative impact on the fairness and orderliness
of the national market system. Accordingly, the Commission finds that
it is reasonable for the Exchange to extend the pilot program for MOC
orders, and thereby maintain procedures for MOC orders received by the
Exchange that should result in treatment consistent with that of MOC
orders on the primary exchanges. Further, the Commission believes that
the renewal of the pilot program does not present any new or novel
regulatory issues not previously considered by the Commission when
initially approving the pilot program for MOC orders.
The Commission notes that the NYSE received permanent approval for
its MOC procedures in October 1996.\9\ As stated above, the Exchange's
procedures for MOC orders are based on those of the NYSE. The Division
of Market Regulation staff requests that prior to submitting another
request for extension of the pilot program, the Exchange consider
seeking permanent approval of its MOC procedures.
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\9\ See Release No. 34-37894 (October 30, 1996), 61 FR 56987
(November 5, 1996).
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The Commission finds good cause to approve the proposal prior to
the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register. By accelerating the effectiveness of
the Exchange's pilot program, the Commission will enable the Exchange
to continue the pilot program with as little disruption as possible. In
addition, the Commission believes that the extension of the pilot does
not present any new or novel regulatory issues as the Exchange's
proposal merely reflects the pilot as previously approved by the
Commission. Accordingly, Commission believes that it is consistent with
Sections 6(b)(5) and 19(b)(2) of the Act 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-97-7) is hereby approved
on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30627 Filed 11-20-97; 8:45 am]
BILLING CODE 8010-01-M
