[Federal Register Volume 63, Number 81 (Tuesday, April 28, 1998)]
[Notices]
[Pages 23307-23309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11167]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39890; File No. SR-BSE-97-04]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order
Approving a Proposed Rule Change and Notice of Filing and Order
Granting Accelerated Approval to Amendment No. 2 Thereto Relating to
Stop Orders and Stop Limit Orders in Solely Listed Issues
April 20, 1998.
On September 4, 1997, the Boston Stock Exchange, Inc. (``BSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act
[[Page 23308]]
of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\
a proposed rule change to adopt a new Supplementary Material to Section
3 of Chapter 1 of the Exchange Rules of govern the activation criteria
for stop orders and stop limit orders in sole listed issues where the
triggering executions do not occur on the Exchange. The Exchange
subsequently filed Amendment No. 1 to the proposed rule change on
September 15, 1997.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 revised the text of the proposed
Supplementary Material to Section 3 of Chapter 1 of the Exchange
Rules to clarify that it only applies to the trading of issues
listed solely on the Exchange and that the proposal also applies to
stop limit orders. See letter from Karen A. Aluise, Assistant Vice
President, BSE, to Michael Walinskas, Senior Special Counsel,
Division of Market Regulation, SEC (September 15, 1997) (``Amendment
No. 1'').
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The proposed rule change, including Amendment No. 1, was published
for comment in the Federal Register on October 8, 1997.\4\ No comments
were received on the proposal. The Exchange subsequently filed
Amendment No. 2 to the proposed rule change on November 7, 1997.\5\
This order approves the proposal, as amended.
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\4\ Exchange Act Release No. 39187 (Oct. 1, 1997), 65 FR 52601.
\5\ Amendment No. 2 clarified that the Exchange uses the term
``Nasdaq'' to include Nasdaq/NMS or Nasdaq Small Cap markets, but
not to include the OTC Bulletin Board. Accordingly, stop orders and
stop limit orders for issues listed solely on the Exchange, but that
are also traded through Nasdaq/NMS or the Nasdaq Small Cap market,
may be triggered based on trades occurring through Nasdaq/NMS or the
Nasdaq Small Cap market. See letter from Karen A. Aluise, Vice
President, BSE, to Michael Walinskas, Senior Special Counsel,
Division of Market Regulation, SEC (November 7, 1997) (``Amendment
No. 2'').
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The BSE is proposing to adopt a new Supplementary Material to guide
Exchange specialists and customers in the appropriate activation stop
orders and stop limit orders in sole listed issues. Due to the
frequency with which the Exchange's sole listed issues trade through
Nasdaq,\6\ it is likely that transactions will occur in that market at
prices which would activate Exchange-resident stop orders and stop
limit orders, were such transactions to occur in the Exchange's market.
At such times, customers may look for an execution report based on
trading that occurs through Nasdaq. In these circumstances, Exchange
specialists may be placed at significant market risk if a customer is
permitted to determine after the fact that a stop order or stop limit
order in a sole listed issue was, or was not, due based on a sale
reported in the Nasdaq market.
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\6\ As noted above, the Exchange uses the term ``Nasdaq'' to
include both the Nasdaq/NMS and Nasdaq Small Cap markets. However,
the term is not intended to include the OTC Bulletin Board. See
Amendment No. 2.
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The Exchange proposes to adopt this new interpretation to remove
any ambiguity regarding the appropriate activation of stop orders and
stop limit orders in sole listed issues by necessitating the inclusion
of reported regular way round-lot Nasdaq sales in determining the
activation of Exchange-resident stop orders and stop limit orders in
sole listed issues. Under the proposed rule, a customer's stop or stop
limit order for a BSE sole listed security will be triggered upon a
round-lot sales transaction at or through the stop price that is
executed either on the Exchange or through Nasdaq. Once triggered, a
stop order to buy or sell will become a market order executable at the
most advantageous price obtainable after the order is represented at
the specialist's post. A customer's triggered stop order generally will
be executed at the best available price, including the best Nasdaq
price. The actual execution of the order will occur on the Exchange
under all circumstances.\7\ Exchange-resident stop limit orders will be
triggered in a manner identical to stop orders (i.e., the occurrence of
a round-lot transaction at or through the stop price on the Exchange or
through Nasdaq).\8\ Once triggered, a stop limit order to buy or sell
will become a marketable order executable at the limit price or better,
if obtainable, after the order is represented at the specialist's post.
Similar to the treatment of stop orders, Nasdaq prices will be utilized
to determine the best available price.
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\7\ Telephone conversation between Karen Aluise, Vice President,
BSE, and Christine Richardson, Attorney, SEC, March 13, 1998.
\8\ In the case of stop limit orders, the Exchange permits the
stop price and the limit price to be different. Id.
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The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\9\ Specifically, the
Commission believes the proposal is consistent with the Section 6(b)(5)
\10\ 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.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule change is
appropriate in that it promotes further linkage between the regulated
U.S. equities markets and ensures that a customer's stop or stop limit
order will be triggered upon the sooner to occur of an appropriate
execution on the Exchange or through Nasdaq. This additional linkage is
consistent with the principals contained in Section 11A of the Exchange
Act and reflects the Congressional intent of creating a national market
system for securities.\12\ The Commission also believes that the
proposed rule change helps to assure the best execution of customer
orders, and is consistent with the maintenance of fair and orderly
markets by ensuring that a customer's stop or stop limit order will be
triggered based upon transactions occurring on either the Exchange or
Nasdaq.\13\
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\12\ See Section 11A(a)(1), of the Exchange Act, 15 U.S.C. 78k-
1. In addition to the goals set out in Section 11A, Congress also
found that the linking of qualified securities markets through
communication and data processing facilities will foster efficiency;
enhance competition; increase the information available to brokers,
dealers, and investors; facilitate the offsetting of investors'
orders and contribute to best execution of such orders. See Market
2000: An Examination of Current Equity Market Developments, Division
of Market Regulation, Commission, January 1994, III-4 (``Market 2000
Study'').
\13\ See Market 2000 Study, supra note 10, at V-2.
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The Commission notes that the inclusion of the Nasdaq/NMS and
Nasdaq Small Cap trades in determining when to activate stop and stop
limit orders is likely to result in quicker executions of these orders
on the BSE. The Commission also believes that by including Nasdaq/NMS
and Nasdaq Small Cap transactions in the activation criteria of
Exchange resident stop and stop limit orders in BSE solely listed
issues, the proposed rule change clarifies any ambiguity under the
Exchange's existing rules as to when these orders will become
marketable. The Commission also notes that the Exchange has proposed
adequate surveillance procedures to monitor the activation and
execution of stop and stop limit orders based on Nasdaq/NMS and Nasdaq
Small Cap transactions.
The Commission finds good cause for approving Amendment No. 2 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice thereof in the Federal Register. Amendment No. 2
narrows the scope of the proposal by clarifying that stop and stop
limit orders on the Exchange may be triggered only by transactions
occurring in the Nasdaq/NMS and Nasdaq Small Cap markets, and not
transactions occurring on the
[[Page 23309]]
OTC Bulletin Board. The Commission also notes that no comments were
received on the original BSE proposal, which was subject to the full
21-day comment period. Therefore, the Commission believes that is
consistent with Section 6(b)(5) of the Act to approve Amendment No. 2
to the proposed rule change on an accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 2 to the proposed rule change,
including whether the amendment is consistent with the Act. 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
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 at 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-97-04 and should be
submitted by May 19, 1998.
For the foregoing reasons, the Commission finds that BSE's
proposal, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-BSE-97-04) is approved.
\14\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11167 Filed 4-27-98; 8:45 am]
BILLING CODE 8010-01-M
