[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21176]
[[Page Unknown]]
[Federal Register: August 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34569; File No. SR-BSE-94-09]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Boston Stock Exchange, Inc., Relating to Stopping Stock
August 22, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 20,
1994, the Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
the proposed rule change as described in Items I, II and III below,
which Items have been prepared by the self-regulatory organization. On
June 24, 1994, the Exchange submitted to the Commission Amendment No. 1
to the proposed rule change in order to clarify its pilot procedures
for stopping stock in minimum variation markets and to specify the
duration of that pilot program.\1\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\See letter from Karen A. Aluise, Assistant Vice Pr5esident,
BSE, to Sandra Sciole, Special Counsel, Division of Market
Regulation, SEC, dated June 21, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The BSE seeks to codify its longstanding practice of stopping stock
and to establish a procedure for stopping stock in minimum variation
markets.\2\ The text of the proposed new rule is as follows:
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\2\The BSE has proposed a March 21, 1995 termination date for
its minimum variation market pilot program to conform with the pilot
programs of other exchanges. see Amendment No. 1, supra, note 1.
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Chapter II of the BSE's Rules of the Board of Governors
Section 38 (a) Stop Constitutes Guarantee--An agreement by a
member or member organization to ``stop'' securities at a specified
price shall constitute a guarantee of the purchase or sale by him or
it of the securities at the price or its equivalent in the amount
specified.
(b) Execution of Stopped Orders--A market order which has been
accepted by a specialist and stopped shall be executed on the last
sale or based on subsequent prints. While the specialist is holding
such order, the order should be reflected in the Exchange market.
(c) Liability for Stopped Orders--If an order is executed at a
less favorable price than that agreed upon, the member or member
organization which agreed to stop the securities shall be liable for
an adjustment of the difference between the two prices.
(d) Stopping Stock in Minimum Variation Markets--In the case of
a minimum variation market, a stopped sell order will be filled when
a transaction takes place at the bid price or lower on the primary
exchange, when the Exchange's displayed share volume at the offering
has been exhausted, or may be filled at any time at a better price.
A stopped buy order will be filled when a transaction takes place at
the offering price or higher on the primary exchange, when the
Exchange's displayed share volume at the bid has been exhausted, or
may be filled at any time at a better price. Notwithstanding the
foregoing, all orders stopped pursuant to this paragraph shall be
executed by the end of the trading day on which such order was
stopped at no worse than the stopped price.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In is 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 IV 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 codify the
longstanding practice\3\ that exists on the Exchange regarding stopping
stock. In addition, the Exchange seeks to adopt a pilot provision
regarding stopping stock in minimum variation markets.
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\3\The practice of stopping stock has existed on the Exchange
since at least 1966.
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The General Rule
Because the Exchange provides primary market price protection, it
is essential that its specialists have the ability to guarantee primary
market prices without negatively impacting the overall market through
the dissemination of executions at prices away from the primary market
(for example, in sitatutions involving double up or down tricks, new
highs or new lows, or out-of-range prints). The stop permits a BSE
specialist to guarantee to its customers that their orders will be
filled at the stop price, with an opportunity for price improvement.
The BSE believes such price improvement potential is clearly a benefit
to the customer.
Stopping Stock in Minimum Variation Markets
The Exchange seeks to establish a procedure regarding the execution
of stopped market orders in minimum variation markets (usually a 1/8th
spread market).\4\ The proposed rule would require the execution of
stopped market orders in minimum variation markets (a) after a
transaction takes place at the stop price or worse (higher for buy
orders and lower for sell orders), (b) after the applicable Exchange
share volume is exhausted, or (c) at any time prior to (a) or (b) if
filled at an improved price. In no event would a stopped order be
executed at a price inferior to the stop price. The BSE believes that
the proposed rule would continue to benefit customers because they
might receive a better price than the stop price, yet it also protects
Exchange specialists by eliminating their exposure to executing
potentially large amounts of pre-existing bids or offers when such
executions would not otherwise be required under Exchange rules.
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\4\This procedure would be implemented on a pilot basis until
March 21, 1995. See Amendments No. 1, supra, note 1.
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2. Statutory Basis
The proposed rule change is consistent with section 6(b)(5) of the
Act in that it furthers the objectives to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to and facilitating transactions in
securities, 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 customers, issuers, brokers or
dealers.
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 publication of this notice in the Federal
Register or within such other period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve the 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. The Commission specifically
requests that commenters address whether the proposed procedures for
stopping stock in minimum variation markets could disadvantage
customers with unexecuted limit orders on the specialist's book and
thus could be inconsistent with traditional auction market principles,
as embodied in Section 11 of the Act and Chapter II, Section 6 of the
BSE Rules. Persons making written submissions should file six copies
thereof with the Secretary, Securities and Exchange Commission, 450
Fifth Street NW., Washington, DC 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing will also be available for inspection and copying at the
principal office of the BSE. All submissions should refer to File No.
SR-BSE-94-09 and should be submitted by September 19, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21176 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M
