94-18968. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Boston Stock Exchange, Inc. To Establish a Northbound Trading Linkage With the Montreal Stock Exchange  

  • [Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
    [Unknown Section]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-18968]
    
    
    [[Page Unknown]]
    
    [Federal Register: August 4, 1994]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-34456; International Series Release No. 693; File No. 
    SR-BSE-94-01]
    
     
    
    Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
    Change by Boston Stock Exchange, Inc. To Establish a Northbound Trading 
    Linkage With the Montreal Stock Exchange
    
    July 28, 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 February 
    7, 1994, 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 self-regulatory organization.\1\ The 
    Commission is publishing this notice to solicit comments on the 
    proposed rule change from interested persons.
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        \1\On June 20, 1994, the Exchange submitted to the Commission a 
    draft of the proposed Linkage Plan for the northbound linkage 
    (``Draft Linkage Plan''). The Linkage Plan is an agreement between 
    the BSE and Montreal Stock Exchange which contains arrangements for 
    the management of the northbound linkage, settlement of trade 
    disputes, comparison and settlement of trades, and surveillance of 
    trading activity.
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    I. Self-Regulatory Organization's Statement of the Terms of Substance 
    of the Proposed Rule Change
    
        The BSE seeks to commence northbound trading pursuant to its 
    linkage with the Montreal Stock Exchange (``ME'').
    
    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 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
        Securities markets are becoming increasingly international, 
    reacting to many of the same economic and political events that affect 
    the rest of the world. The globalization of these markets is driven by 
    several factors, but advances in automation and telecommunications have 
    propelled its rapid growth. Factors driving this globalization include 
    investors' desire to enter foreign markets, the growth of large 
    institutional funds needing to decrease risk by diversifying 
    investments in other countries, and regulatory changes that opened 
    markets to foreign broker-dealer firms and their customers.
        Effective international securities markets require efficient and 
    valuable systems for order routing and execution, information 
    dissemination, and clearance and settlement. Most major and emerging 
    markets have automated or plan to automate all or some of these 
    functions to take advantage of efficiency, competition and market 
    expansion opportunities.
        The Commission in Securities Exchange Act Release No. 25284 stated 
    that the international securities market should feature efficient 
    structures for quotation, price and volume dissemination concerning 
    securities and derivatives markets traded worldwide.\2\ A critical step 
    in achieving a worldwide securities market information system would be 
    the creation and maintenance of international linkages between the 
    automated information systems of the various national securities 
    markets. Such a link was established between the BSE and the ME in 1984 
    for orders in U.S. stocks transmitted southbound from Montreal to 
    Boston. This rule proposal is designed to complete the ``loop'' with 
    orders in Canadian stocks being routed northbound from Boston to 
    Montreal.\3\
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        \2\See Securities Exchange Act Release No. 26284 (November 14, 
    1988), 53 FR 46963 (November 21, 1988). The Commission issued its 
    Policy Statement on Regulation of International Securities Markets 
    in 1988 to identify areas of regulatory concern presented by the 
    continued internationalization of the securities markets.
        \3\Under the Draft Linkage Plan, see note 1 supra, all 
    securities listed on the ME, except for options and futures, would 
    be eligible to be traded through the proposed northbound linkage.
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        The proposed rule change seeks to commence northbound trading 
    pursuant to the trading linkage previously established with the ME.\4\ 
    This would provide an additional means for U.S. customers to place 
    orders in Canadian stocks with U.S. brokers for execution on the ME. 
    These orders would be entered into the broker/dealers' order-match 
    systems which are linked to the BSE's BEACON system. BEACON would 
    receive and log the details of the order and pass it on to the ME's 
    automated order-routing and execution system. The order would contain 
    the terms for the price, if any, stated in Canadian dollars, and an 
    identifier indicating that its transmission is for the ME. The ME 
    system would also log the order and direct it to the specialist's 
    electronic book for action. These orders will be treated as would any 
    other order sent to the ME floor.
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        \4\The Exchange's southbound foreign linkage rule and the 
    linkage plan with the ME was approved by the Commission in 1989. See 
    Securities Exchange Act Release No. 27080 (July 31, 1989) (File No. 
    SR-BSE-89-01).
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        Upon execution, the customer report would be sent from the 
    specialist's book through the ME system to the BEACON system, with both 
    systems logging in the details of the report, then to the broker/
    dealer's order-match system. BEACON will essentially function as a 
    conduit for the benefit of member firms who today conduct this business 
    through correspondents. While BEACON will keep detailed records of all 
    traffic, it will not function as an execution system for Canadian 
    stocks, nor show quotes in Canadian stocks, and it will not be 
    advertised as such.
        The trades would be cleared pursuant to the BSE member's agreement 
    with a Canadian correspondent to clear and settle trades at the 
    Canadian Depository for Securities (``CDS'') on their behalf. BSE 
    members would give up a valid CDS account at execution and would be 
    treated like a customer of the Canadian correspondent. This is the 
    clearing arrangement that U.S. broker/dealers currently utilize in 
    clearing trades in Canadian stocks.
        The ME is an affiliate member of the Intermarket Surveillance Group 
    (``ISG'') and as such has elected to participate in the ISG 
    investigative procedures.\5\ This structure will enhance the level of 
    cooperation between the BSE and ME surveillance departments with regard 
    to transactions executed through the link, as is currently done today 
    with southbound orders. Essentially, each northbound trade will be 
    entered into the ME's electronic book and will therefore be subject to 
    the ME's on-line stock trading monitoring system (``SECMA''). The ME 
    currently focuses its trading reviews on insider trading, trading on 
    non-public market information (``front running''), price manipulation 
    (Market fraud of various types), short squeeze, short sales down 
    ticking, normal course issue of bid up ticking, and restrictions on 
    trading by members involved in a distribution.
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        \5\As an affiliate member of ISG, the ME has agreed to abide by 
    the requirements of the ISG Affiliate Agreement.
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        In conducting these types of trading reviews, the ME utilizes price 
    alerts, volume alerts, exception reports based on high-lows and closing 
    prices, as well as other technical information analysis and graphics 
    that are available.
    2. Statutory Basis
        The basis under the Act for the proposed rule change is Section 
    6(b)(5) in that the rule is designed to prevent fraudulent and 
    manipulative acts and practices, 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 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.
    
    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. 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. Persons making written submissions 
    should file 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-94-01 and should be submitted by August 25, 1994.
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 94-18968 Filed 8-3-94; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
08/04/1994
Department:
Securities and Exchange Commission
Entry Type:
Uncategorized Document
Document Number:
94-18968
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: August 4, 1994, Release No. 34-34456, International Series Release No. 693, File No. SR-BSE-94-01