Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (”Act”), and Rule 19b-4 thereunder, notice is hereby given that on May 17, 2002, 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 Exchange. On August 23, 2002, the BSE amended the proposed rule change. The BSE again amended the proposal on October 9, 2002. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend its Minor Rule Violation Plan (“Plan”). The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets.
Minor Rule Violations
Sec. 1 No change.
Sec. 2(a) No change.
(b) [Failure to Confirm Open Orders (Ch. II, Sec. 15). Initial Offense—Written Warning; Second Offense—$100; Subsequent Offenses—$250.]
Failure to Maintain Proper Records (Ch. II, Sec. 15; Ch. XV, Sec. 8; Ch. XXII, Sec. 1):
Failure to maintain required records for annual examinations, surveillance, and other purposes. Initial offense—$500; Subsequent Offenses—$1,000
(c)—(e) No change
(f) Floor Order Facilitation (Ch. II, Sec. 3; Ch. XV, Sec. 2; Ch. XV, Sec. 3; Ch. XVIII, Sec. 1):
Conduct which may cause delays or interruptions in the orderly facilitation and/or confirmation of orders received on the Floor such as failure to record proper post locations or dilatory practices in handling orders received on the Floor[.], as measured by the Exchange and in excess of three (3) instances over the preceding rolling thirty-day period.
Initial Offense—Written Warning; Second Offense—$100; Subsequent Offenses—$250.
(g)—(j) No change.
(k) Trading in an Inactive Alternate and/or Trading Account (Ch. XXII, Sec. 2(m)):
Patterns of trading indicating abuse of inactive accounts, as measured by the Exchange, and in excess of three (3) instances over the preceding thirty-day period.
Initial Offense—$500; Subsequent Offenses—$2,500
(l)—(n) No change.
(o) Dealings Outside of Exchange Operating Hours (Ch. I-B, Sec. 2):
First offense—Written Warning; Second Offense—$50; Subsequent Offenses—$100
Sec. 3 (a)—(g) No change.
(h) Floor Conduct:
Unprofessional or Disruptive Behavior.
Initial Offense—$100; Subsequent Offenses—$500
Extremely unprofessional or disruptive behavior, as determined by two floor officials.
(i)—(o) No change.
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 the Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to amend the Plan, which is located in Chapter XXXIV, “Minor Rule Violations” of the Rules of the Board of Governors of the Exchange.
The first proposed change is to delete Section 2, Rule Violations, Paragraph (b), Failure to Confirm Open Orders. This Rule was originally intended to address the manual obligations of specialists to confirm their open orders at the end of the day. This has become an automated process, and the Rule is therefore unnecessary.
The second proposed change is to replace Section 2, Rule Violations, Paragraph (b), Failure to Confirm Open Orders, with a new Paragraph (b) entitled “Failure to Maintain Proper Records (Chapter II, Dealings on the Exchange, Section 15, Records of Orders from Offices to Floor; Chapter XV, Dealer Specialists, Section 8, Records; Chapter XXII, Financial Reports and Requirements, Section 1, Member and Member-Organization's Statement of Financial Condition)”. The explanatory sentence for this rule violation will read: “Failure to maintain required records for annual examinations, surveillance, and other purposes.” Due to the potentially serious nature of record keeping violations, the Exchange seeks to prescribe a $500 fine for initial offenses, and a $1,000 fine for subsequent violations of this paragraph. Furthermore, as to form, inserting this rule into this paragraph will obviate the need to renumber subsequent paragraphs.
The third proposed change is to alter Section 2, Rule Violations, Paragraph (f), Floor Order Facilitation (Ch. XVIII, Sec. 1), so that it more fully addresses practices of specialists that may have a dilatory effect on the handling of orders submitted to the floor for execution. The wording of the Section will not be changed, but several rule references will be added to the title of the section, to enable the BSE to more accurately identify which section(s) of its rules are the focus of the violation. The following rule references will be added into the title of the paragraph: Chapter II, Dealings on the Exchange, Sec. 3, Execution Guarantee; Chapter XV, Dealer Specialists, Sec. 2, Responsibilities, and Sec. 3, Code of Acceptable Business Practices for Specialists.
The fourth proposed change is to add an explanatory sentence to Section 2, Rule Violations, Paragraph (k) Trading in an Inactive Alternate and/or Trading Account, to address a change in focus to identify patterns in trading in these accounts, as opposed to individual trades. Due to volume increases in the marketplace, the BSE feels that trading patterns are a more efficient way to identify abuses of inactive accounts. Accordingly, an explanatory sentence will read: “Patterns of trading indicating abuse of inactive accounts.” The fine structure will remain the same.
The fifth proposed change is to add a new paragraph to Section 2, Rule Violations. New paragraph (o) will be entitled “Dealings Outside of Exchange Operating Hours (Chapter I-B, Business Hours, Section 2, Dealings on the Floor, Hours)”. No explanatory sentence is needed. A written warning will be given for first offenses. Second offenses will result in a $50 fine, and subsequent offenses will result in $100 fines.
The final proposed change is to Section 3, Policy Violations, Paragraph (h), Floor Conduct, and is designed to address egregious behavior. A third fine category will be added, with a brief explanation, which will read: “Extremely unprofessional or disruptive behavior, as determined by two floor officials.” The fine will be $1,000 per offense.
2. Statutory Basis
The BSE believes that the proposed rule change is consistent with Section 6(b)(5) of the Act, in that it is designed 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.
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 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 BSE 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 BSE. All submissions should refer to file number SR-BSE-2002-04 and should be submitted by November 19, 2002.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. See August 21, 2002 letter from John A. Boese, Assistant Vice President, Legal and Regulatory, BSE, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), SEC, and attachments (“Amendment No. 1”). Amendment No. 1 completely replaces and supersedes the original filing.Back to Citation
4. See October 8, 2002 letter from John A. Boese, Assistant Vice President, Legal and Regulatory, BSE, to Nancy Sanow, Assistant Director, Division, SEC (“Amendment No. 2”). In Amendment No. 2, the BSE added language to set a standard by which violations of certain provisions of the Minor Rule Violation Plan will be determined.Back to Citation
[FR Doc. 02-27485 Filed 10-28-02; 8:45 am]
BILLING CODE 8010-01-P