Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Approving Proposed Rule Change Relating to Competing Specialists and Objections to Competing Specialist Competition

Table of Contents

September 10, 2002.

I. Introduction

On June 25, 2002, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), [1] and Rule 19b-4 thereunder, [2] a proposed rule change related to competing specialists and objections to competing specialist competition. The proposed rule change was published for comment in the Federal Register on July 30, 2002. [3] No comments were received on the proposal. This order approves the proposed rule change.

II. Description of the Proposal

The Exchange proposes to amend the section of the Exchange's Competing Specialist Initiative (“CSI”) procedures relating to objections to competition filed by a regular specialist. The Exchange is seeking to implement a procedure that would permit competition pending a final review of any objection to competition filed by a regular specialist.

Under current CSI procedures set forth in Chapter XV, Dealer Specialists, Section 18, Procedures for Competing Specialists, any objection to competition by a regular specialist will prevent a competing specialist from trading, and competing with the regular specialist, in the security at issue, until the objection is adjudicated by the Exchange's Market Performance Committee (“MPC”). In order to streamline this process, the Exchange is proposing that a majority of the floor members of the MPC be able to vote to permit competition in a security pending the formalization of a regular specialist's objection and the subsequent convening of a full meeting of the MPC to review the objection.

III. Discussion

The Commission finds that the proposed rule change is consistent with the provisions of section 6(b) of the Act, [4] in general, and section 6(b)(5) of the Act, [5] in particular, which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating 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 not be designed to permit unfair discrimination between customers, issuers, brokers or dealers. [6]

The Commission believes that the proposal should enhance competition to the ultimate benefit of investors, while still offering the regular specialist the opportunity to formalize an objection, and have that objection fully considered. Moreover, the Commissionbelieves that the proposal should prevent a disingenuous regular specialist from abusing the competition objection process by objecting to specialist competition solely as leverage for objections unrelated to specialist competition.

IV. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act, [7] that the proposed rule change (SR-BSE-2002-07) is hereby approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority. [8]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1. 15 U.S.C. 78s(b)(1).

2. 17 CFR 240.19b-4.

3. See Securities Exchange Act Release No. 46238 (July 19, 2002), 67 FR 49378.

4. 15 U.S.C. 78f(b).

5. 15 U.S.C. 78f(b)(5).

6. In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation 15 U.S.C. 78c(f).

7. 15 U.S.C. 78s(b)(2).

8. 17 CFR 200.30-2(a)(12).

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