Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc.,

[Federal Register: March 1, 2004 (Volume 69, Number 40)]

[Notices]

[Page 9657-9658]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr01mr04-108]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49304; File No. SR-BSE-2002-06]

Self-Regulatory Organizations; Boston Stock Exchange; Order Approving Proposed Rule Change To Clarify Exchange Liability

February 23, 2004.

1. Introduction

   On September 26, 2002, the Boston Stock Exchange (``BSE'') filed with the Securities and Exchange Commission (``Commission'') proposed rule change SR-BSE-2002-06 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ On November 5, 2002, May 29, 2003, and July 21, 2003, BSE amended the proposed rule change.

   [[Page 9658]]

   Notice of the proposal was published in the Federal Register on January 13, 2004.\2\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

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

   \2\ Securities Exchange Act Release No. 49026 (January 6, 2004), 69 FR 2026.

2. Description

   The purpose of the proposed rule change is to amend certain sections of the BSE Constitution and Rules to clarify BSE's liability with respect to its members' contractual obligations.\3\

   \3\ The Commission approved a companion proposed rule change filed by the Boston Stock Exchange Clearing Corporation (``BSECC'') to amend various sections of its Rules as they pertain to BSECC's liability in order to maintain a consistent approach with the changes approved in this filing. Securities Exchange Act Release No. 49305 (February 23, 2004), [File No. SR-BSECC-2003-01].

   In particular, BSE is modifying Articles XII and XIII of its Constitution to insure that any BSE member who is a party to a transaction remains solely liable for the transaction. This language is consistent with similar language and approaches of other exchanges in limiting the liability of an exchange with respect to contracts entered into by members.\4\ In Article XIII of its Constitution, the BSE is also adding certain language from the BSECC Participant Hypothecation Agreement. The provision to be inserted into the Constitution would prevent BSE from becoming a de facto guarantor of an insolvent member's contractual obligations.

   \4\ See, e.g., New York Stock Exchange Rules 137 and 142; Chicago Stock Exchange Rules, Article XXV, Rule 11; and Philadelphia Stock Exchange Rule 254.

   BSE is amending other sections of its Rules consistent with this theme. Chapter III, ``Comparisons--Liability on Contracts,'' Section 4, ``Failures to Compare,'' now states that BSE shall have no liability to any of the original parties to a contract entered into by a member. Chapter VI, ``Failure to Fulfill Contracts,'' Section 1, ``Closing Contracts,'' now makes it clear that no action taken by BSE in closing or assisting to close a contract entered into by a BSE member shall have the effect of transferring any liability related to that contract to BSE. Chapter VI, Section 2, ``Notice of Closing Contracts,'' echoes this approach for instances in which BSE takes action to attempt to close a contract on behalf of a member in default. None of these changes are in response to any recent circumstance. They are only aimed at clarifying BSE's unique position in relation to assisting its members in other contractual matters exclusively linked to conducting transactions in the buying and selling of equity securities.

3. Discussion

   Section 6(b)(5) of the Act requires that the rules of a national securities exchange be 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 are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.\5\ The Commission finds that BSE's proposed rule change is consistent with these requirements because it clarifies BSE's liability with respect to its members' contractual obligations.

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

4. Conclusion

   On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular section 6(b)(5) of the Act and the rules and regulations thereunder.

   It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR-BSE-2002-06) be and hereby is approved.

   For the Commission by the Division of Market Regulation, pursuant to delegated authority.\6\

   \6\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 04-4434 Filed 2-27-04; 8:45 am]

   BILLING CODE 8010-01-P