Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Boston Stock Exchange, Inc., Relating to Stopping Stock

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