Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Boston Stock Exchange, Inc. Relating to Amendments to Chapter 11, Section 34A (``Trading Halts Due to Extraordinary Market Volatility'')

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38138; File No. SR-BSE-96-12]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Boston Stock Exchange, Inc. Relating to Amendments to

Chapter 11, Section 34A (``Trading Halts Due to Extraordinary Market

Volatility'')

January 8, 1997.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on December 31, 1996, 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. The Exchange submitted to the Commission

Amendment No. 1 to its proposal on January 7, 1997,\3\ The Commission

is

[[Page 2203]]

publishing this notice to solicit comments on the proposed rule change

from interested persons.

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

\2\ 17 CFR 240.19b-4.

\3\ See Letter from Karen A. Aluise, Assistant Vice President,

BSE, to Holly Smith, Associate Director, Division of Market

Regulation, SEC, dated January 7, 1997 (``Amendment No. 1''). For a

description of Amendment No. 1, see infra note 5 and accompanying

text.

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The Exchange proposes to amend its Rule--Chapter 11, Section 34A

(Trading Halts Due to Extraordinary Market Volatility ``circuit

breakers'')--to increase the trigger levels for its circuit breakers.

The existing circuit breakers would be triggered if the Dow Jones

Industrial Average (``DJIA'') \4\ declines by 250 and 400 points,

respectively, from its previous day's close. The Exchange proposes

establishing new thresholds of 350 and 550 points decline in the DJIA

before the respective one-half hour and one hour circuit breakers are

triggered.\5\

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\4\ ``Dow Jones Industrial Average'' is a service mark of Dow

Jones & Company, Inc.

\5\ In Amendment No. 1, the BSE corrected a typographical error

which would have left the existing second circuit breaker level at

400 points. Amendment No. 1 clarifies the BSE's proposal that, if

the DJIA declines by 550 or more points from its previous trading

day's closing value, trading on the Exchange will halt for one hour.

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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 of the most significant aspects of such

statements set forth in Sections A, B, and C below.

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 raise the circuit

breaker levels from 250 points to 350 points and from 400 points to 550

points to account for the overall rise in market values since the rules

were first adopted on a pilot basis. These levels have not been changed

since the inception of the pilot program in 1988. At that time, a 250

point drop in the Dow Jones Industrial Average (``DJIA'') \6\

represented approximately a 12% decline, and a 400 point drop

represented a decline of about 19%. Today, these values represent

roughly a 3.8% and 6.2% decline respectively. The proposed 350 and 550

points trigger levels would respectively represent around a 5.4% and

8.5% decline in the DJIA.

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\6\ ``Dow Jones Industrial Average'' is a service mark of Dow

Jones and Company, Inc.

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Chapter II, Section 34A currently provide that if the DJIA falls

250 or more points below its previous trading day's closing value,

trading in all stocks on the Exchange will halt for one-half hour. It

further provides that, if on the same day the DJIA drops 400 or more

points from its previous trading day's close, trading on the Exchange

will halt for one hour. The Exchange seeks to amend this section to

provide that if the DJIA falls 350 points or more below its previous

trading day's closing value, trading in all stocks on the Exchange will

halt for one-half hour; and, if on that same day, the DJIA drops 550

points or more from its previous trading day's close, trading on the

Exchange will halt for one hour.

The circuit breaker rules are a coordinated effort by the equities

and futures markets to halt trading in all stocks, stock options, stock

index options, stock futures, and options on stock futures when the

DJIA reaches certain established trigger values. As such, these changes

are intended to mirror the rules of the New York Stock Exchange

(``NYSE'') that would become applicable during periods of extraordinary

market conditions.

The Exchanges's circuit breaker rules were originally approved by

the Commission for a one-year pilot on December 14, 1988,\7\ and were

extended for a two year pilot on October 23, 1989,\8\ October 28,

1991,\9\ October 29, 1993,\10\ and October 25, 1995.\11\ The 1995 pilot

program is due to expire on October 31, 1997, and the Exchange seeks to

adopt these amendments to coincide with the current pilot program.

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\7\ See Securities Exchange Act Release No. 26357 (December 14,

1988), 53 FR 51182.

\8\ See Securities Exchange Act Release No. 27370 (October 23,

1989), 54 FR 43881.

\9\ See Securities Exchange Act Release No. 29868 (October 28,

1991), 56 FR 56535.

\10\ See Securities Exchange Act Release No. 33120 (October 29,

1993), 58 FR 59503.

\11\ See Securities Exchange Act Release No. 36414 (October 25,

1995), 60 FR 55630.

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2. Statutory Basis

The statutory basis for the proposed rule change is the requirement

under Section 6(b)(5) that an exchange have rules that are designed to

promote just and equitable principles of trade, 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. The Exchange believes that the proposed amendments to Chapter

II, Section 34A are consistent with these objectives in that the

proposed trading halt requirement during periods of significant market

stress can be expected to provide market participants with a reasonable

opportunity to become aware of and respond to significant price

movements, thereby facilitating in an orderly manner the maintenance of

an equilibrium between buying and selling interest.

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 purpose 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 any comments on the

proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing of

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 it 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 six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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

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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, N.W., Washington, D.C. 20549.

Copies of such filing will also be available for inspection and copying

at the principal office of the Exchange. All submissions should refer

to File No. SR-BSE-96-12 and the submitted by February 5, 1997.

For the Commission, by the Divisions of Market Regulation,

pursuant to delegated authority.\12\

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

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-901 Filed 1-14-97; 8:45 am]

BILLING CODE 8010-01-M