

[Federal Register: June 29, 2006 (Volume 71, Number 125)]
[Notices]               
[Page 37135-37140]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jn06-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54035; File No. SR-BSE-2006-20]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 3 
Thereto To Create a New Electronic Trading Facility, the Boston 
Equities Exchange (``BeX''), To Be Operated by BSX Group, LLC

June 22, 2006.
    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 May 5, 2006, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the BSE. 
BSE filed Amendment No. 1 to the proposed rule change on June 1, 
2006.\3\ BSE filed Amendment No. 3 to the proposed rule change on June 
15, 2006.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the original filing 
in its entirety. Amendment No. 2 was withdrawn by BSE on June 9, 
2006.
    \4\ Amendment No. 3 supersedes and replaces the original filing 
and Amendment No. 1 in their entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to create a new electronic trading 
facility, the Boston Equities Exchange (``BeX''), to be operated by BSX 
Group, LLC (``BSX''). This rule filing sets forth the proposed 
governance structure of BSX and

[[Page 37136]]

proposed changes regarding BSE membership relating to the creation of 
BeX. Changes to the BSE's equity trading rules are set forth in a 
separate filing.\5\
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    \5\ On May 10, 2006, the Exchange filed with the Commission a 
proposed rule change to implement rules governing BeX (SR-BSE-2006-
22).
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    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.bostonstock.com), at the Exchange's Office of the 

Secretary, and at the Commission's Public Reference Room. The text of 
the proposed rule change is also available on the Commission's Web site 
(http://www.sec.gov/rules/sro.shtml).


II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Propose Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The BSE proposes to create a new electronic trading facility, as 
that term is defined in section 3(a)(2) of the Act,\6\ called BeX. BeX, 
which is to be developed, owned, and operated by BSX, would be an 
electronic securities communications and trading facility intended for 
the use of BSE members, including the new category of ``Electronic 
Access Members'' (described below) and their customers.
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    \6\ Under the Act, the ``term `facility' when used with respect 
to an exchange includes its premises, tangible or intangible 
property whether on the premises or not, any right to the use of 
such premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service.'' See 15 U.S.C. 78c(a)(2).
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a. Relationship of the BSE to BSX
    The BSE is entered into various agreements with BSX, under which 
BSX, of which the Exchange is currently a majority owner, would operate 
BeX as a facility of the BSE. All of the assets and liabilities that 
solely support the equities trading business and equities clearing 
business of the BSE will be transferred to BSX. Upon restructuring, 
however, the BSE will continue to be the self-regulatory organization 
(``SRO'') for BeX, and will continue to regulate the equities market 
under its current rule framework.\7\ The BSE also proposes to create a 
new category of BSE Members called Electronic Access Members (``EAMs'') 
that will be entitled to trade equity securities on BeX. All of the 
proposed changes to facilitate this restructuring would be set forth in 
the BSX Group LLC Operating Agreement (``Agreement''), and reflected in 
changes to the Exchange's Constitution and a related provision in the 
Exchange's Rules of the Board of Governors (``BSE Rules''). The BSE 
Members approved the proposed changes to the Constitution. Although 
some additional changes may be required to BSE Rules, such changes are 
not the subject of this filing.\8\
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    \7\ The proposed restructuring would not affect the Boston 
Options Exchange facility (``BOX Market'') which is controlled by 
the Boston Options Exchange Group, LLC (``BOXG''). The BSE is a 
founding member and owner of the BOXG, and the BOX Market is 
regulated by Boston Options Exchange Regulation, LLC (``BOXR''), a 
wholly-owned subsidiary of the BSE to which the BSE has delegated 
regulatory oversight authority for the BOX Market.
    \8\ See note 5, supra.
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    The relationship between the BSE, BSX, and BeX is explained further 
in proposed Article XXI of the BSE Constitution and the Agreement. 
Under Article XXI, the books, records, and premises of BSX would be 
deemed to be the books, records, and premises of the BSE subject to 
oversight pursuant to the Act. The books and records of BSX would be 
subject at all times to inspection and copying by the BSE and the 
Commission. In addition, proposed Article XXI states that ``[a]ll 
officers, directors employees and agents of BSX Group, LLC are the 
officers, directors, employees and agents of the Exchange for the 
purposes of the Act.'' As set forth in proposed Article XXI and the 
Agreement, these provisions would not be deemed to create any rights or 
benefits for any person or entity other than the SEC and the BSE.\9\
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    \9\ The Commission notes that proposed Article XXI does not 
expressly state that it would ``not be deemed to create any rights 
or benefits for any person or entity other than the SEC and the 
BSE.''
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    The structure of the proposed BSX would be substantially the same 
as that which the Exchange has established for its options trading 
business. For its options business, the Exchange established the BOX 
Market, which is controlled by the BOXG. The BSE is a founding member 
and owned about a 30% interest in BOXg at its inception.\10\ BOXG 
operates the BOX Market, which is the BSE's marketplace for trading 
options. BOXR, a wholly owned substantially of the BSE, regulates the 
BOX Market. Similarly, the proposed BSX would operate BeX, which is the 
proposed BSE marketplace for trading equities. The BSE would own a 
controlling interest in BSX of approximately 58.33% at inception, which 
is approximately twice the percentage that the BSE initially owned of 
BOXG. The BSE would regulate the BeX market via a contract, rather than 
through a separate wholly owned substantially to which it delegates its 
self-regulatory responsibilities.
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    \10\ The BSE currently owns about 1 17% interest in BOXG.
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b. The BeX Market
    There are two principal reasons the BSE proposes to create the BeX 
and to institute a system of EAMs.\11\ First, by restructuring the 
control of its equities business as a limited liability company with 
business control and management by the directors and officers of BSX, 
the Exchange believes that the new entity will have greater flexibility 
to build and execute approaches designed to improve its competitive 
position, including the development of strategic relationships. 
Furthermore, the BSE anticipates that by restructuring so that a 
separately controlled organization is responsible for the operation of 
its equities business, the management of BSX will be better able to 
respond quickly to competitive pressures and to make changes to the 
operation as market conditions warrant.
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    \11\ ``EAMs'' is used in this filing to refer both to Electronic 
Access Members and Electronic Access Memberships.
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    Second, the BSE intends to increase the revenue of its equities 
business by conferring trading privileges on EAMs that do not bear the 
costs of seat ownership.\12\
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    \12\ The BSE intends to keep fees imposed upon EAMs consistent 
with the applicable fees imposed upon non-EAMs. A separate rule 
filing will address all fees related to the BeX, including EAM and 
non-EAM fees.
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    The proposed BeX structures, although representing a departure from 
the way the BSE currently operates its equities business, is not 
significantly different from the way the Exchange currently conducts 
its options trading marketplace, as discussed above. Moreover, the 
proposed structure is similar in many ways to the composition of PCX/
Arca. However, with both BOX and PCX/Arca, regulatory authority was 
delegated to SRO subsidiaries. In BeX, the BSE will

[[Page 37137]]

continue to directly regulate its equities trading business, without 
delegation to any subsidiary or facility. The BSE believes that it will 
be able to optimize its regulatory oversight of its equities business 
through the proposed approach. The Exchange notes that this model is in 
congruence with recent governance change at the Exchange, whereby the 
Exchange separated its Chairman and Chief Executive Officer roles,\13\ 
and in a separate BSE Board of Governors action established a 
Regulatory Oversight Committee, so as to more effectively protect the 
integrity of the Exchange's regulatory function.
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    \13\ See Securities Exchange Act Release No. 49611 (April 23, 
2004), 69 FR 23833 (April 30, 2004) (File No. SR-BSE-2004-10).
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c. BSX
    The BSE states that BSX will be run by its management with limited 
policy direction by Exchange members. The entity will be controlled by 
its own Board of Directors, which will be responsible for the 
commercial governance of BeX, subject at all times to BSE's overriding 
regulatory responsibility. Currently, there are six ``Members'' of BSX 
(``BSX Members'') who have a direct controlling interest in BSX 
(``direct controlling parties'') : The BSE (approximately 58.33%), and 
Citigroup Financial Strategies Inc. (``Citi''); Credit Suisse First 
Boston Next Fund Inc. (``CSFB''); LB 1 Group, Inc. (``Lehman''), 
Fidelity Global Brokerage Group, Inc. (``Fidelity''); and Merrill Lynch 
L.P. Holdings Inc. (``Merrill'') (each approximately 8.33%) 
(collectively, the ``Founding Members'').
    In this filing, the BSE is submitting the Agreement, and 
specifically discussing those provisions related to the control and 
governance of BSX that will ensure that the BSE has the authority 
within BSX to maintain its responsibility for all regulatory functions 
related to the BeX. The Exchange's discussion of the Agreement will 
focus on the provisions of the Agreement related to BSE's authority for 
all regulatory functions of the proposed BeX facility.
(i) Governance of BSX
    Section 4.2(b) of the Agreement gives the Board of Directors of BSX 
(``Board'') the power and responsibility to manage the business of BSX, 
select and evaluate the performance of the Senior Executive, and 
establish and monitor capital and operating budgets. Section 4.1(a) 
provides that the Board will consist of between five and 15 directors. 
Section 4.1(b) provides that, initially, the BSE will be entitled to 
designate two directors, while Citi, CSFB, Lehman, Fidelity and Merrill 
will each be entitled to designate one director. Moreover, for as long 
as BeX remains a facility of the Exchange, BSE will have the right to 
designate at least one director. Section 4.1(d) provides that any new 
Member that acquires a prescribed percentage interest in BSX also would 
be entitled to designate one director.\14\ Section 4.8 provides that, 
except as otherwise expressly provided in the Agreement or as requested 
by the Board, no BSX Member shall take part in the day-to-day 
management or operation of the business or affairs of BSX.
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    \14\ The Commission notes that Section 4.1(d) of the Agreement 
states that ``the Board shall determine the number of Board seats, 
if any, to be designated by the new or Transfree Member and will 
determine the disposition of the Board seats designated by any 
Transferring Member.''
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    Pursuant to Section 4.1(c) of the Agreement, a director shall be 
terminated by the Board: (i) In the event such director has violated 
any provision of the Agreement or state or federal securities laws; or 
(ii) if the Board determines that such action is necessary or 
appropriate in the public interest or for the protection of investors. 
In addition, Section 4.2(a) requires each director to agree to comply 
with the federal securities laws and the rules and regulations 
thereunder and to cooperate with the Commission and BSE pursuant to 
their regulatory authority and the provisions of the Agreement. 
Furthermore, the Agreement provides that each director must take into 
consideration whether his or her actions as a director would cause BSX 
to engage in conduct that fosters and does not interfere with BSX's 
ability to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest.
(ii) Regulation of BeX
    BSE states that it will regulate BeX as a facility of the Exchange. 
BSE has responsibility under the Act for the BeX facility. BSX, as 
owner and operator of the BeX facility, will also be subject to the 
Commission's jurisdiction. In this regard, Sections 12.1 and 15 of the 
Agreement each provide that the books, records, premises, officers, 
directors, agents, and employees of BSX shall be deemed to be the 
books, records, premises, officers, directors, agents, and employees of 
BSE for the purpose of and subject to oversight pursuant to the Act. 
Moreover, under Section 5.3 of the Agreement, each BSX Member agrees to 
comply with the federal securities laws and the rules and regulations 
thereunder and to cooperate with the Commission and BSE pursuant to 
their regulatory authority and the provisions of the Agreement.
    Section 5.8 of the Agreement further provides that, after 
appropriate notice and opportunity for hearing, the Board, by a two-
thirds vote, including the affirmative vote of BSE and excluding the 
vote of the Member subject to sanction, may suspend or terminate a BSX 
Member's voting privileges or ownership: (i) In the event such Member 
is subject to a statutory disqualification, as defined in Section 
3(a)(39) of the Act; (ii) in the event such Member has violated any 
provision of the Agreement or any federal or state securities law; or 
(iii) if the Board determines that such action is necessary or 
appropriate in the public interest or for the protection of investors.
    In addition, Section 4.4(a) of the Agreement provides that BSX may 
not take any ``Super Major Action'' unless such action is approved by 
75% of the Board, including four of the Founding Members and the 
affirmative vote of all of the directors designated by BSE. A ``Super 
Major Action'' is defined in Section 4.4(b) to include, among other 
things: A merger or consolidation involving BSX; a sale of any material 
portion of its assets; appointing directors to afford representation to 
BSX Members, other than Founding Members, having a percentage interest 
less than 5.00% operating the BeX with a Regulatory Services Provider 
other than the BSE or an affiliate of the BSE; making a material change 
to the market structure of BeX; the acquisition of any BSX Units 
(``Units'') \15\ by any person that results in such person holding an 
aggregate percentage interest in BSX equal to or greater than 20%; 
altering the provisions for Board membership for the Founding Members; 
entry by BSX

[[Page 37138]]

into any other line of business other than the development, operation, 
and ownership of the BeX; except as expressly contemplated by the 
Agreement and the Related Agreements, as defined in the Agreement; 
entering into any agreement, commitment, or transaction with a BSX 
Member or any of its affiliates other than transactions or agreements 
upon commercially reasonable terms that are no less favorable to BSX 
than BSX would obtain in a comparable transaction or agreement with a 
third party; taking any action which would effect the voluntary, or 
which would precipitate an involuntary, dissolution or winding up of 
BSX; and entering into any partnership, joint venture or other similar 
joint business undertaking.
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    \15\ The Agreement defines ``Units'' as ``equal units of limited 
liability company interest in the Company, including an interest in 
the ownership and profits and losses of the Company and the right to 
receive distributions from the Company as set forth in this 
Agreement. For the avoidance of doubt, the ownership or possession 
of Units shall not in and of itself entitle the owner or holder 
thereof to vote or consent to any action with respect to the Company 
(which rights, except as otherwise specifically provided in this 
Agreement with respect to BSE, shall be bested in only duly admitted 
members of the Company), or to exercise any right of a member of the 
Company under this Agreement, the Act or other applicable law.
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    Section 16.2(a) of the Agreement generally provides that a BSX 
Member may not disclose any confidential information of BSX to any 
person, except as expressly provided by the Agreement. However, Section 
16.2(b) provides exceptions for, among other things, disclosure 
required by the federal securities laws or in response to a request by 
the Commission pursuant to the Act, by the BSE or by another applicable 
SRO. Similarly, Section 16.5 of the Agreement provides that nothing in 
the Agreement should be interpreted as to limit or impede the rights of 
the Commission or BSE to access or examine BSX confidential 
information, or to limit or impede the ability of Members, or their 
officers, directors, agents, or employees, to disclose BSX confidential 
information to the Commission, or BSE.
(iii) Changes in Ownership of BSX
    Section 8.1(a) of the Agreement defines a ``Transfer'' to be the 
direct or indirect, whether voluntary or involuntary, by operation of 
law or otherwise, transfer, disposition of, sale, lending, pledging, 
hypothecation, encumbrance, assignment, exchange, participation, 
subparticipation, or other transfer, in any manner, of Units, and 
provides that, except in certain limited circumstances, no person may 
directly or indirectly transfer any Units, or any rights arising 
thereunder, without the prior approval of the Board. To be eligible for 
such approval, the proposed transferee must: (1) Have sufficient 
financial assets to support such a Transfer; (2) be able to carry out 
its duties as a BSX Member under the Agreement (if admitted); and (3) 
be under no regulatory or governmental disqualification. Section 8.1(b) 
provides, in addition, that a person shall be admitted to BSX as a 
Member only upon (i) such person's execution of a counterpart of the 
Agreement to evidence its written acceptance of the terms and 
provisions of the Agreement, and acceptance thereof by resolution of 
the Board, which acceptance may be given or withheld in the sole 
discretion of the Board, (ii) if such person is a transferee, its 
agreement in writing to its assumption of the obligations of its 
assignor under the Agreement and acceptance thereof by resolution of 
the Board, which acceptance may be given or withheld in the sole 
discretion of the Board, (iii) if such person is a transferee, 
confirmation by the Board that the Transfer was permitted by the 
Agreement, and (iv) approval of the Board. Whether or not a transferee 
who acquired any Units has accepted in writing the terms and provisions 
of the Agreement and assumed in writing the obligations of its 
predecessor in interest, the transferee shall be deemed, by the 
acquisition of those Units, to have agreed to be subject to and bound 
by all the obligations of the Agreement with the same effect and to the 
same extent as any predecessor in interest of such transferee.
    Section 8.4(a) provides that no Transfer of Units may take place if 
such transaction: (i) In the opinion of tax counsel to the BSX, could 
cause a termination of the BSX within the meaning of Section 708 of the 
United States Internal Revenue Service Code or, (ii) in the opinion of 
the Board, based on advice of tax counsel, could cause a termination of 
the Company's status as a partnership or cause the Company to be 
treated as a publicly traded partnership for federal income tax 
purposes, (iii) is prohibited by any state, Federal or provincial 
securities laws, or (iv) is prohibited by the Agreement. Section 8.4(c) 
provides that any Transfer of Units, whether direct or indirect, 
voluntary or involuntary, by operation of law or otherwise, in 
contravention of any of the provisions of Article 8 of the Agreement 
would be void ab initio, and ineffectual, and would not bind or be 
recognized by BSX.
    Section 8.4(d) of the Agreement provides that, beginning after 
Commission approval of this proposed rule change, BSX would be required 
to provide the Commission with written notice ten days prior to the 
closing date of any acquisition that results in a BSX Member's 
percentage ownership interest in BSX, alone or together with any 
affiliate, meeting or crossing either the 5%, 10%, or 15% thresholds.
    Section 8.4(e) provides that any Transfer of Units that results in 
the acquisition and holding by any person, alone or together with any 
affiliate, of an interest that meets or crosses the 20% threshold or 
any successive 5% threshold (i.e., 25%, 30%, etc.), would trigger an 
amendment to the Agreement that would constitute a proposed rule change 
that BSE would be required to file with the Commission under section 
19(b) of the Act. In addition, section 8.4(e) provides that an 
amendment to the Agreement resulting from a Transfer of Units that 
reduces BSE's ownership in BSX to below the 20% threshold would require 
a proposed rule change under section 19(b) of the Act. Additionally, 
SEC approval would be required to permit any person, alone or together 
with any affiliate, to control greater than 20% of the Total Votes (as 
defined in section 4.4(a)) of BSX.
    Section 8.4(f) of the Agreement provides for indirect changes in 
control of BSX. Any person that acquires a controlling interest (i.e., 
an interest of 25% or greater) in a BSX Member that holds 20% or more 
of the Units would be required to agree to become a party to the 
Agreement and abide by its terms. The amendment to the Agreement caused 
by the addition of the indirect controlling party would trigger a 
proposed rule change that BSE would be required to file with the 
Commission pursuant to section 19(b) of the Act. The rights and 
privileges of the direct controlling party would be suspended until 
that proposed rule change became effective under the Act or until the 
indirect controlling party ceased to have a controlling interest in the 
direct controlling party.
    Section 8.5 addresses BSX ownership concentration limits. Section 
8.5(a) limits any person who, either alone or with its affiliates, is a 
BeX Market Participant \16\, form owning in the aggregate more than 20% 
of the outstanding units of BSX (the ``Ownership Concentration 
Limit''). Section 8.4(b) sets forth any Person that is not a BeX Market 
Participant that, alone or together with affiliates exceeds the 
Ownership Concentration Limit, and subsequently becomes a BeX Market 
Participant, must, within 180 days, transfer sufficient interest so 
that the Person who is also a BeX Market Participant does not exceed 
the Ownership Concentration Limit.\17\
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    \16\ The Agreement defines ``BeX Market Participant'' as ``a 
firm, or organization that is registered with the BSE pursuant to 
the BSE Rules for purposes of participating in equities trading on 
the BeX.''
    \17\ The Commission notes that while Section 8.5(b) of the 
Agreement provides for a cure period of 180 days, Chapter XVIII of 
the BSE Rules, Section 6 provides for a cure period of only 15 
calendar days.
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    In addition to the requirements for proposed rule changes relating 
to direct

[[Page 37139]]

and indirect changes in control of BSX, section 4.3(c) of the Agreement 
prohibits BSX Members from entering into voting trust agreements with 
respect to their ownership interests in BSX.
(iv) Commission Jurisdiction Over Owners of BSX
    Pursuant to section 18.6(a), each Member of BSX, by becoming party 
to the Agreement, would acknowledge that, to the extent that they are 
related to BSX activities, the books, records, premises, officers, 
directors, agents, and employees of the BSX Member will be deemed to be 
the books, records, premises, officers, directors, agents, and 
employees of BSE for the purpose of and subject to oversight pursuant 
to the Act. Pursuant to section 18.6(b), BSX and its Members, by 
becoming party to the Agreement, would agree that BSX's officers, 
directors, agents, and employees, as well as the officers, directors, 
agents and employees of BSX Members must irrevocably submit to the 
jurisdiction of the U.S. Federal courts, the Commission, and BSE for 
the purposes of any suit, action, or proceeding pursuant to the U.S. 
Federal securities laws and the rules or regulations thereunder, 
arising out of or relating to BSX activities or section 18.6(a). Also 
as provided in section 18.6(b) of the Agreement, each Member, officer, 
director, agent and employee of BSX, as well as the officers, 
directors, agents, and employees of BSX Members would waive, and agree 
not to assert by way of motion, as a defense or otherwise in any such 
suit, action, or proceeding, any claim that they are not personally 
subject to the jurisdiction of the Commission; that the suit, action or 
proceeding is an inconvenient forum; that the venue of the suit, 
action, or proceeding is improper; or that the subject matter of the 
suit, action, or proceeding may not be enforced in or by such courts or 
agency. Section 18.6(c) of the Agreement would require the BSE and each 
other BSX Member to take such action as is necessary to ensure that 
such Member's officers, directors, and employees consent to the 
application of section 18.6 with respect to their BSX-related 
activities.
d. Electronic Access Members
    As a second part of the proposed reorganization, the BSE is seeking 
to permit a new type of member and membership, EAMs, which will allow 
persons or firms to conduct business on the Exchange without having to 
purchase seats. The Exchange would issue EAMs to persons or entities 
that wish to engage in equity transactions on the Exchange. Those 
seeking to become EAMs would need to satisfy all of the requirements 
for membership on the Exchange, as set forth in the Exchange 
Constitution and Rules, with the exception of purchasing a seat.
    These Electronic Access memberships would provide access to the 
BeX, but would not confer the same rights and privileges as are 
conferred by Exchange seats. Specifically, EAMs would be represented on 
the BSE Board of Governors and on its various constitutional committees 
in the same capacity and to the same extent as BSE Members and will 
also have the right to vote in the same capacity as BSE Members, except 
with respect to Exchange ownership matters--specifically those matters 
related to mergers, consolidations, dissolution, liquidation, transfer, 
or conversion of assets of the Exchange. For the purposes of the Act, 
EAMs would be considered statutory Members of the BSE. There would be 
no limit to the number of EAMs issued, provided that, in the 
determination of the BSE Board of Governors, sufficient operational 
capacity existed to grant additional EAMs.
    BSE seat holders would also have access to the BeX, and so would 
not need to separately be approved as EAMs. Seat holders would also 
retain ownership interests in the BSE and, by extension, in all BSE 
facilities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of theAct,\18\ in general, and furthers the 
objectives of section 6(b)(1),\19\ in particular, in that it is 
designed to enforce compliance by the Exchange's members with the rules 
and regulations of the Act and the rules of the Exchange; and section 
6(b)(5),\20\ in particular, in that it is designed to facilitate 
transactions in securities; to prevent fraudulent and manipulative acts 
and practices; 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(1).
    \20\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose any burden on competition 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 comments on the 
proposed rule change, as amended.

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 self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, as amended; or
    B. Institute proceedings to determine whether the proposed rule 
change, as amended, 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-BSE-2006-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BSE-2006-20. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the


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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 also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change, the Commission does 
not edit personal identifying information from submission. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BSE-20067-20 and should be 
submitted on or before July 20, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary
[FR Doc. 06-5793 Filed 6-28-06; 8:45 am]

BILLING CODE 8010-01-M
