

[Federal Register: January 23, 2008 (Volume 73, Number 15)]
[Notices]               
[Page 4028-4035]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja08-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57157; File No. SR-BSE-2006-16]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of Amendment No. 3 to the Proposed Rule Change and 
Order Granting Accelerated Approval of Proposed Rule Change, as 
Modified by Amendments No. 1 and 3 Thereto, To Adopt a Universal Price 
Improvement Period for Public Customer Orders

January 15, 2008.

I. Introduction

    On December 11, 2006, 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 
proposal to amend the rules of the Boston Options Exchange (``BOX'') to 
adopt a Universal Price Improvement Period (``UPIP''), an auction that 
offers the opportunity for price improvement for eligible Public 
Customer orders. On February 1, 2007, BSE filed Amendment No. 1 to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on February 9, 2007.\3\ 
The Commission received three comment letters regarding the 
proposal.\4\ BSE filed Amendment No. 2 to the proposed rule change and 
a response to the comment letters on November 19, 2007.\5\ On December 
13, 2007, BSE withdrew Amendment No. 2 and filed Amendment No. 3 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons and is simultaneously approving the proposed

[[Page 4029]]

rule change, as modified by Amendments No. 1 and 3, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55230 (February 2, 
2007), 72 FR 6302 (``Notice'').
    \4\ See letter from Michael T. Bickford, Senior Vice President, 
American Stock Exchange LLC (``Amex''), to Nancy M. Morris, 
Secretary, Commission, dated March 2, 2007 (``Amex Letter''); letter 
from Michael J. Simon, Secretary, International Securities Exchange, 
LLC (``ISE''), to Nancy M. Morris, Secretary, Commission, dated 
March 5, 2007 (``ISE Letter''); and letter from Matthew B. 
Hinerfeld, Managing Director and Deputy General Counsel, Citadel 
Investment Group, L.L.C. (``Citadel''), to Nancy Morris, Secretary, 
Commission, dated March 6, 2007 (``Citadel Letter'').
    \5\ See letter to Nancy M. Morris, Secretary, Commission, from 
John Katovich, Chief Legal Officer, BSE, dated November 19, 2007 
(``BSE Letter'').
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II. Description of the Proposal

A. UPIP Eligibility

    BOX will automatically initiate a UPIP auction for Public Customer 
orders \6\ (``Eligible Orders'') provided certain conditions have been 
satisfied.\7\ For example, the Eligible Order must be a Limit, Market, 
or BOX-Top Order that is marketable against the National Best Bid or 
Offer (``NBBO'').\8\ Further, a Price Improvement Period (``PIP'') 
auction or UPIP auction in the same series cannot already be underway 
and, if the NBBO is locked or crossed, the BOX Best Bid or Offer 
(``BBO'') on the same side of the market as the Eligible Order must not 
equal the NBBO.
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    \6\ ``Public Customer'' means a person that is not a broker or 
dealer in securities. See Section 1(a)(50), Chapter I of the BOX 
Rules.
    \7\ See proposed Section 29(e), Chapter V of the BOX Rules.
    \8\ An Eligible Order also must be for a series of options that 
is open for trading and cannot indicate a minimum quantity condition 
or be an Inbound Inter-Market Linkage P/A order. See proposed 
Section 29(e)(v), Chapter V of the BOX Rules. In Amendment No. 3, 
the Exchange clarified that a ``Fill and Kill'' order is not 
included in the definition of an Eligible Order. See proposed 
Section 29(e)(vi), Chapter V of the BOX Rules.
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B. The UPIP Auction

    The UPIP will be three seconds or less, as determined by BOX on a 
class-by-class basis.\9\ BOX will inform Options Participants as to the 
duration of the UPIP auctions by publishing a Regulatory Circular. Upon 
initiation of a UPIP auction, the Box Trading Host will transmit a 
broadcast message (``Broadcast Message'') to Options Participants 
informing them of the auction's initiation, the relevant details of the 
UPIP Order \10\ (i.e., the UPIP Order's series, size, and side of the 
market), the end time of the auction, and the applicable Start 
Price.\11\ The Start Price will be one improvement increment (e.g., a 
penny) better than the NBBO if the BBO is equal to the NBBO. If the BBO 
does not equal the NBBO, the Start Price will be the NBBO. The same 
conditions apply with respect to the Start Price whether or not the 
NBBO is locked or crossed.
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    \9\ The Exchange clarified in Amendment No. 3 that the UPIP 
auction shall be permitted on a class-by-class basis. See proposed 
Section 29(f), Chapter V of the BOX Rules. Amendment No. 3 also 
amends proposed Section 29(g), Chapter V of the BOX Rules to provide 
that if a UPIP Order was previously processed as a Directed Order 
accompanied by a Guaranteed Directed Order (``GDO'') pursuant to 
Chapter VI, Section 5(c)(iii)(2) of BOX Rules, the duration of the 
UPIP will not be less than the time the GDO is required to be 
withheld from trading with the Directed Order as provided in Chapter 
VI, Section 5(c)(iii)(2)(b)(4) of the BOX Rules. See proposed 
Section 29(g), Chapter V of the BOX Rules.
    \10\ Upon commencement of the UPIP auction the ``Eligible 
Order'' is referred to as the ``UPIP Order.''
    \11\ The Start Price is defined as the minimum/maximum (buy/
sell) price at which an Improvement Order must be submitted. See 
proposed Section 29(h), Chapter V of the BOX Rules.
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    UPIP Orders can be modified and cancelled at any time prior to the 
conclusion of the UPIP auction. The cancellation of a UPIP Order will 
result in the subsequent cancellation of all related Improvement Orders 
and the UPIP auction.\12\ Certain modifications of a UPIP Order will 
not result in the termination of the UPIP auction.\13\
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    \12\ In Amendment No. 3, the Exchange clarified that the 
cancellation of a UPIP Order will result in the cancellation of the 
related Improvement Orders and the UPIP auction itself.
    \13\ Such modifications are: The reduction of a UPIP Order 
quantity; the recharacterization of the UPIP Order type from a Limit 
Order to a BOX Top or Market Order; and an improvement of the UPIP 
Order's original limit price. Any other modification will result in 
the termination of the UPIP auction. See proposed Section 29(n), 
Chapter V of the BOX Rules.
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    The UPIP Order will be ``stopped'' against any quote(s) or order(s) 
on the BOX Book that is marketable against the UPIP Order at the time 
the UPIP Order is received by the Trading Host (``Initial BOX Book 
Quote'') up to the aggregate size of the Initial Box Book Quote 
(``Initial Aggregate Quote Size'').\14\
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    \14\ The Initial BOX Book Quote is defined as the quote(s) and/
or order(s) on the BOX Book at the best price, on the opposite side, 
and in the same series as the Eligible Order at the time the Trading 
Host receives it. The Initial Aggregate Quote Size is defined as the 
aggregate size of the Initial BOX Book Quote. See proposed Section 
29(o), Chapter V of the BOX Rules.
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    A modification or cancellation of the Initial BOX Book Quote during 
the UPIP auction that would decrease the Initial Aggregate Quote Size 
below the size of the UPIP Order, at the commencement of the UPIP 
auction, will cause the UPIP auction to immediately terminate. Such 
modification or cancellation will only be processed after the UPIP 
Order has been executed. An Options Participant who is part of the 
Initial Box Book Quote, and whose cancellation or modification of its 
order or quote causes the UPIP auction to terminate, will have its 
order or quote placed at the end of the quote and order queue at the 
applicable price level on the BOX Book. Any modification or 
cancellation of the Initial BOX Book Quote that does not cause the 
Initial Aggregate Quote Size to decrease below the size of the UPIP 
Order, however, will be processed immediately by the Trading Host 
without penalty and the UPIP auction will continue.\15\
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    \15\ Any orders or quotes on the opposite side of the UPIP Order 
that are received by the BOX Book after the UPIP auction has 
commenced (i.e., orders that are not otherwise part of the Initial 
BOX Book Quote) may be cancelled or modified without causing the 
UPIP auction to terminate. See proposed Section 29(o), Chapter V of 
the BOX Rules.
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C. Improvement Orders

    Any Options Participant may submit an Improvement Order in response 
to a Broadcast Message for an impending UPIP auction.\16\ Improvement 
Orders will be visible to all Options Participants, can be submitted in 
increments of one cent, and must equal or improve the Start Price. 
Improvement Orders may be cancelled or modified by the Options 
Participant prior to the conclusion of the UPIP auction. An increase in 
the quantity of the Improvement Order or modification of the 
Improvement Order's limit price will result in the creation of a new 
Improvement Order reflecting the revised terms and the cancellation of 
the original Improvement Order. At the conclusion of a UPIP auction, 
the unexecuted portion of an Improvement Order will be cancelled by the 
Trading Host.\17\
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    \16\ Improvement Orders are those orders submitted to a UPIP 
auction in response to a Broadcast Message by Options Participants 
that are on the opposite side of the market as the UPIP Order. See 
proposed Section 29(j), Chapter V of the BOX Rules.
    \17\ See Amendment No. 3.
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1. Proprietary Improvement Orders
    An Options Participant who submits an Eligible Order to BOX, which 
order starts a UPIP, and subsequently submits a Proprietary Improvement 
Order will be last in time priority at all price levels in the relevant 
UPIP auction. However, if the Proprietary Improvement Order is 
generated by an automated quotation system that operates independently 
from the existence or non-existence of the pending Eligible Order prior 
to its submission to BOX, the Options Participant's Proprietary 
Improvement Order will be treated like an ordinary Improvement Order 
and qualify for execution at each price level without prejudice.\18\
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    \18\ See proposed Section 29(k), Chapter V of the BOX Rules.
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    UPIP will default any Proprietary Improvement Order to the end of 
the priority queue in the UPIP.\19\ If an Options Participant desires 
to have its status in the queue changed and be exempted from the rule, 
then the Options Participant would need to affirmatively identify its 
orders from an automated quotation system as the Exchange deems 
necessary.\20\
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    \19\ See BSE Letter, supra note 5, at 7.
    \20\ Id.

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[[Page 4030]]

2. Executing Participant Improvement Orders
    An Executing Participant is a Market Maker that systemically 
indicates its willingness to accept and receive Directed Orders.\21\ An 
Executing Participant that receives a Directed Order that is released 
to the BOX Book will be last in priority at all price levels for any 
Improvement Order or quote submitted to a subsequent UPIP auction 
related to that Directed Order.\22\ Time priority will prevail between 
a Proprietary Improvement Order and an Improvement Order submitted by 
an Executing Participant.\23\
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    \21\ See Section 5(c)(i), Chapter VI of the BOX Rules.
    \22\ See proposed Section 29(l), Chapter V of the BOX Rules.
    \23\ See Amendment No. 3 and proposed Sections 29(o)(i) and 
29(s)(ii) of the Box Rules.
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    In Amendment No. 3, BSE addressed the instance in which a Directed 
Order with an attached GDO has been entered into the UPIP auction and 
the UPIP auction is prematurely terminated because of a modification to 
or cancellation of an order or quote that is a component of the Initial 
BOX Book Quote or the receipt of a same side, executable order. When a 
UPIP auction is prematurely terminated in such circumstances, 
subsequent to the execution of the UPIP Order pursuant to Chapter V, 
section 29(p) of the BOX Rules, the GDO will be permitted to 
immediately execute directly against the remaining size of the UPIP 
Order.\24\ This means that a GDO will be permitted to execute against 
the remaining size of the UPIP Order prior to three seconds having 
elapsed, but only if there is no other interest on BOX at the same (or 
better) price as the GDO.\25\ It will be considered conduct 
inconsistent with just and equitable principles of trade for an 
Executing Participant to directly or indirectly enter, modify or cancel 
quotes or orders on BOX for the purpose of disrupting, prematurely 
terminating or manipulating any Improvement Auction, including a UPIP 
auction.\26\
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    \24\ See proposed Section 5(c)(iii)(2)(b)(4), Chapter VI of the 
BOX Rules and Amendment No. 3.
    \25\ See telephone conference among William Easley, Vice 
Chairman, BOX; Lisa Fall, General Counsel, BOX; Wayne Pestone, 
Bingham McCutchen LLP; and Heather Seidel, Assistant Director, 
Division of Trading and Markets (``Division''), Commission, on 
January 11, 2008.
    \26\ See proposed Section 5(c)(iii)(2)(b)(4), Chapter VI of the 
BOX Rules and Amendment No. 3.
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3. Customer Price Improvement Orders (``CPOs'')
    Similar to the CPO in the PIP, OFPs may provide Public Customers 
with access to the UPIP auction through a CPO, provided certain 
conditions have been met. The CPO must indicate the price at which the 
order will be placed in the BOX Book (``BOX Book Reference Price'') as 
well as the price at which the Public Customer would like to 
participate in any UPIP that may occur while the order is on the BOX 
Book (``CPO Auction Reference Price'').\27\ Further, the terms of the 
CPO shall include the size of the order. In order for the CPO to be 
eligible for participation in a UPIP auction, the BOX Book Reference 
Price must equal the BBO at the commencement of a UPIP auction.\28\ The 
CPO may also benefit from enhanced time priority pursuant to NBBO 
Prime.
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    \27\ The BOX Book reference price must be stated in standard 
five-cent or ten-cent increments, and the CPO Auction Reference 
Price must be stated in one-cent increments. See proposed Section 
29(m)(i), Chapter V of the BOX Rules.
    \28\ A CPO must be in the same series and on opposite side of 
the UPIP Order. See proposed Section 29(m)(iii), (iv), Chapter V of 
the BOX Rules.
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4. NBBO Prime
    An Improvement Order or multiple Improvement Orders may be 
designated as NBBO Prime (``NBBO Prime Order'') in a particular UPIP 
auction. The NBBO Prime designation is only applicable for a UPIP 
auction, not the PIP, and generally confers time priority to a 
particular Improvement Order over other Improvement Orders and 
Unrelated Orders with the same price.\29\ Any Improvement Order may be 
eligible for the NBBO Prime designation in a UPIP auction.
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    \29\ See proposed Section 30, Chapter V of the BOX Rules.
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    In order to be designated as NBBO Prime, the same beneficial 
account \30\ for whom the Options Participant is submitting the NBBO 
Prime Order must have quotes or orders on the BOX Book that are on the 
opposite side of the UPIP Order (``NBBO Prime Participant Quote''). The 
NBBO Prime Participant Quote must be equal to the NBBO and must have 
been on the BOX Book prior to the time the Eligible Order was presented 
to the Trading Host. An NBBO Prime Order will only have enhanced time 
priority for size of its NBBO Prime Participant Quote. Any residual 
quantity of the NBBO Prime Order will be handled in accordance with the 
normal time priority rules. Priority among NBBO Prime Orders at the 
same price will be based on the relevant Trading Host order receipt 
time stamp of each NBBO Prime Participant Quote. NBBO Prime Orders 
retain their priority even if the NBBO Prime Participant's Quote is 
subsequently modified or cancelled during the relevant UPIP auction.
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    \30\ For purposes of NBBO Prime, a ``beneficial account'' means 
the underlying type of account (e.g., customer, broker-dealer, 
market maker, etc.) on whose behalf the Participant is trading. See 
Notice, supra note 3, at note 14.
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    An Options Participant seeking priority through the NBBO Prime 
designation must indicate to the Trading Host the order number of the 
NBBO Prime Participant Quote when the Options Participant submits the 
Improvement Order for the same beneficial account. In addition, the 
Options Participant may indicate whether the NBBO Prime Participant 
Quote size should be decremented to reflect any execution of the NBBO 
Prime Order. In the absence of such an indication, the Trading Host 
will not decrement the NBBO Prime Participant Quote. Market Makers will 
not be required to identify their relevant order number but will need 
to indicate to the Trading Host that their applicable NBBO Prime 
Participation Quote size should be decremented; otherwise their NBBO 
Prime Participation Quote size will remain unchanged on the BOX 
Book.\31\
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    \31\ See proposed Section 29(j)(iv), Chapter V of the BOX Rules.
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D. Execution in the UPIP

    At the conclusion of the UPIP auction, including in the event of a 
premature termination, the UPIP Order will be matched against the best 
prevailing orders (including Improvement Orders, CPOs, and Unrelated 
Orders) and quotes (including the Initial Box Book Quote) submitted 
during the UPIP auction that are equal to or better than the Start 
Price, in accordance with the price/time algorithm in section 16(a) of 
Chapter V, with the following exceptions to time priority: (1) As 
provided in proposed paragraphs (k), (l), and (o) of section 29, 
Chapter V, regarding Proprietary Improvement Orders and Improvement 
Orders submitted by Executing Participants; \32\ and (2) as provided in 
proposed paragraphs (b) to (d) of section 30, Chapter V, regarding NBBO 
Prime Orders.\33\ Further, in no circumstances will an order for a non-
market maker broker-dealer account of an Options Participant be 
executed ahead of a Public Customer order(s) or a non-BOX Options 
Participant broker-dealer order(s) at the same price within the UPIP 
auction. This means that no order for the account of a non-market maker 
Options Participant will be executed

[[Page 4031]]

ahead of the order(s) of any Public Customers or non-members of 
BOX.\34\
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    \32\ See supra notes 18 through 23 and accompanying text.
    \33\ See proposed Section 29(p), Chapter V of the BOX Rules. See 
also Amendment No. 3, which clarifies these exceptions in proposed 
Section 29(p), Chapter V, the substance of which were discussed in 
the Notice, supra note 3.
    \34\ See proposed Section 29(p), Chapter V of the BOX Rules and 
Amendment No. 3.
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    At the conclusion of the UPIP auction, the UPIP Order will be 
filtered to prevent a trade-through of the NBBO at the conclusion of 
the auction and will not execute against orders or quotes at prices 
inferior to the NBBO except in the following circumstances: (1) In 
accordance with Chapter XII, section 3(e) of BOX Rules; \35\ or (2) the 
away options exchange posting the NBBO is conducting a trading rotation 
in that options class.\36\ If the UPIP Order cannot be executed on BOX 
at or better than the NBBO, it will be routed to another market 
center(s) posting the NBBO.
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    \35\ Chapter XII, Section 3(e) of the BOX Rules states that 
``[u]nder circumstances where the Options Official determines that 
quotes from one or more particular away markets in one or more 
classes of options are not reliable, the Options Official may direct 
the Market Operations Center (`MOC') to exclude the unreliable 
quotes from the determination of the NBBO in the particular 
class(es).''
    \36\ The original filing provided that only the quantity of the 
UPIP Order that exceeded the Initial Aggregate Quote Size was 
filtered at the conclusion of the UPIP auction. The Exchange 
modified the rule text in Amendment No. 3 to apply the NBBO trade-
through filter to the entire size of the UPIP Order.
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    Any unexecuted portion of the UPIP Order not executed in the UPIP 
auction will be released to the Box Book and handled as provided in 
section 16, Chapter V of the BOX Rules, except that a quote or order on 
the BOX Book that is for the same beneficial account as an Improvement 
Order that executed against the UPIP Order in the UPIP auction and that 
was on the BOX Book before the UPIP Order was received by BOX will have 
time priority over other quotes and orders on the BOX Book (except 
customer orders).\37\
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    \37\ See proposed Section 16(a)(iv), Chapter V of the BOX Rules. 
In Amendment No. 3, BSE clarified that such order on the BOX Book 
will receive only time priority. See Amendment No. 3.
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E. Treatment of Unrelated Orders in the UPIP

    Unrelated Orders that are submitted to the Trading Host during a 
UPIP auction that are on the opposite side of the market from a UPIP 
Order and are executable against the NBBO will be executed immediately 
against the UPIP Order at the mid-point of the (i) NBBO and (ii) the 
best of the UPIP Improvement Order, the UPIP Start Price or the 
NBBO.\38\ If the Unrelated Order on the opposite side of the market as 
the UPIP Order has a quantity equal to or greater than the UPIP Order, 
the UPIP auction will terminate. Otherwise, the immediate execution of 
the Unrelated Order against the UPIP Order will not cause the 
termination of the UPIP auction and the auction will continue. 
Conversely, an Unrelated Order that is on the same side of the market 
as the UPIP Order that is executable against the NBBO will cause the 
UPIP to immediately terminate and the UPIP Order will be executed 
pursuant to proposed section 29(p) of Chapter V of the BOX Rules.\39\
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    \38\ See proposed Section 29(s)(i), Chapter V of the BOX Rules. 
Any rounding required will be to the benefit of the Unrelated Order. 
Id.
    \39\ If the Unrelated Order is still UPIP eligible, a new UPIP 
will commence. If the Unrelated Order is no longer UPIP eligible, 
the order will go on the BOX Book. See telephone conference among 
William Easley, Vice Chairman, BOX; Lisa Fall, General Counsel, BOX; 
and Heather Seidel, Division, Commission, on December 21, 2007.
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    In Amendment No. 3, BSE amended paragraph (s) of section 29, 
Chapter V of the BOX Rules to emphasize that it will be considered 
conduct inconsistent with just and equitable principles of trade for 
any Options Participant to enter Unrelated Orders into BOX for the 
purpose of disrupting or manipulating any UPIP auction, including 
purposely causing premature termination.\40\
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    \40\ See Amendment No. 3.
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III. 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-2006-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number BSE-2006-16. 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 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of BSE. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BSE-2006-16 and should be 
submitted on or before February 13, 2008.

IV. Discussion

    After careful consideration of the amended proposal and the comment 
letters, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
\41\ and, in particular, the requirements of section 6 of the Act.\42\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\43\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, 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. Significant aspects of the proposal are discussed below.
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    \41\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \42\ 15 U.S.C. 78f.
    \43\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the UPIP is similar to BOX's existing 
price improvement auction, the PIP, and other price improvement 
mechanisms, such as the Price Improvement Mechanism (``PIM'') of the 
ISE, that initiate auctions in penny increments through which exchange 
participants compete to potentially price improve a customer order. 
However, unlike the PIP, in the UPIP customer orders do not depend on

[[Page 4032]]

the ability of at least one party to guarantee price improvement for 
the full size of the Customer Order.\44\
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    \44\ The Commission notes that the Simple Auction Liaison System 
of the Chicago Board Options Exchange, Incorporated (``CBOE''), 
which provides for the automatic initiation of an auction process in 
certain circumstances for any order that is eligible for automatic 
execution by the Hybrid System, also does not depend on a contra-
side order. See Securities Exchange Act Release No. 54229 (July 27, 
2006), 71 FR 44058 (August 3, 2006) (SR-CBOE-2005-90).
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A. Price Competition

    One commenter believes that the UPIP auction would encourage Market 
Makers to post wide and shallow quotes and discourage Market Makers 
from quoting aggressively until the UPIP auction begins because: (1) 
The most desirable orders will bypass the centralized auction; (2) 
after a UPIP auction is completed, the centralized auction will be 
exposed to UPIP ``rejects;'' and (3) the UPIP Order can be cancelled or 
modified but orders on the top of the BOX Book when the auction starts 
cannot.\45\ This commenter also believes that transparency will suffer 
because market participants will hide their true trading interest until 
a UPIP auction begins.\46\
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    \45\ See Citadel Letter, supra note 4, at 1 to 2 and 4.
    \46\ Id. at 4.
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    Another commenter believes that the ability of a Participant to 
modify or cancel a UPIP Order, while the quotes and orders on the top 
of the BOX Book will essentially be frozen, will provide a three-second 
option or ``second-look'' opportunity for the Participant that 
submitted the UPIP Order to the detriment of the quotes and orders at 
the top of the book.\47\ The commenter believes that this could 
severely limit the amount of liquidity Market Makers would be willing 
to provide on BOX. This commenter further believes that the 
dissemination of Improvement Orders during the UPIP auction, which 
allows the Participant that entered the UPIP Order to monitor the 
amount of price improvement being offered (if any), compounds the 
``second look'' problem.\48\ This commenter also believes that this 
inability to cancel or modify an order at the top of the BOX Book 
raises customer protection issues, and that customers and their brokers 
should be made aware that cancelling or modifying their orders on the 
BOX Book may actually cause them to be executed at an undesirable 
price.\49\
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    \47\ See ISE Letter, supra note 4, at 1 to 2. See also Citadel 
Letter, supra note 4, at 4 (stating that the ability of the UPIP 
Order to cancel will give investors a free option to cancel their 
orders based on intervening market movements, while orders at the 
top of the book are frozen).
    \48\ See ISE Letter, supra note 4, at 2-3.
    \49\ Id. at 1 to 2.
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    In response, BSE notes that in general BOX Market Makers have 
several meaningful incentives to consistently quote at or establish the 
NBBO, including: (1) An open and competing market maker structure with 
no specialist/designated primary market maker and no regulatory limits 
to the number of market makers appointed in a given class; (2) low 
costs to enter the market; (3) low transaction costs; (4) price and 
time priority on the BOX Book; and (5) anonymous trading on the BOX 
Book.\50\ Further, BSE notes that the UPIP rules allow certain 
Improvement Order to be designated as NBBO Prime Orders. An NBBO Prime 
designation confers time priority in a UPIP auction to a particular 
Improvement Order over other Improvement Orders and Unrelated Orders 
with the same price upon satisfaction of certain conditions. To be 
eligible to be designated NBBO Prime, the same beneficial account for 
whom the Options Participant is acting and that is seeking the NBBO 
Prime designation must have had a quote or order on the BOX Book on the 
opposite side of the UPIP Order equal to the NBBO prior to receipt of 
the UPIP Order by the Trading Host. BSE believes that this requirement 
will encourage all Options Participants to compete aggressively to 
match or establish a new NBBO. \51\
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    \50\ See BSE Letter, supra note 5, at 2.
    \51\ Id. NBBO Prime is similar to the ``Market Maker Prime'' 
(``MMP'') designation in a PIP auction that is awarded to a Market 
Maker that is first to establish a quote on BOX equal to the NBBO or 
establish a new NBBO.
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    The Commission does not believe that, given the overall structure 
of BOX and the NBBO Prime functionality, the UPIP auction will 
discourage aggressive quoting on BOX. The availability of the NBBO 
Prime functionality is designed to encourage market makers and other 
market participants to aggressively post quotes or limit orders on the 
BOX Book, to be the first to match the NBBO, or to establish a new 
NBBO, because those participants will have time priority in the UPIP 
auction. Further, because NBBO Prime Orders only receive enhanced time 
priority for the quantity that does not exceed the size of the related 
order that was on the BOX Book, market participants may be incented to 
post greater size in order to receive priority on a larger allocation. 
Finally, with regard to BSE's proposal to allow Public Customers to 
cancel UPIP Orders, BSE states that, because the UPIP does not 
guarantee price improvement, the ability to cancel a UPIP Order is 
necessary to allow an OFP to manage an order that has not been executed 
and for which no trade confirmation has been issued.\52\ The Commission 
believes that the ability for UPIP Orders to be cancelled is consistent 
with the Act.
---------------------------------------------------------------------------

    \52\ See BSE Letter, supra note 5, at 4.
---------------------------------------------------------------------------

B. NBBO Prime Requirements

    One commenter doubts the technological feasibility of the NBBO 
Prime functionality because firms seeking NBBO Prime status will be 
required to specify the number of their order on the BOX Book that was 
first in time priority at the top of the BOX Book.\53\ BSE represents 
that the requirement to provide the unique order identifier to BOX for 
the appropriate order on the BOX Book utilizes the same technology that 
firms currently use to cancel or modify orders on BOX and that an OFP 
cannot be certified to trade on BOX unless it can perform this 
task.\54\ The Commission therefore does not believe this requirement 
should place an unreasonable burden on Options Participants to be able 
to avail themselves of the NBBO Prime functionality.
---------------------------------------------------------------------------

    \53\ See Citadel Letter, supra note 4, at note 12.
    \54\ See BSE Letter, supra note 5, at note 10.
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C. ``Freezing'' Top of the Book Quotes and Orders

    As noted above, two commenters expressed concerns about BSE's 
proposal to prohibit orders and quotes at the top of the BOX Book at 
the commencement of a UPIP auction to be cancelled.\55\ In response, 
BSE stated that ``freezing'' certain quotes and orders on the BOX Book 
at the start of a UPIP auction is necessary to comply with the Quote 
Rule,\56\ and disagrees that quotes or orders on the BOX Book held firm 
in this manner will be disadvantaged. BSE believes such orders and 
quotes will be treated as the entering participant intends--i.e., 
executable at the limit price when matched with a contra-side order and 
cancellable only when there is no pending execution.
---------------------------------------------------------------------------

    \55\ See supra note 47 and accompanying text.
    \56\ 17 CFR 242.602.
---------------------------------------------------------------------------

    Rule 602 under the Act requires a responsible broker or dealer to 
execute orders to buy or sell a security presented to it by another 
broker or dealer, or any other person belonging to a category of 
persons with whom such responsible broker or dealer customarily deals, 
at a price at least as favorable to such buyer or seller as the 
responsible broker's or dealer's published bid or published offer in 
any amount up to its published

[[Page 4033]]

quotation size.\57\ Therefore, the Commission agrees that the ``stop'' 
feature is necessary to ensure market participants' compliance with 
Rule 602 under the Act and believes that it is consistent with the Act. 
The Commission notes, however, that BOX Participants should, as with 
any order type or exchange functionality, take steps necessary to 
ensure their customers understand the operation of the UPIP auction 
with respect to incoming orders and orders resting on the BOX Book.
---------------------------------------------------------------------------

    \57\ Id.
---------------------------------------------------------------------------

D. Private Auctions

    One commenter argues that, because the broadcast message commencing 
a UPIP auction and the responding Improvement Orders will only be 
accessible to BOX participants and will not be publicly disseminated, 
only BOX Participants will know the ``true'' BOX market.\58\
---------------------------------------------------------------------------

    \58\ See Citadel Letter, supra note 4, at 4.
---------------------------------------------------------------------------

    Under the Commission's Quote Rule, an exchange is required to 
collect, process, and make available to quotation vendors the best bid, 
the best offer, and aggregate quotation sizes for each subject security 
listed or admitted to unlisted trading privileges which is communicated 
on any national securities exchange by any responsible broker or 
dealer.\59\ The Commission believes that because the UPIP auction is at 
most only 3 seconds in length, it is analogous to the open outcry 
auctions conducted on floor-based exchanges, where auction prices are 
not widely disseminated and are available only for the order that 
initiated the auction and other orders in the crowd at that particular 
time.\60\ Accordingly, the Commission finds the UPIP auction to be 
consistent with the Quote Rule.
---------------------------------------------------------------------------

    \59\ 17 CFR 242.602(a)(i).
    \60\ See Securities Exchange Act Release Nos. 49068 (January 14, 
2003), 68 FR 3062 (January 22, 2003) (Commission approval 
establishing trading rules for BOX, including rules for the PIP); 
49323 (February 26, 2004), 69 FR 10087 (March 3, 2004) (Commission 
approval establishing rules for PIM); and 53222 (February 3, 2006), 
71 FR 7089 (February 10, 2006) (Commission approval establishing 
rules for CBOE's Automated Improvement Mechanism (``AIM'')).
---------------------------------------------------------------------------

    One commenter notes that unlike the PIP, the proposed UPIP auction 
does not require at least three market makers to quote in an options 
series before a UPIP may be initiated.\61\ The Commission does not 
believe that the Act requires an exchange to have market makers in an 
auction. Although Market Makers could be an important source of 
liquidity in the UPIP auction, they likely will not be the only source. 
Any Options Participant can submit an Improvement Order in a UPIP 
Auction, on its own behalf or on behalf of a customer. Further, the 
Auto Auction Order (``AAO'') \62\ and CPO are specifically designed to 
allow customers to more easily participate in an Improvement Auction, 
including the UPIP. The Commission therefore believes that the proposal 
not to require minimum market maker participation in the UPIP is 
consistent with the Act.
---------------------------------------------------------------------------

    \61\ See ISE Letter, supra note 4, at 3.
    \62\ See Securities Exchange Act Release No. 56186 (August 2, 
2007), 72 FR 44593 (August 8, 2007) (approving the AAO functionality 
on BOX).
---------------------------------------------------------------------------

    Another commenter notes that the proposal provides that the 
duration of the UPIP will be 3 seconds or less as determined by the 
Board on a case-by-case basis and questions whether a UPIP duration of 
less than 3 seconds would result in a meaningful auction.\63\ This 
commenter also inquires how Options Participants will be informed about 
the exposure time of UPIP auctions if they are reduced. The Commission 
believes that BSE's response that BOX will inform Options Participants 
regarding the duration of the UPIP auctions by publishing a Regulatory 
Circular is consistent with the Act.\64\ The Commission also notes that 
the UPIP auction is designed to provide an opportunity for price 
improvement for certain orders, without a guarantee to a facilitating 
firm. Thus, the Commission does not believe that the UPIP auction 
raises the same potential conflict concerns as an auction where there 
is a guarantee from a facilitating firm. The Commission therefore 
believes that the duration of the UPIP auction, as proposed, is 
consistent with the Act.
---------------------------------------------------------------------------

    \63\ See Amex Letter, supra note 4, at 4.
    \64\ See BSE Letter, supra note 5, at 6.
---------------------------------------------------------------------------

E. NBBO Protection

    A commenter requested clarification as to what would occur in a 
UPIP auction if the BBO does not equal the NBBO and there are no 
Improvement Orders entered during the UPIP auction. Specifically, this 
commenter asked if the UPIP Order would be executed at the NBBO, or if 
the UPIP Order would be routed through the Options Intermarket Linkage 
to a better away market.\65\ This commenter further asked at what price 
the UPIP Order is executed if the NBBO changes during the UPIP 
auction.\66\ Similarly, another commenter noted that the UPIP Order 
would not execute against a better price if the NBBO changes during the 
UPIP Auction.\67\
---------------------------------------------------------------------------

    \65\ See Amex Letter, supra note 4, at 2.
    \66\ Id.
    \67\ See Citadel Letter, supra note 4, at 6.
---------------------------------------------------------------------------

    BSE responded that the UPIP Order is not guaranteed an execution at 
the NBBO.\68\ At the conclusion of the UPIP auction, the UPIP Order 
will be matched against the best prevailing orders or quotes, whether 
Improvement Orders, Unrelated Orders, or the Initial BOX Book Quote, 
that are equal to or better than the Start Price, which is at least as 
good a price as the NBBO at the commencement of the auction.\69\ In 
addition, at the conclusion of the UPIP auction the entire UPIP Order 
will be filtered to prevent BOX from executing any portion of the UPIP 
Order at a price inferior to the NBBO at the end of the UPIP auction. 
If the UPIP Order cannot be executed on BOX at or better than the NBBO, 
then the UPIP Order will be routed through Intermarket Linkage to 
another market displaying the NBBO at the conclusion of the UPIP 
auction.\70\ The Commission believes that BSE adequately clarified this 
aspect of the proposal, as amended, and that it is consistent with the 
Act.
---------------------------------------------------------------------------

    \68\ See BSE Letter, supra note 5, at 5.
    \69\ Such matching shall occur in compliance with the priority 
provisions of proposed Chapter V, Section 29(p) of the BOX Rules.
    \70\ See BSE Letter, supra note 5, at 5 and Chapter V, Section 
29(q) of the BOX Rules.
---------------------------------------------------------------------------

F. Compliance With the Act

1. Quote Rule
    One commenter believes that the ability to cancel Improvement 
Orders during a UPIP auction is inconsistent with the purpose and 
intent of BOX's firm quote rule. This commenter argues that an Options 
Participant would have a free look at the UPIP Order during the auction 
and could withdraw its Improvement Order if the market moved 
unfavorably.\71\
---------------------------------------------------------------------------

    \71\ See Amex Letter, supra note 4, at 3.
---------------------------------------------------------------------------

    The Commission's Quote Rule requires a responsible broker or dealer 
to execute any order presented to it at its published price and up to 
the full amount of its published size.\72\ Because no order would be 
presented to execute against an Improvement Order until the end of the 
UPIP auction, the Commission believes that the ability to cancel an 
Improvement Order prior to the termination of the UPIP auction does not 
violate the Quote Rule.
---------------------------------------------------------------------------

    \72\ 17 CFR 242.602(b)(2).
---------------------------------------------------------------------------

2. Section 11(a) of the Act
    Section 11(a) of the Act prohibits a member of a national 
securities exchange from effecting transactions on that exchange for 
its own account, the account of an associated person, or an account 
over which it or its associated person exercises discretion, unless an

[[Page 4034]]

exception applies.\73\ Section 11(a)(1)(G) and Rule 11a1-1(T) under the 
Act provide an exception to the general prohibition in section 11(a) on 
an exchange member effecting transactions for its own account. 
Specifically, a member that ``is primarily engaged in the business of 
underwriting and distributing securities by other persons, selling 
securities to customer, and acting as broker, or any one or more of 
such activities, and whose gross income normally is derived principally 
from such business and related activities'' \74\ and effects a 
transaction in compliance with the requirements in Rule 11a1-1(T)(a) 
\75\ may effect a transaction for its own account. Among other things, 
Rule 11a1-1(T)(a)(3) requires that an exchange member presenting a bid 
or offer for its own account or the account of another member shall 
grant priority to any bid or offer at the same price for the account of 
a non-member of the exchange.\76\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78k(a).
    \74\ 15 U.S.C. 78k(a)(1)(G)(i). Paragraph (b) of Rule 11a1-1(T) 
under the Act provides that the requirements of Section 
11(a)(1)(G)(i) of the Act are met if during its preceding fiscal 
year more than 50% of the member's gross revenues was derived from 
one or more of the sources specified in that section. In addition to 
any revenue which independently meets the requirements of Section 
11(a)(1)(G)(i), revenue derived from any transaction specified in 
paragraph (A), (B), or (D) of Section 11(a)(1) of the Act or 
specified in Rule 11a1-4(T) shall be deemed to be revenue derived 
from one or more of the sources specified in Section 11(a)(1)(G)(i).
    \75\ 15 U.S.C. 78k(a)(1)(G)(ii).
    \76\ 17 CFR 240.11a1-1(T)(a)(3).
---------------------------------------------------------------------------

    BSE's proposal provides that ``no order for a non-market maker 
broker-dealer account of an Options Participant will be executed before 
Public Customer order(s) and non-BOX Options Participant broker-dealer 
order(s) at the same price.'' \77\ Because BSE's proposed rules will 
require Options Participants that are not Market Makers to yield 
priority in the UPIP auction to all non-member orders,\78\ the 
Commission believes that the proposal is consistent with the yielding 
requirements in section 11(a)(1)(G) and Rule 11a1-1(T) under the Act. 
However, the Commission notes that, in addition to yielding priority to 
non-member orders at the same price, members also must meet the other 
requirements under section 11(a)(1)(G) and Rule 11a1-1(T) to effect 
transactions for their own accounts in reliance on this exception (or 
satisfy the requirements of another exception).
---------------------------------------------------------------------------

    \77\ See proposed Section 29(p), Chapter V of the BOX Rules.
    \78\ See Amendment No. 3.
---------------------------------------------------------------------------

G. Surveillance

    The proposal provides that the UPIP will default any Proprietary 
Improvement Order to the end of the priority queue in the UPIP unless 
the Options Participant affirmatively identifies that its order was 
generated by an automated quotation system that operates independently 
from the existence or non-existence of a pending UPIP Order. A 
commenter questioned how the BOX system will differentiate between 
proprietary orders that have or have not been generated by automated 
quotation systems, and what standard (if any) will be used for making a 
determination that a particular system is an automated quotation 
system.\79\ BSE has represented that it will surveil for compliance 
with this rule through its current examination program.\80\ BSE also 
notes that ISE uses a similar mechanism for its Directed Order 
process.\81\
---------------------------------------------------------------------------

    \79\ See Amex Letter, supra note 4, at 3 to 4.
    \80\ See BSE Letter, supra note 5, at 7.
    \81\ Id.
---------------------------------------------------------------------------

H. Interaction Among UPIP and PIP

    One commenter asks for more clarity on the interaction of the PIP, 
UPIP, and directed order functionalities.\82\ In response, BSE noted 
that a PIP or a UPIP auction will not run simultaneously with another 
PIP or UPIP auction in the same series, nor will PIP or UPIP auctions 
interact, queue, or overlap in any manner.\83\ BSE states that any 
order that is received while a UPIP is underway for the same series, 
which would otherwise meet the price conditions to initiate a UPIP 
auction, will cause the UPIP auction to immediately terminate.\84\ 
Further, any order that is received while a PIP auction is underway, 
that would otherwise meet the price conditions to initiate a UPIP will 
interact with the PIP as an Unrelated Order under the PIP rules.\85\ 
Any request to initiate a PIP (including from a market maker that has 
received a directed order) while a PIP or UPIP is already in progress 
in the same series will be rejected.\86\ The Commission believes that 
BSE has adequately clarified the interaction among the UPIP, PIP, and 
directed orders.\87\
---------------------------------------------------------------------------

    \82\ See ISE Letter, supra note 4, at 3. For example, this 
commenter noted that when a market maker receives a directed order 
on BOX, it must either initiate a PIP or release the order to the 
market within three seconds. Therefore, if there is a UPIP in 
progress at the time the directed order is received, the market 
maker cannot initiate a PIP. Id. at note 3.
    \83\ See proposed Section 18, Chapter V, Supplementary Material 
.02 and proposed Section 29, Chapter V, Supplementary Material .01 
of the BOX Rules.
    \84\ See proposed Section 29(s), Chapter V of the BOX Rules.
    \85\ See proposed Chapter V, Section 18(i) of the BOX Rules.
    \86\ Id. and BSE Letter, supra note 5, at 6.
    \87\ Another commenter believes that the Commission should not 
approve the proposed rule change until it has addressed the issue of 
whether market makers will be able to unfairly discriminate against 
certain customers when the UPIP or PIP auctions are used in 
conjunction with a Directed Order process without anonymity. See 
Amex Letter, supra note 4, at 2-3. The Commission believes that the 
issue of anonymity in the Directed Order process is more 
appropriately addressed in the context of the BSE proposed rule 
change on that issue. See Securities Exchange Act Release Nos. 56014 
(July 5, 2007), 72 FR 38104 (July 12, 2007) (SR-BSE-2007-31) 
(extending to January 31, 2008 the effective date of Section 
5(c)(i), Chapter 6 of the BOX Rules, which allows the BOX Trading 
Host to identify to an Executing Participant the identity of the 
firm entering a Directed Order); and 53357 (February 23, 2006), 71 
FR 10730 (March 2, 2006) (SR-BSE-2005-52) (notice of proposed rule 
change to permit Executing Participants to choose the firms from 
which they will accept Directed Orders while providing complete 
anonymity for Directed Orders that are passed on to the Executing 
Participant for possible representation in a PIP auction).
---------------------------------------------------------------------------

    One commenter questioned whether the AAO would interact in a UPIP 
Auction.\88\ In response, BSE clarifies that the recently approved AAO 
will be able to interact in a UPIP.\89\
---------------------------------------------------------------------------

    \88\ See ISE Letter, supra note 4, at 3.
    \89\ See BSE Letter, supra note 5, at note 26.
---------------------------------------------------------------------------

    BSE also notes that the Limit Order that is associated with the AAO 
that is priced at the standard minimum trading increment of five or ten 
cents can start a UPIP if, at its rounded price, it would be executable 
at the NBBO.\90\
---------------------------------------------------------------------------

    \90\ Id.
---------------------------------------------------------------------------

I. Penny Pilot

    One commenter argues that the Penny Pilot Program \91\ initiative 
should prohibit the approval of the UPIP. This commenter believes that 
the UPIP will distort Penny Pilot data.\92\ Another commenter believes 
that the Penny Pilot is the appropriate method to approach penny 
pricing in the options market because it is a fair and transparent 
environment.\93\
---------------------------------------------------------------------------

    \91\ The Penny Pilot was approved by the Commission to allow BOX 
to quote certain options series in pennies on a pilot basis. See 
e.g., Securities Exchange Act Release No. 55155 (January 23, 2007), 
72 FR 4741 (February 1, 2007) (SR-BSE-2006-49).
    \92\ See Citadel Letter, supra note 4, at 7.
    \93\ See ISE Letter, supra note 4, at 3 to 4.
---------------------------------------------------------------------------

    As discussed above, with respect to the commenters' substantive 
arguments, the Commission believes the proposed rule change is 
consistent with the Act. The Commission has previously approved 
exchange proposals to trade in penny increments, including BSE's 
PIP.\94\ The Commission believes it is consistent with the Act to 
approve the

[[Page 4035]]

BSE's initiative designed to allow trading in penny increments.\95\
---------------------------------------------------------------------------

    \94\ See Securities Exchange Act Release Nos. 49068 (PIP); 49323 
(PIM); and 53222 (AIM), supra note 60.
    \95\ The Exchange has represented that it will provide the 
Commission with statistics regarding the UPIP for those classes 
included in the Penny Pilot. See BSE Letter, supra note 5, at 8.
---------------------------------------------------------------------------

J. Acceleration of Proposed Rule Change as Amended

    The Commission finds good cause to approve the proposal prior to 
the thirtieth day after the proposal was published for comment in the 
Federal Register. The proposed rule change, as modified by Amendment 
No. 1, was published for full notice and comment.\96\ The Commission 
believes that the changes made in Amendment No. 3 generally strengthen 
the proposal. In Amendment No. 3, BSE made several changes to clarify 
its rules,\97\ respond to commenters,\98\ and comply with the 
requirements of the Act.\99\ The Commission believes that it has 
received and fully considered substantial, meaningful comments with 
respect to the BSE's proposal, as amended, and that Amendment No. 3 
does not raise issues that warrant further delay. For these reasons, 
the Commission finds good cause, consistent with section 19(b)(2) of 
the Act,\100\ to grant accelerated approval of the proposed rule 
change, as amended.
---------------------------------------------------------------------------

    \96\ See Notice, supra note 3.
    \97\ See, e.g., BSE clarifies that: The definition of an 
Eligible Order does not include ``fill or kill'' orders; the UPIP 
auction will only be available for certain classes of options as 
determined from time-to-time by BOX; the cancellation of the UPIP 
Order will result in the cancellation of the related Improvement 
Orders and the UPIP auction itself; any unexecuted portion of an 
Improvement Order will be cancelled; time priority will prevail 
between a Proprietary Improvement Order and an Improvement Order 
submitted by an Executing Participant; and in the instance when a 
UPIP is concluded, only time priority will be granted to an order on 
the BOX Book that executes against the remaining portion of a UPIP 
Order if that order has been placed for the same beneficial account 
as an Improvement Order in the UPIP auction.
    \98\ See, e.g., BSE revises the proposal to apply its NBBO 
trade-through filter at the conclusion of the UPIP auction.
    \99\ See, e.g., BSE revises the proposal to provide that: In no 
circumstances will the orders for a non-market maker broker-dealer 
account of an Options Participant be executed before a Public 
Customer or non-BOX Options Participant at the same price in the 
UPIP; and it will be conduct inconsistent with just and equitable 
principles of trade for (1) any Options Participant to enter 
Unrelated Orders into BOX for the purpose of disrupting or 
manipulating any UPIP auction, including purposely causing premature 
termination or (2) for an Executing Participant to directly or 
indirectly enter, modify, or cancel quotes or orders on BOX for the 
purpose of disrupting, prematurely terminating or manipulating any 
Improvement Auction.
    \100\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\101\ that the proposed rule change (SR-BSE-2006-16), as amended, 
be, and it hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \101\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\102\
---------------------------------------------------------------------------

    \102\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-1037 Filed 1-22-08; 8:45 am]

BILLING CODE 8011-01-P
