
[Federal Register: April 10, 2008 (Volume 73, Number 70)]
[Notices]               
[Page 19534-19535]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ap08-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57623; File No. SR-BSE-2008-05]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 5, To Amend the Rules of the Boston Options Exchange Related To 
Obvious Error Procedures

April 4, 2008.

I. Introduction

    On January 29, 2008, 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 
proposed rule change to amend the Boston Options Exchange (``BOX'') 
Rules related to Obvious Error procedures. On February 21, 2008, the 
Exchange filed Amendment No. 1 to the proposal. On February 22, 2008, 
the Exchange submitted Amendment Nos. 2, 3, and 4, and withdrew 
Amendment Nos. 1, 2, and 3 to the proposal. On February 26, 2008, the 
exchange withdrew Amendment No. 4 and submitted Amendment No. 5 to the 
proposal.\3\ The proposed rule change, as modified by Amendment No. 5, 
was published for comment in the Federal Register on March 3, 2008.\4\ 
The Commission received no comment letters on the proposal. This order 
approves the proposed rule change, as modified by Amendment No. 5.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 5 replaced and superseded the original filing 
and all previous amendments in their entirety.
    \4\ Securities Exchange Act Release No. 57383 (February 26, 
2008), 73 FR 11452.
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II. Description of the Proposed Rule Change

    BOX has an established process whereby, in the event that a 
suspected Obvious Error has occurred during trading on the BOX market, 
a request for review may be made by one or both of the parties 
involved. To request a review of a suspected Obvious Error under 
current BOX rules, one or both of the parties involved must notify the 
Market Regulation Center (``MRC'') of the existence of a suspected 
erroneous transaction. The MRC would then initiate a review process. If 
the MRC determines that the transaction does in fact represent an 
Obvious Error, the transaction would either be adjusted or

[[Page 19535]]

busted. Depending on the parties involved in the transaction, the 
adjustments would either be set according to pre-determined increments 
or by mutual agreement between the parties.
    The proposed rule change would require that one or both parties 
contact the BOX Market Operations Center (``MOC''),\5\ instead of the 
MRC, to request a review of a suspected erroneous transaction. The MOC 
would then be required to promptly notify the MRC, since the MRC would 
continue to be the body that makes adjust or bust decisions.
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    \5\ This proposed rule change would also add the MOC to the 
definitions section of the BOX Rules. See Section 1 of Chapter I of 
the BOX Rules. The remainder of the changes to the definition 
section fall into two categories. The first is switching the current 
Sections 31 and 32 so that they are in alphabetical order. The 
second is, after inserting the MOC as a definition, renumbering the 
remaining definitions.
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    The proposed change also would provide an additional avenue of 
relief for non-BOX market makers, resulting in the Obvious Error Rules 
applying not only to BOX Market Makers, but also to market makers on 
other exchanges whose orders are designated with a market maker account 
type in the BOX Trading Host. Under current BOX Rules, only BOX Market 
Makers and non market maker Options Participants may request a review 
of a suspected erroneous transaction. Under the proposed rule change, 
non-BOX market makers also may request a review of a suspected 
erroneous transaction. Moreover, only BOX Market Makers involved in an 
erroneous transaction with another BOX Market Maker currently may avail 
themselves to the pre-determined obvious error Theoretical Price plus 
or minus adjustment levels. The proposed rule change would maintain and 
expand the choices available to a non-BOX market maker involved in an 
erroneous transaction. Specifically, a non-BOX market maker, like BOX 
Market Makers today, would have the choice of agreeing with the counter 
party to bust the transaction, agreeing to adjust to an agreed upon 
price for the transaction, or now having the transaction adjusted to 
the pre-determined levels.
    Finally, the proposed rule change would establish an additional 
course of action if it is determined that an Obvious Error has 
occurred. The current BOX Rules allow for an adjustment in the 
transaction price to the pre-determined levels where both parties to 
the transaction are BOX Market Makers. If at least one party to the 
transaction is a market maker on BOX, the BOX rules call for the 
transaction to be busted, unless both parties agree to an adjustment 
price and notify the MRC. The proposed rule change would: (1) provide 
that the transaction would be busted absent an agreement to an adjusted 
price only when neither party is a market maker; and (2) allow the non 
market maker party to elect to have the transaction busted or the price 
adjusted to a pre-determined level, when one party to the transaction 
is not a market maker and the other party is a market maker.

III. Discussion

    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 \6\ and, in 
particular, the requirements of Section 6(b) of the Act \7\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\8\ in 
that the proposal is designed to promote just and equitable principles 
of trade, 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.
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In the Commission's view, the determination of whether an 
``obvious error'' has occurred should be based on specific and 
objective criteria and subject to specific and objective procedures.
    The Commission believes that the proposed rule change is based on 
specific and objective criteria and subject to specific and objective 
procedures. Specifically, expanding the application of BOX's Obvious 
Error rule to non-BOX market makers would extend the specific and 
objective criteria and procedures applicable to BOX Market Makers to 
non-BOX market makers. In addition, under the proposed rule change, an 
obviously erroneous transaction that is not busted would be adjusted to 
objective, pre-established numerical Obvious Error adjustment 
increments.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-BSE-2008-05), as modified by 
Amendment No. 5, is hereby approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.56
[FR Doc. E8-7511 Filed 4-9-08; 8:45 am]

BILLING CODE 8011-01-P
