
[Federal Register: May 8, 2008 (Volume 73, Number 90)]
[Notices]               
[Page 26170-26174]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my08-135]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57762; File No. SR-BSE-2008-25]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change Relating to Proposal to 
Transfer Boston Stock Exchange, Inc.'s Ownership Interest in Boston 
Options Exchange Group, LLC

May 1, 2008.
    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 April 23, 2008, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the BSE. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to transfer its 21.87% ownership interest in 
the Boston Options Exchange Group, LLC (``BOX''), the operator of its 
Boston Options Exchange facility (``BOX Market'') \3\ to MX US 2, Inc. 
(``MX US''), a wholly-owned U.S. subsidiary of the Montr[eacute]al 
Exchange Inc. (``MX''), such that, following the transfer, the 
Exchange's aggregate Percentage Interest will be 0% and MX US's 
Percentage Interest will increase to 53.24%.\4\ The Exchange will 
remain the Regulatory Authority \5\ for the BOX Market and is 
submitting the proposed rule change to the Commission to approve the 
transfer of interests to MX US and to amend the Fifth Amended and 
Restated Operating Agreement (the ``5th BOX LLC Agreement'') of BOX 
accordingly (such agreement, as amended, the ``6th BOX LLC 
Agreement'').\6\ The Exchange is requesting confidential treatment of 
the sections of the 6th BOX LLC Agreement, which contain confidential 
business information and do not relate to the control and governance of 
BOX.
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    \3\ 15 U.S.C. 78c(a)(2).
    \4\ MX US currently has a 31.37% ownership interest in BOX. The 
BSE notes that in SR-BSE-2008-06, MX US's ownership interest in BOX 
was rounded up to 31.4%. See Securities Exchange Act Release No. 
57260 (February 1, 2008), 73 FR 7617 (February 8, 2008) (SR-BSE-
2008-06).
    \5\ The ``Regulatory Authority'' is defined as the BSE as the 
non-equity, non-Member authority of BOX and, together with and 
pursuant to delegated authority from BSE, the Boston Options 
Exchange Regulation LLC (``BOXR''), as approved by the SEC. See 
Section 1.1, 6th BOX LLC Agreement.
    \6\ Capitalized terms not otherwise defined herein shall have 
the meanings set forth in the 6th BOX LLC Agreement.
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    The text of the proposed rule change is available at the BSE, the 
Commission's Public Reference Room, and http://www.bostonstock.com. The 
text of Exhibits 3A and 3B of the proposed rule change are also 
available on the Exchange's Web site and on the Commission's Web site 
(http://www.sec.gov/rules/sro/bse.shtml).

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

    In its filing with the Commission, the BSE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The BSE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 13, 2004, the Commission approved four BSE proposals 
that together established the BOX Market as a facility of the 
Exchange.\7\ This

[[Page 26171]]

proposal relates to Section 8.4(f) of the 5th BOX LLC Agreement, which 
requires that any Transfer \8\ that results in the acquisition and 
holding by any Person, alone or together with any Affiliate of such 
Person, of an aggregate Percentage Interest level which meets or 
crosses the threshold level of 20% or any successive 5% Percentage 
Interest level \9\ be subject to the rule filing process pursuant to 
Section 19(b)(1) of the Act \10\ and Rule 19b-4 thereunder.\11\
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    \7\ See Securities Exchange Act Release Nos. 49066 (January 13, 
2004), 69 FR 2773 (January 20, 2004) (SR-BSE-2003-17) (establishing 
a fee schedule for the proposed BOX Market); 49065 (January 13, 
2004), 69 FR 2768 (January 20, 2004) (SR-BSE-2003-04) (creating BOXR 
to which the BSE would delegate its self-regulatory functions with 
respect to the BOX Market); 49068 (January 13, 2004), 69 FR 2775 
(January 20, 2004) (SR-BSE-2002-15) (approving trading rules for the 
BOX Market); and 49067 (January 13, 2004), 69 FR 2761 (January 20, 
2004) (SR-BSE-2003-19) (approving certain regulatory provisions of 
the operating agreement of BOX).
    \8\ A ``Transfer'' occurs when any member of BOX (``Member'') 
disposes of, sells, alienates, assigns, exchanges, participates, 
subparticipates, encumbers, or otherwise transfers in any manner all 
or any portion of its Units. See Section 8.1(a), 5th BOX LLC 
Agreement.
    \9\ See Section 8.4(f), 5th BOX LLC Agreement.
    \10\ 15 U.S.C. 78s(b)(1).
    \11\ 17 CFR 240.19b-4.
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BSE Transfer of BOX Units
    The NASDAQ OMX Group, Inc. (``Nasdaq'') has entered into an 
agreement to purchase the BSE but not the BSE's BOX Units. In 
conjunction therewith, the BSE proposes to Transfer such BOX Units to 
MX US. The BSE is proposing to Transfer all of its BOX Units to MX US, 
which would result in the BSE's Percentage Interest falling to 0% and 
MX US's Percentage Interest increasing from 31.37% to 53.24%. Since MX 
US already holds an ownership interest in BOX in excess of 20% and the 
BSE's proposed Transfer of its BOX Units to MX US would cross the 5% 
threshold specified in Section 8.4(f) of the 5th BOX LLC Agreement, 
such Transfer necessitates SEC approval.\12\ MX US, as a current Member 
of BOX, is already a party to, and is therefore bound by the provisions 
of, the 5th BOX LLC Agreement.\13\
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    \12\ See Section 8.4(f), 5th BOX LLC Agreement.
    \13\ Although MX has transferred its BOX Units to MX US, MX has 
signed an Instrument of Accession through which MX has agreed to 
abide by all of the provisions of the 5th BOX LLC Agreement, as 
amended and in effect from time to time, including those provisions 
requiring submission to the jurisdiction of the Commission. See SR-
BSE-2008-28.
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    The BSE states that the Act does not require that a self-regulatory 
organization (``SRO'') have any ownership interest in the operator of 
one of its facilities. The Commission has stated in a similar case 
involving the establishment of Archipelago Exchange (``ArcaEx'') as a 
facility of the Pacific Exchange, Inc. (``PCX''), that a national 
securities exchange need not have a significant ownership interest in 
the operator of one of its facilities.\14\ Although the BSE will no 
longer hold an ownership interest in BOX, the BSE will continue to act 
as the SRO and regulatory services provider for the BOX Market. The BSE 
and BOXR, by delegated authority, will act as the Regulatory Authority 
for the BOX Market. Furthermore, the BOX Market will remain a facility 
of the BSE pursuant to Section 3(a)(2) of the Act.\15\
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    \14\ See Securities Exchange Act Release No. 44983 (October 25, 
2001), 66 FR 55225 (November 1, 2001) (SR-PCX-00-25). ArcaEx was 
operated by Archipelago Exchange LLC (``Arca LLC''). At the time of 
its approval, PCX's ownership interest in Arca LLC consisted solely 
of a 10% interest in Archipelago Holdings, LLC, the parent company 
of Arca LLC.
    \15\ 15 U.S.C. 78c(a)(2).
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Amendments to BOX LLC Agreement
    In conjunction with the BSE's Transfer of its BOX Units to MX US, 
the BSE is proposing to amend the 5th BOX LLC Agreement to reflect 
modifications to the BSE's role as Regulatory Authority of the BOX 
Market. Below is a description of certain proposed amendments to the 
5th BOX LLC Agreement.
Regulatory Director
    Since the BSE's Percentage Interest in BOX will be less than 8%, 
the BSE will no longer be entitled to maintain two directors on the BOX 
Board, but the BSE will have the right to designate one non-voting 
Regulatory Director \16\ to the BOX Board, pursuant to Section 
4.1(a)(i) of the 6th BOX LLC Agreement.\17\
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    \16\ The ``Regulatory Director'' is defined as the individual 
designated as such by the BSE pursuant to Section 4.1(b) of the 6th 
BOX LLC Agreement. The Regulatory Director must be a member of the 
senior management of the regulation staff of the Regulatory 
Authority, who is separated from the business operations of the BSE 
via effective information barriers. The Regulatory Director shall 
not be an employee, officer, or director of Nasdaq or its 
Affiliates, other than the BSE and the BSE's subsidiaries. See 
Section 1.1, 6th BOX LLC Agreement.
    \17\ As long as BOX Market remains a facility of the BSE 
pursuant to Section 3(a)(2) of the Act, the BSE shall have the right 
to retain/designate one Regulatory Director, whether or not the BSE 
is admitted as a Member of BOX. See Section 4.1(a)(i), 6th BOX LLC 
Agreement.
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Regulatory Veto
    Under the provisions of the 5th BOX LLC Agreement, the BSE holds 
veto power over certain ``Major Actions,'' which relate to both 
commercial and regulatory actions.\18\ After the sale of the BSE's BOX 
Units to MX US, the BSE will continue to have a regulatory interest in 
the BOX Market but will no longer have a commercial interest in BOX. 
Consequently, the BSE will no longer hold veto power over Major Actions 
of BOX but will instead hold veto power over all regulatory actions 
(``Regulatory Veto''). The terms of the Regulatory Veto provide that 
the Regulatory Authority shall receive notice of planned or proposed 
changes to BOX (except certain Non-Market Matters) \19\ or the BOX 
Market (including, but not limited to, the System) pursuant to 
procedures established by the mutual agreement of BOX and the 
Regulatory Authority, which will require an affirmative approval of 
such changes by the Regulatory Authority prior to implementation.\20\ 
The planned or proposed changes subject to the Regulatory Veto shall 
include, without limitation: (A) Planned or proposed changes to the 
System; (B) the sale by BOX of any material portion of its assets; (C) 
taking any action to effect a voluntary, or which would precipitate an 
involuntary, dissolution or winding up of BOX; or (D) obtaining 
regulatory services from a regulatory services provider other than the 
Regulatory Authority.\21\ The Regulatory Authority, in its sole 
discretion, may direct BOX, subject to approval of the BOXR Board, to 
modify a proposal as necessary to ensure that it does not cause a 
Regulatory Deficiency if the Regulatory Authority, in its sole 
discretion, determines that the proposed or planned changes to BOX or 
the BOX Market (including, but not limited to, the System) could cause 
a Regulatory Deficiency if implemented.\22\ The Regulatory Authority 
will also have the authority to direct BOX, subject to the approval of 
the BOXR Board, to undertake modifications to BOX (but not to include 
Non-Market Matters) or the BOX Market as are necessary or appropriate 
to eliminate or prevent a Regulatory Deficiency in the event that the 
Regulatory Authority, in its sole discretion, determines that a 
Regulatory Deficiency exists or is planned.\23\
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    \18\ See Section 4.4(b), 5th BOX LLC Agreement.
    \19\ ``Non-Market Matters'' include changes relating solely to 
one or more of the following: Marketing, administrative matters, 
personnel matters, social or team-building events, meetings of 
Members, communication with Members, finance, location and timing of 
BOX Board meetings, market research, real property, equipment, 
furnishings, personal property, intellectual property, insurance, 
contracts unrelated to the operation of the BOX Market, and de 
minimis items. See Section 3.2(a)(ii), 6th BOX LLC Agreement.
    \20\ See Section 3.2(a)(ii), 6th BOX LLC Agreement.
    \21\ Id.
    \22\ See Section 3.2(a)(iii), 6th BOX LLC Agreement. A 
``Regulatory Deficiency'' is defined as ``the operation of the BOX 
(in connection with matters that are not Non-Market Matters) or the 
BOX Market (including, but not limited to, the System) in a manner 
that is not consistent with the Regulatory Authority Rules and/or 
the SEC Rules governing the BOX Market or BOX Options Participants, 
or that otherwise impedes the Regulatory Authority's ability to 
regulate the BOX Market or BOX Options Participants or to fulfill 
its obligations under the Exchange Act as an SRO.'' See Section 1.1, 
6th BOX LLC Agreement.
    \23\ See Section 3.2(a)(iv), 6th BOX LLC Agreement.

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[[Page 26172]]

Board Composition
    Although BOX itself will not carry out any regulatory functions, 
all of its activities must be consistent with the Act. For example, 
provisions set forth in Sections 4.2(a) and 5.3 of the 6th BOX LLC 
Agreement state that each unit holder and director of BOX agrees to 
cooperate with the Commission and the BSE in carrying out their 
regulatory responsibilities. The BOX Market, as a facility of an 
exchange, is not solely a commercial enterprise; it is an integral part 
of an SRO registered pursuant to the Act and is subject to the 
obligations imposed by the Act. These obligations endure so long as the 
BOX Market is a facility of the Exchange, regardless of whether the BSE 
has an ownership interest in BOX. In recognition of these obligations, 
the BSE has agreed that for so long as the BOX Market remains a 
facility of the BSE pursuant to Section 3(a)(2) of the Act, BOX shall 
have the right to recommend at least 10% of the BOXR Board (but no 
fewer than one director) for election to the BOXR Board.\24\ The BOXR 
director recommended by BOX shall: (1) Have the right to attend all 
BOXR Board meetings and committees thereof; (2) receive equivalent 
notice of BOXR Board meetings and committees thereof as other BOXR 
directors; and (3) receive a copy of the meeting materials provided to 
other BOXR directors, including, without limitation, agendas, action 
items, and minutes.\25\
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    \24\ See Section 4.1(f), 6th BOX LLC Agreement. The BOXR Board 
shall also include at least two BOX Options Participant directors 
(but not less than 20% of all directors on the BOXR Board) selected 
in accordance with the BOXR Limited Liability Company Agreement and 
By-Laws and at least four directors who do not have a material 
direct or indirect relationship with Nasdaq, its Affiliates, or any 
Regulatory Outsourcing provider (other than service solely as a 
director of BOXR and/or BSE). Id.
    ``Regulatory Outsourcing'' is defined as all BOX-related 
regulatory functions that are outsourced by the BSE to the Financial 
Industry Regulatory Authority or other service provider that is an 
SRO. See Section 1.1, 6th BOX LLC Agreement.
    \25\ See Section 4.1(f), 6th BOX LLC Agreement.
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    The BSE has also agreed to delegate all actions and decisions 
relating to the Regulatory Authority Rules,\26\ regulation of the BOX 
Market (except regulatory actions and decisions delegated to the BSE 
Regulatory Oversight Committee) and appeals from regulatory decisions 
of the BOXR Board to a committee of the BSE Board (the ``BOX 
Committee'').\27\ The resolutions to be adopted by the BSE Board to 
establish the BOX Committee are being filed herein as proposed rules of 
the Exchange. The resolutions reflect the compositional requirements 
for the BOX Committee that are also required by the 6th BOX LLC 
Agreement.\28\ In addition, the resolutions provide that the BOX 
Committee may not be dissolved, and the resolutions and the powers of 
the BOX Committee established thereby may not be altered, amended, 
removed, or abridged, without the express written consent of BOX. In 
addition, any resolution or other action that would have the effect of 
dissolving the BOX Committee or altering, amending, removing, or 
abridging the resolutions or the powers of the BOX Committee 
established thereby must be submitted to the BSE Board, and if the same 
must be filed with, or filed with and approved by, the SEC under 
Section 19 of the Act, then it shall not be effective until filed with, 
or filed with and approved by, the SEC, as the case may be.
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    \26\ ``Regulatory Authority Rules'' are defined as the rules of 
the Regulatory Authority, including for the avoidance of doubt, the 
BOX Rules, that constitute ``rules of an exchange,'' within the 
meaning of Section 3 of the Act, and that pertain to the BOX Market. 
See Section 1.1, 6th BOX LLC Agreement.
    \27\ See Section 4.1(f), 6th BOX LLC Agreement.
    \28\ The BOX Committee of the BSE Board shall include a BOX 
Options Participant representative, in accordance with the BSE's By-
Laws, to serve as a representative of BOX Options Participants and 
four other directors who do not have a material direct or indirect 
relationship with Nasdaq, its Affiliates, or any Regulatory 
Outsourcing provider (other than service as directors of the BSE 
and/or BOXR). Furthermore, at least 50% of the BOX Committee must be 
Public Directors, as defined in the BSE's By-Laws. Id.
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    The BSE has also agreed that for so long as the BOX Market remains 
a facility of the BSE pursuant to Section 3(a)(2) of the Act, BOX shall 
have the right to designate one non-voting participant (``Non-Voting 
Participant'') to the BSE Board.\29\ The Non-Voting Participant shall: 
(1) Have the right to attend all meetings of the BOX Committee and all 
BOX-related deliberations of the BSE Board and committees thereof 
(collectively, ``BOX-Related Meetings''); (2) receive equivalent notice 
of BOX-Related Meetings as BSE directors; and (3) receive a copy of the 
meeting minutes provided to BSE directors, including agendas, action 
items, and minutes for all BOX-Related Meetings.\30\
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    \29\ Id.
    \30\ Id.
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    The BSE has agreed that the directors sitting on the BOXR Board or 
any committees thereof or the BOX Committee or otherwise engaged in 
BOX-Related Meetings (other than by membership on the BSE Regulatory 
Oversight Committee) shall not have a material direct or indirect 
relationship with Nasdaq or its Affiliates or any Regulatory 
Outsourcing provider (other than service as directors of the BSE and/or 
BOXR).\31\ Furthermore, all other persons permitted to attend meetings 
of the BOXR Board or any committees thereof or the BOX Committee or 
otherwise engaged in BOX-Related Meetings shall not have a material 
direct or indirect relationship with Nasdaq or its Affiliates or any 
Regulatory Outsourcing provider unless they are: (i) Permitted 
Recipients; \32\ (ii) BOXR directors, officers, or employees; (iii) 
other parties making presentations to directors of the BSE Board 
engaged in BOX-Related Meetings, the BOXR Board, BOX Committee, or BSE 
Regulatory Oversight Committee, if such parties' participation is only 
to the extent necessary to make such presentations; or (iv) consented 
to by BOX.\33\
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    \31\ See Section 4.1(f), 6th BOX LLC Agreement. Material direct 
or indirect relationship includes, without limitation, any of the 
following: Being an Affiliate; serving as a board member, employee, 
officer, consultant, advisor, or any Regulatory Outsourcing 
provider; being a party to any contractual or other relationship 
pursuant to which more than $50,000 is paid; reporting to, 
controlling, being controlled by, or holding an investment greater 
than 5% in any such Person; and being a parent, child, sibling, 
spouse, or in-law of such Person. Id.
    \32\ ``Permitted Recipients'' are defined as: (A) The BSE's 
Chief Regulatory Officer and only those members of his regulatory 
staff responsible for regulatory technology and budget, counsel to 
the BSE's Chief Regulatory Officer, or staff of the BSE's internal 
audit department (it being agreed and understood, for purposes of 
this definition that these roles may be performed for the BSE by 
Nasdaq employees serving comparable regulatory functions for 
Nasdaq), (B) any member of the BSE Board serving on the BOX 
Committee or the BSE Regulatory Oversight Committee, (C) Nasdaq's 
Chief Regulatory Officer and his staff in the Office of General 
Counsel, (D) any member of the Nasdaq Board of Directors serving on 
the Nasdaq Regulatory Oversight Committee, and (E) any Professional 
Services provider. See Section 1.1, 6th BOX LLC Agreement.
    ``Professional Services'' is defined as services performed by 
outside counsel, consultants, Regulatory Outsourcing, or 
subcontractors for the benefit of BOX or the BOX Market. Id.
    \33\ See Section 4.1(f), 6th BOX LLC Agreement.
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Books and Records
    In accordance with the BSE's obligations as the SRO for the BOX 
Market, the books, records, premises, officers, directors, agents, and 
employees of BOX shall be deemed to be the books, premises, officers, 
directors, agents, and employees of the Regulatory Authority for the 
purpose of, and subject to, oversight pursuant to the Act.\34\ 
Furthermore, the books and records of BOX shall be subject at all times 
to inspection and copying by the Regulatory Authority and the SEC.\35\

[[Page 26173]]

Inspection, copying, and review of the books and records of BOX by the 
Regulatory Authority at the premises of BOX, and access to any copied 
books and records removed from the premises of BOX or produced to the 
Regulatory Authority at its request, shall in all cases be conducted 
by, or limited to, BSE employees who are Permitted Recipients and/or 
directors or employees of BOXR.\36\
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    \34\ See Section 12.1, 6th BOX LLC Agreement.
    \35\ Id. BOX shall not be entitled to refuse the inspection, 
review, or copying of its books and records by the Regulatory 
Authority as provided in Section 12.1 of the 6th BOX LLC Agreement 
but shall be entitled to damages in the event any inspection, 
copying, or review of BOX books and records by the Regulatory 
Authority is, in whole or in part, used by the Regulatory Authority 
or any of its Affiliates for any purpose other than to fulfill the 
Regulatory Authority's regulatory obligations. Id.
    \36\ Id.
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Confidential Information
    All Members of BOX and the Regulatory Authority are prohibited from 
using BOX Confidential Information \37\ otherwise than in connection 
with its respective activities contemplated by the 6th BOX LLC 
Agreement and other related agreements (the ``Agreements'') or pursuant 
to the Act and the rules and regulations thereunder.\38\ All Members of 
BOX and the Regulatory Authority are prohibited from disclosing any BOX 
Confidential Information to any Person except as expressly permitted by 
the Agreements and pursuant to the Act and the rules and regulations 
thereunder.\39\ The Commission and the Regulatory Authority, however, 
are not limited or impeded in their right to access and examine BOX 
Confidential Information. In addition, the 6th BOX LLC Agreement does 
not limit or impede the ability of a Member, officer, director, agent, 
or employee of a Member to disclose BOX Confidential Information to the 
SEC or the Regulatory Authority.\40\
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    \37\ ``BOX Confidential Information'' includes any financial, 
scientific, technical, trade, or business secrets of BOX and any 
financial, scientific, technical, trade, or business materials that 
BOX treats, or is obligated to treat, as confidential or 
proprietary, including, but not limited to, innovations or 
inventions belonging to BOX and confidential information obtained by 
or given to BOX about or belonging to its suppliers, licensors, 
licensees, partners, affiliates, customers, potential customers, or 
others. The definition of BOX Confidential Information, with respect 
to any Person, shall not include information which: (i) Is publicly 
known through publication or otherwise through no wrongful act of 
such Person; or (ii) is received by such Person from a third Party 
who rightfully discloses it to such Person without restriction on 
its subsequent disclosure. See Section 1.1, 6th BOX LLC Agreement.
    \38\ See Section 16.2, 6th BOX LLC Agreement.
    \39\ Id. No Member or Regulatory Authority shall share BOX 
Confidential Information with Nasdaq or its Affiliates, other than 
BSE and BOXR, or as permitted in the Regulatory Services Agreement. 
Id.
    \40\ See Section 16.5, 6th BOX LLC Agreement.
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    Furthermore, all confidential information, including BOX 
Confidential Information, pertaining to regulatory matters of BOX and 
the BOX Market (including, but not limited to, disciplinary matters, 
trading data, trading practices, and audit information) contained in 
the books and records of BOX shall: (i) Not be made available to any 
persons other than to those officers, directors, employees, and agents 
of BOX that have a reasonable need to know the contents thereof; (ii) 
be retained in confidence by BOX and the officers, directors, 
employees, and agents of BOX; and (iii) not be used for any commercial 
purposes.\41\
Future Amendments to BOX LLC Agreement
    When BOX formally presents any amendments, modifications, waivers, 
or supplements to the 6th BOX LLC Agreement or any future amended BOX 
LLC Agreement (``BOX LLC Agreement'') to the BOX Board for approval, 
BOX represents that it will provide prompt notice to the Regulatory 
Authority and the Regulatory Director and submit any proposed 
amendments to the BOX Committee for its review and filing with the SEC 
if deemed necessary under Section 19 of the Act and the rules 
promulgated thereunder.\42\ BOX, however, shall not be required to 
obtain the approval of the Regulatory Authority for any amendment to 
the BOX LLC Agreement pursuant to which the BOX Market would cease to 
be a facility of the BSE within the meaning of Section 3 of the Act, 
provided that such amendment shall be filed with, or filed with and 
approved by, the SEC, as the case may be, before such amendment may be 
effective.\43\ In the event the BSE ceases to be the Regulatory 
Authority, the BSE shall no longer be a party to the BOX LLC Agreement 
and thereafter the provisions of the BOX LLC Agreement shall not apply 
to the BSE or BOXR except for certain delineated provisions, which 
shall survive.\44\
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    \41\ See Section 16.6, 6th BOX LLC Agreement.
    \42\ See Section 19.1, 6th BOX LLC Agreement.
    \43\ Id.
    \44\ Id.
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Jurisdiction
    Each Member of BOX acknowledges that, to the extent that they are 
related to BOX activities, the books, records, premises, officers, 
directors, agents, and employees of the Members shall be deemed to be 
the books, records, premises, officers, directors, agents, and 
employees of the Regulatory Authority for the purpose of and subject to 
oversight pursuant to the Act.\45\ BOX, the Members and the officers, 
directors, agents, and employees of each, irrevocably submit to the 
exclusive jurisdiction of the U.S. federal courts, the SEC, and the 
Regulatory Authority 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, BOX 
activities or Section 19.6(a) of the 6th BOX LLC Agreement.\46\ 
Furthermore, BOX, the Regulatory Authority, and each Member are 
required to take necessary action to ensure that the officers, 
directors, and employees of BOX, the Regulatory Authority, and each 
Member consent to the applicability of certain of the provisions in the 
6th BOX LLC Agreement, including provisions relating to 
confidentiality, books and records, and jurisdiction.\47\
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    \45\ See Section 19.6(a), 6th BOX LLC Agreement.
    \46\ See Section 19.6(b), 6th BOX LLC Agreement.
    \47\ See Section 19.6(c), 6th BOX LLC Agreement.
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Conclusion
    The BSE will remain the SRO for the BOX Market, and the BSE will 
continue to provide the regulatory services for the BOX Market in order 
for BOX to conduct BOX's business in a manner consistent with the 
regulatory and oversight responsibilities of the BSE, even though the 
BSE will no longer have an ownership interest in BOX. The BSE proposes 
to amend the 5th BOX LLC Agreement to make the aforementioned changes 
and reflect the BSE's status as the Regulatory Authority.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\48\ in general, and 
furthers the objectives of Section 6(b)(1) of the Act,\49\ in 
particular, in that it ensures that the Exchange is so organized and 
has the capacity to carry out the purposes of the Act and to comply and 
to enforce compliance by the Exchange's members with the Act, the rules 
and regulations of the Act, and the rules of the Exchange. The Exchange 
also believes that the proposal is consistent with the requirements of 
Section 6(b)(5) of the Act,\50\ 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

[[Page 26174]]

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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    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78f(b)(1).
    \50\ 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 will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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 Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2008-25 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 SR-BSE-2008-25. 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 the 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-2008-25 and should be submitted on 
or before May 29, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-10094 Filed 5-7-08; 8:45 am]

BILLING CODE 8010-01-P
