[Federal Register Volume 60, Number 20 (Tuesday, January 31, 1995)]
[Notices]
[Pages 5951-5952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2267]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35268; File No. SR-CSE-95-01]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Cincinnati Stock Exchange, Inc. Relating to Designated Dealer
Market Quotations Requirements
January 24, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on January
17, 1995, the Cincinnati Stock Exchange, Inc. (``CSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CSE hereby proposes to amend Rule 11.9 by revising spread
parameter requirements for Designated Dealers (``DDs''), which have
been part of the Exchange's quality market policy, and by imposing new
requirements on market quotes entered by DDs.
The text of the proposed rule change to CSE Rule 11.9(c) is as
follows, with additions in italics:
Interpretations and Policies:
.01 Except during unusual market conditions or as otherwise
permitted by an Exchange Official, the maximum allowable spread that
may be entered by a Designated Dealer in a particular security shall be
125% (rounded out to the next \1/8\ point increment) of the average of
the three narrowest applicable spreads in that security. Applicable
spreads shall include the inside quote of CSE and all ITS Participant
market centers. In no event shall the maximum allowable spread that a
Designated Dealer is required to quote be less than \1/4\ point.
Nothing in this paragraph, however, shall prohibit a Designated Dealer
from entering a quote whose bid/ask spread is less than \1/4\ point.
.02 Designated Dealers shall not furnish bid-asked quotations that
are generated by an automated quotation tracking system (such as the
Autoquote system or the Centramart system employed by certain ITS
Participants).
.03 Except during unusual market conditions or as otherwise
permitted by an Exchange official, the average firmwide quote-to-trade
ratio for Designated Dealers shall not exceed ten-to-one. This ratio
shall be measured on a quarterly basis.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to enhance the quality
of the CSE's market. First, the Exchange seeks to prohibit the
furnishing of ``bid-asked quotations which are generated by an
automated quotation tracking system.'' This prohibition broadens the
current quotation restrictions contained in Section 8(d)(2) of the
Intermarket Trading System (``ITS'') Plan, which limits such quotations
to a size of 100 shares. Second, the Exchange seeks to impose a
requirement that competing specialists spread their quotations no more
than 125% of the average of the three best quote spreads provided by
all markets that participate in the national market system. Finally,
the Exchange proposes to require that the average firmwide quote-to-
trade ratio for competing specialists, measured on a quarterly basis,
not exceed ten-to-one.
The CSE is the first exchange to propose the complete elimination
of autoquoting. Currently, regional exchange specialists use
autoquoting as a means to technically comply with their obligation to
provide continuous two-sided markets. The CSE believes that it is
generally agreed that autoquoted markets provide no meaningful
liquidity to the national market system: they are usually away from the
NBBO; they must be limited to 100 shares by ITS rules; and they are
exempt from ITS's national price protection rules, which means that
they can be traded through without penalty. If extended to all
exchanges, the CSE believes that the elimination of autoquoting would
reduce capacity [[Page 5952]] demands on the consolidated quotation
system and significantly enhance the transparency of the national
market system.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
in general and furthers the objectives of Section 6(b)(5) in particular
in that it is intended to promote just and equitable principles of
trade and to remove impediments to and perfect the mechanism of a free
and open market and a national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The CSE does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The proposed rule change is similar to that contained within File
No. SR-CSE-94.11, which was circulated to ITS Participants and which
has been withdrawn by the Exchange. The CSE received comments on SR-
CSE-94-11 from the New York Stock Exchange, Inc. (``NYSE'').\1\ The
NYSE reiterated the positions it took on autoquoting, spread
parameters, and quote-to-trade ratios in an earlier comment letter that
was filed in response to File No. SR-CSE-94-01,\2\ the CSE's earlier
quality of markets filings.\3\ In brief, the NYSE questioned the
effectiveness of spread parameter and quote-to-trade ratios in
improving market quality, and alleged that the CSE was attempting to
codify a practice that violated the ITS Plan by permitting specialists
to disseminate computer-generated quotes, all forms of which, the NYSE
argued, were autoquoting. The NYSE acknowledged, however, in a letter
dated September 15, 1994, that ``the method of autoquoting in and of
itself is not the issue'' as much as the impact on market quality which
flows from it.\4\
\1\See letter from James K.C. Doran, NYSE, to David Colker, CSE,
dated December 22, 1994.
\2\See letter from James Buck, NYSE, to Jonathan Katz,
Secretary, SEC, dated May 16, 1994 (commenting on File No. SR-CSE-
94-01). This and other comment letters received by the Commission
regarding SR-CSE-94-01 and SR-CSE-94-11 are available in the public
file for this proposed rule change (File No. SR-CSE-95-1).
\3\The CSE withdrew SR-CSE-94-01 on December 22, 1994. See
letter from Robert Ackerman, to Sharon Lawson, SEC, dated December
22, 1994.
\4\See letter from James K.C. Doran, NYSE, to ITS Operating
Committee, dated September 15, 1994.
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The CSE responded in depth to the NYSE's earlier comments in a
letter dated July 29, 1994, and the Exchange incorporates, by
reference, that response here.\5\ Partly in response to industry
comment, the CSE withdrew SR-CSE-94-01 and replaced it with SR-CSE-94-
11, which has been withdrawn and replaced with this filing. In both of
the recent filings, the CSE has simplified its autoquote prohibition by
utilizing the language contained in Section 8(d)(ii) of the ITS Plan.
The CSE believes that the elimination of autoquoting, as proposed by
the CSE, will contribute significantly to the transparency and
liquidity of the national market system without stifling the benefits
of competition and technical innovation.
\5\See letter from David Colker, CSE, to Jonathan G. Katz,
Secretary, SEC, dated July 29, 1994.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such other period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the CSE. All
submissions should refer to File No. SR-CSE-95-01 and should be
submitted by February 21, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2267 Filed 1-30-95; 8:45 am]
BILLING CODE 8010-01-M
