[Federal Register Volume 64, Number 196 (Tuesday, October 12, 1999)]
[Notices]
[Pages 55324-55326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26525]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41922; File No. SR-CHX-99-11]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Partial Accelerated Approval of Proposed Rule Change by the
Chicago Stock Exchange, Incorporated Relating to Specialist Retention
Periods for Securities Traded on the Exchange
September 27, 1999.
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 August 19, 1999, the Chicago Stock Exchange, Incorporated (``CHX''
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 CHX. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons, and to approve that
portion of the proposal related to securities listed on the exchange on
an accelerated basis.
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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 make permanent a pilot program \3\
relating to the time periods for which a co-specialist must trade a
security listed on the Exchange prior to deregistering as the
specialist for that security as set forth in Article XXX, Rule 1,
Interpretation and Policy .01. The Exchange also proposes to adopt
separate co-specialist retention periods relating to the time periods
for which a co-specialist must trade a Nasdaq National Market (``NM'')
security, which are traded on the Exchange pursuant to unlisted trading
privileges, prior to deregistering as the specialist for that security.
The text of the proposed rule change is available at the CHX and the
Commission.
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\3\ The pilot program expired on September 8, 1999.
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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 CHX 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 VI below. The CHX 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
(a) Listed Securities: Interpretation and Policy .01 to Article
XXX, Specialists, Rule 1, Registration and Appointments, of the
Exchange's rules set forth the procedures for allocating and
reallocating securities among specialist units and co-specialists. The
Exchange's Committee on Specialist Assignments and Evaluation
(``CSAE'') is responsible for appointing specialists and co-specialists
\4\ and conducting deregistration proceedings in accordance with
Article XXX of the Exchange's rules. Several circumstances may lead to
the need for assignment or reassignment of a security.\5\ One of these
circumstances is by specialist request. Subsection 2 of Interpretation
and Policy .01 addresses the assignment and reassignment process when a
specialist requests deregistration in one or more of its assigned
securities. The Exchange amended Subsection 2 on a pilot basis in 1997
to specifically address the deregistration of co-specialists in
securities.\6\ Under the pilot program, a co-specialist awarded a
security in competition was required to trade that security for at
least one year before being able to deregister in the security, if no
other specialist will be assigned to the security after posting and
deregistration.\7\ In addition, generally, two years had to elapse
before an intra-
[[Page 55325]]
firm transfer of the issue (i.e., transfer of the issue to another co-
specialist within the same specialist unit) would be permitted without
posting. For securities awarded to co-specialists without competition,
a co-specialist was required to trade the security for three months
before being able to deregister in the security if no other specialist
would be assigned to the security after posting and deregistration.
Finally, no minimum time period was required to elapse before an intra-
firm transfer is permitted for non-competitive assignments.
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\4\ A specialist is a ``unit'' or organization that has
registered as such with the Exchange under Article XXX, Rule 1. A
co-specialist is an individual who has registered such under Article
XXX, Rule 1. See CHX Rules, Article XXX, Rule 1, Interpretation and
Policy .01.4(a).
\5\ CHX Rules, Article 1, Rule 1, Interpretation and Policy .01.
\6\ Securities Exchange Act Release No. 39028 (Sept. 8, 1997),
62 FR 48329 (Sept. 15, 1997); see also Securities Exchange Act
Release No. 40408 (Sept. 8, 1998), 63 FR 49375 (Sept. 15, 1998).
\7\ Posting means that all specialist are put on notice that the
security is available for reassignment.
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The pilot program was extended for another year in 1998.\8\ Based
on its success, the Exchange is requesting permanent approval of the
requirements of the program.\9\
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\8\ Securities Exchange Act Release No. 40408 (Sept. 8, 1998),
63 FR 49375 (Sept. 15, 1998).
\9\ Pursuant to the original approval order, the Exchange was
required to submit a report to the Commission describing its
experience with the pilot program after a one year period. The
Exchange submitted the required report and requested an extension of
the pilot program for an additional one year period. The Commission
again requested a report at the end of one year to further evaluate
the program. The Exchange recently submitted this report in
anticipation of this rule filing. See letter from Daniel J. Liberti,
CHX, to Katherine A. England, Assistant Director, Commission dated
July 7, 1999.
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(b) Nasdaq NM Securities. In addition to requesting permanent
approval of the provisions of the pilot program, the Exchange is also
proposing to adopt specific retention periods for co-specialists in
Nasdaq/NM securities. Because the number of Nasdaq/NM securities that
the Exchange can trade pursuant to unlisted trading privileges
(``UTP'') is limited,\10\ stock allocation issues relating to Nasdaq/NM
securities that are distinct from allocation issues relating to other
securities trade on the Exchange have developed. Specifically, because
of the existing 1,000 security limit on the total number of Nasdaq/NM
securities that can be traded UTP on an Exchange-wide basis, co-
specialists in Nasdaq/NM securities cannot acquire a new Nasdaq/NM
issue until they deregister in an issue they currently trade and that
security is removed from the list of Nasdaq/NM securities traded on the
Exchange. The current specialist deregistration rules, however, do not
provide the flexibility to quickly complete this procedure. In
addition, the current rules do not provide Nasdaq/NM specialist firms
sufficient flexibility to reallocate stocks awarded in competition
between co-specialists within the same specialist unit when a co-
specialist's stocks become active and volatile.\11\
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\10\ Securities Exchange Act Rel. No. 41392 (May 12, 1999), 64
FR 27839 (May 21, 1999).
\11\ In such a situation, a specialist unit might deem it to be
in the best interests of customers and the Exchange to transfer the
stock to another co-specialist within the same specialist unit that
is assigned to a fewer number of issues or is more experienced.
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To address these concerns, the Exchange is proposing to amend the
retention restrictions on co-specialists for Nasdaq/NM securities in
Interpretation and Policy .01 to Rule 1. The amended interpretation
will permit co-specialists in Nasdaq/NM issues to deregister in an
issue more quickly, to allow them to respond to market developments.
The proposed amended interpretation will also allow for easier transfer
of issues between co-specialists within a specialist unit.
Specifically, the proposed rule change specifies no minimum retention
periods for Nasdaq/NM issues. In addition, and, subject to the CSAE's
continuing authority, the proposal will also permit co-specialists in
Nasdaq/NM securities to deregister at any time after providing at least
five calendar days notice to order sending firms, and allow intra-firm
transfer of Nasdaq/NM securities awarded in competition without a
mandatory retention period.\12\
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\12\ There is currently no minimum retention period for intra-
firm transfers of securities awarded without competition. See
Article XXX, Rule 1, Interpretation and Policy .01.
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The Exchange intends to ensure that there will be no disruption to
the marketplace as a result of relaxed stock retention requirements.
The Exchange believes that its recently filed rule change increasing
the fee for such transfer to $2,000 will prevent disruptive serial
transfers and deregistrations that have not been carefully contemplated
by the specialist.\13\
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\13\ Securities Exchange Act Release No. 41569 (June 28, 1999),
64 FR 36726 (July 7, 1999).
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Finally, the proposed amendments relating to Nasdaq/NM securities
will only be effective for so long as there is a limit upon the number
of Nasdaq/NM issues that can be traded UTP on the Exchange. If the
Commission eliminates this limitation, Nasdaq/NM issues and the co-
specialists maintaining Nasdaq/NM issues will be subject to the regular
retention periods applicable to all other issues traded on the
Exchange.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act \14\ in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons regulating securities transactions, 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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\14\ 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 completion.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited or received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Exchange has requested accelerated approval of the proposed
rule filing relating to listed securities. The CHX points out that this
portion of the proposed rule change has existed as a pilot for
approximately two years, and was previously published in the Federal
Register and subject to notice and comment. The Exchange believes that
the program provides a benefit both to specialists and the investing
public by permitting specialists to add or deregister as a specialist
in an orderly manner. In light of this, and the fact that the portion
of the proposed rule change related to listed securities has already
been subject to notice and comment, the Exchange believes that
accelerated approval is appropriate in order to reactivate this program
on a permanent basis.
With regard to that portion of the proposed rule change related to
Nasdaq NM securities, within 35 days of the date of 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 that portion of the proposed rule change
related to Nasdaq NM securities, or
b. Institute proceedings to determine whether the portion of the
proposed rule change related to Nasdaq NM securities should be
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,
[[Page 55326]]
including whether the proposed rule change is consistent with the Act.
Persons making written submissions should file six copies thereof with
the Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, DC 20549-0609. Copies of the submissions, 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. 522, will be
available for inspection and copying in the Commission's Public
Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the CHX. All
submissions should refer to the File No. SR-CHX-99-11 and should be
submitted by November 2, 1999.
V. Commission Findings and Order Granting Accelerated Approval of
the Propose Rule Change
The Commission finds that the portion of the proposed rule change
relating to specialist retention periods for listed securities traded
on the Exchange is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange. Specifically, the Commission believes that the proposal is
consistent with the Section 6(b)(5) \15\ requirements that the
Exchange's rules be designed to promote just and equitable principles
of trade, to remove impediments to and perfect the mechanism of a free
and open market and, in general, to protect investors and the public
interest.\16\
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\15\ 15 U.S.C. 78o(b)(5).
\16\ In approving this rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission finds good cause for approving the portion of the
proposed rule change relating to listed securities prior to the
thirtieth day after the date of publication of notice in the Federal
Register. The Commission believes that accelerated approval will
promote continuity in specialist retention practices relating to listed
securities, as conducted under the recently expired pilot program. In
addition, the Commission specifically notes that the pilot program was
previously published in the Federal Register and operated for several
years without comment from the industry or the investing public.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the portion of the proposed rule change (File No. SR-CHX-
99-11) relating to listed securities traded on the CHX is hereby
approved on an accelerated basis
\17\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12.
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-26525 Filed 10-8-99; 8:45 am]
BILLING CODE 8010-01-M
