[Federal Register Volume 62, Number 230 (Monday, December 1, 1997)]
[Notices]
[Pages 63578-63580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31394]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39342; File No. SR-CHX-97-29]
Self-Regulatory Organizations; Notice of Filing of and Order
Granting Accelerated Approval to Proposed Rule Change by the Chicago
Stock Exchange, Incorporated Relating to a Policy of the Specialist
Assignment and Evaluation Committee
November 21, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 27, 1997, 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 and II 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 and to grant accelerated approval to the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Article XXX, Rule 1, Interpretation
and policy .01 to amend the current one-year pilot program concerning a
policy of the Exchange's Committee on Specialist Assignment and
Evaluation (``CSAE'') relating to the time periods for which a co-
specialist must trade a security before deregistering as the specialist
for the security. This change would be in effect for the remainder of
the current one-year pilot program.
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 III 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
On September 8, 1997, the Commission approved a rule change on a
one year pilot basis relating to the time periods for which a co-
specialist must trade a security before deregistering as the specialist
for the security.\2\ The pilot program currently expires on September,
1998. The purpose of the proposed rule change is to make a slight
modification to this pilot program.
---------------------------------------------------------------------------
\2\ See Securities Exchange Act Release No. 39028 (September 8,
1997), 62 FR 48329.
---------------------------------------------------------------------------
The Exchange's CSAE is responsible for, among other things,
appointing specialists and co-specialists and conducting deregistration
proceedings
[[Page 63579]]
in accordance with Article XXX of the Exchange's rules.\3\ Seven
circumstances may lead to the need for assignment or reassignment of a
security.\4\ One such circumstance is by specialist request.
---------------------------------------------------------------------------
\3\ CHX Rules, Article IV, Rule 4.
\4\ CHX Rules, Article XXX, Rule 1, Interpretation and Policy
.01.
---------------------------------------------------------------------------
Currently, the CSAE will initiate a reassignment proceeding if it
believes that such action is called for. Using this standard, the
CSAE's policy under the current one year pilot program is as follows:
For a security that was awarded to a co-specialist in competition,
such co-specialist is required to trade the security awarded in
competition for one year before being able to deregister in the
security if no other specialist will be assigned to the security after
posting. Two-years must elapse before an intra-firm transfer of the
issue (i.e., a transfer of the issue to another co-specialist in the
same specialist unit) is normally permitted without posting.
For a security that was awarded to a co-specialist without
competition, such co-specialist is required to trade the security
awarded without competition for a three month period before being able
to deregister in the security if no other specialist will be assigned
to the security after posting. A six-month time period must elapse
before an intra-firm transfer is normally permitted.
At this time, the Exchange believes that one aspect of the new
policy should be amended and one aspect should be clarified.
Specifically, the Exchange believes that the requirement that six
months elapse before permitting an intra-firm transfer of an issue that
was awarded without competition is too onerous. Instead, the Exchange
believes that, where the security was awarded without competition,
there should be no minimum time period before the intra-firm transfer
will be considered by the CSAE without posting. Because the security
was awarded without competition from any competing applicant from
another specialist unit, no one would be disadvantaged if the security
is transferred to another co-specialist in the same specialist unit
without waiting for six months to elapse, provided the transfer is to a
qualified co-specialist, which determination shall be made by the CSAE.
Without this change, a specialist unit might be tempted to return
the security to the cabinet (which can be done after only three months)
and having another co-specialist in the same unit apply to take it back
out, or, for less profitable issues, not apply for the security in the
first place. This change will further the Exchange's goal of increasing
the depth and liquidity of the market by encouraging specialists to
apply for issues that might otherwise remain in the cabinet.
Second, the Exchange would like to clarify the intra-firm transfer
policy when a security is awarded with competition. While the two-year
period is appropriate for permitting an intra-firm transfer without
posting, the Exchange believes that a specialist unit should be given
an opportunity for an intra-firm transfer after one year. As a result,
for securities awarded with competition, after one year has elapsed,
the CSAE will consider requests for an intra-firm transfer if the
security is posted, in order to permit other specialist units and co-
specialists to apply to trade the issue.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act \5\ in that it is designed to promote
just and equitable principles of trade, to remove impediments and to
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No comments were solicited or received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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. 552, will be available for inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such filing also will be available for inspection
and copying at the Exchange. All submissions should refer to file
number SR-CHX-97-29 and should be submitted by [insert date 21 days
from the date of publication].
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Commission has carefully reviewed CHX's proposed rule change
and has concluded, for the reasons set forth below, that the proposal
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and in particular, the requirements of Sections 6(b)(5) in that it is
designed to prevent fraudulent, manipulative acts and practices and to
promote just and equitable principles of trade, and to remove
impediments to and protect the mechanism of a free and open market and
to protect investors and the public interest.\6\
---------------------------------------------------------------------------
\6\ In approving this rule, the Commission notes that is has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission finds that the amended policy, as proposed, should
result in a reasonable balance between the interests of consistency and
continuity with respect to the trading of an issue by a particular
specialist and that of a specialist in having the flexibility to
deregister in an unprofitable issue. Under the pilot program as
approved in September, for a security that was awarded in competition,
a co-specialist wishing to transfer that issue to another co-specialist
in the firm before the two years had elapsed might find it easier to
deregister after one year and have another co-specialist in the
specialist unit apply for the issue again. Similarly, for a security
that was awarded without competition, a co-specialist would deregister
within three months to allow another co-specialist in the firm to apply
for the security again rather than have to wait the full six months.
The change will remove the need for deregistration prior to making an
intra-firm transfer.
Overall, the Commission concludes that the proposed changes are
minor but may encourage CHX specialists to register in additional
securities that might otherwise remain in the cabinet. This, in turn,
could add to the depth
[[Page 63580]]
and liquidity of the market for such additionally listed securities.
Finally, the Commission notes that the proposed change to the pilot
program does not alter the notification requirement to order entry
firms, and the effective date of a specialist's deregistration.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication notice
thereof in the Federal Register. This will permit the changes to be in
effect for as much of the pilot program as possible thereby allowing
CHX to better assess the effects of these changes to be assessed prior
to the expiration of the pilot. In addition, the rule change that
implemented the pilot program was published in the Federal Register for
the full comment period and no comments were received. Accordingly, the
Commission believes that it is consistent with Sections 6 and 19(b) of
the Act \7\ to accelerate approval of the proposed rule change.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f and 78s(b)(2).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-CHX-97-29) is hereby approved
on an accelerated basis.
\8\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CAR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31394 Filed 11-28-97; 8:45 am]
BILLING CODE 8010-01-M
