[Federal Register Volume 59, Number 26 (Tuesday, February 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2769]
[[Page Unknown]]
[Federal Register: February 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33562; File Nos. SR-CHX-93-23; SR-BSE-93-18; SR-PSE-94-
1; SR-Phlx-94-7]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc., et
al.; Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Changes Relating to an Extension of Pilot Program Which
Provides Price Protection of Limit Orders Executable After the Close of
Regular Trading Hours
February 1, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ the Chicago Stock Exchange,
Inc. (``CHX''), Boston Stock Exchange, Inc. (``BSE''), Pacific Stock
Exchange, Inc. (``PSE''), and Philadelphia Stock Exchange, Inc.
(``Phlx'') (collectively, the ``Regional Exchanges'') have filed with
the Securities and Exchange Commission (``Commission'') proposed rule
changes to extend the effectiveness of their respective pilot programs
relating to price protection of limit orders.\3\ The Exchanges have
requested accelerated approval of their respective proposals. The
Commission is publishing this notice to solicit comments on the
proposed rule changes from interested persons.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\The CHX and BSE filed amendments to their respective proposed
rule changes requesting that the Commission approve a three month
extension of their pilot programs on an accelerated basis. See
letter from David T. Rusoff, Attorney, Foley & Lardner, to Louis A.
Randazzo, Attorney, Branch of Exchange Regulation, Commission, dated
December 21, 1993; letter from Karen A. Aluise, Assistant Vice
President BSE, to Louis A. Randazzo, Attorney, Branch of Exchange
Regulation, Commission, dated December 21, 1993. In addition, the
Regional Exchanges have filed for permanent approval, as have the
New York Stock Exchange and the American Stock Exchange. See File
Nos. SR-CHX-93-23; SR-BSE-93-24; SR-PSE-94-2; SR-Phlx-94-8; SR-NYSE-
93-50; and SR-Amex-93-15.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Regional Exchanges propose to extend their respective pilot
programs relating to price protection of limit orders until April 30,
1994. The rule changes provide primary market protection to certain
limit orders trading at the limit price in a primary market's after-
hours trading session.\4\
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\4\On June 13, 1991, the Commission approved, on a pilot basis
File Nos. SR-MSE-91-11 ( in 1991, the CHX was named the Midwest
Stock Exchange or MSE), SR-BSE-91-04, SR-PSE-91-21, and SR-Phlx-91-
26, which amended the Exchange's respective Rules relating to price
protection of limit orders. See Securities Exchange Act Release No.
29297 (June 13, 1991), 56 FR 28191 (June 19, 1991) (order approving
File No. SR-MSE-91-11)(MSE Approval Order); Securities Exchange Act
Release No. 29301 (June 13, 1991), 56 FR 28182 (June 19, 1991) (BSE
Approval Order); Securities Exchange Act Release No. 29305 (June 13,
1991), 56 FR 28208 (June 19, 1991) (PSE Approval Order); and
Securities Exchange Act Release No. 29300 (June 13, 1991), 56 FR
28212 (June 19, 1991) (Phlx Approval Order). At that time, the New
York Stock Exchange (``NYSE'') had initiated its Off-Hours trading
(``OHT'') sessions. The NYSE OHT facility extends the NYSE's trading
hours beyond the 9:30 a.m. to 4 p.m. trading session to establish
two trading sessions: Crossing Session I and Crossing Session II.
Crossing Session I permits the execution of single-stock single-
sided closing price orders and crosses of single-stock closing price
buy and sell orders. Crossing Session II allows the execution of
crosses of multiple-stock aggregate-price buy and sell orders. See
Securities Exchange Act Release No. 29237 (May 24, 1991), 56 FR
24853 (May 31, 1991) (approving File Nos. SR-NYSE-90-52 and NYSE-90-
53). On August 2, 1991, The Commission approved a proposed rule
change by the American Stock Exchange, Inc. (``Amex'') to establish
a pilot extending its trading hours to establish an after-hours
trading facility that would permit the execution of: (1) Single-
sided closing-price orders; and (2) crosses of closing-price buy and
sell orders. See Securities Exchange Act Release No. 29515 (August
2, 1991), 56 FR 37736 (August 8, 1991) (approving File No. SR-AMEX-
91-15). The Exchange's procedures provide primary market protection
for customer GTX orders (good until cancelled, executable in the
afternoon session) in securities listed both on the NYSE and on the
Amex. The Commission approved extensions of the NYSE, Amex and CHX
pilots, as well as pilots by the PSE, Phlx and BSE until January 31,
1994. See Securities Exchange Act Release No. 32365 (May 25, 1993),
58 FR 31560 (June 3, 1993) (order granting accelerated approval to
File No.SAR-BSE-93-10); Securities Exchange Act Release No. 32363
(May 25, 1993), 58 FR 31558 (June 3, 1993) (order granting
accelerated approval to File No. SR-Amex-93-19); Securities Exchange
Act Release No. 32368 (May 25, 1993), 58 FR 31563 (June 3, 1993),
(order granting accelerated approval to File No. SR-MSE-93-6);
Securities Exchange Act Release No. 32367 (May 25, 1993), 58 FR
31570 (June 3, 1993) (order granting accelerated approval to File
No. SR-PSE-93-6); Securities Exchange Act Release No. 32364 (May 25,
1993), 58 FR 31574 (June 3, 1993) (order granting accelerated
approval to File No. SR-Phlx-93-16) and Securities Exchange Act
Release No. 32362 (May 25, 1993), 58 FR 31565( (June 3, 1993) (order
granting accelerated approval to File No. SR-NYSE-93-23).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In their filings with the Commission, the self-regulatory
organizations included statements concerning the purpose of and basis
for the proposed rule change and discussed any comments they 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
organizations have 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 Regional Exchanges are requesting a three month extension of
their respective pilot programs relating to price protection of limit
orders based on after-hours prints in a primary market. The pilot
programs require Exchange specialists to provide primary market
protection for those limit orders entered during an Exchange's primary
trading session which are designated as executable after the close of
the regular Exchange auction market trading session, known as ``GTX''
orders (``good until cancelled, executable in the afternoon session'').
The Regional Exchanges have provided the Commission with updated
reports describing their experience with the new rules.\5\ The
Commission will be reviewing those reports and new reports during the
three-month extension of the pilots.\6\
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\5\See letter from David T. Rusoff, Attorney, Foley & Lardner,
to Diana Luka-Hopson, Branch Chief, Commission, dated September 30,
1993; letter from Karen A. Aluise, Assistant Vice President, BSE, to
Diana Luka-Hopson, Branch Chief, Commission, dated September 17,
1993; letter from Michael D. Pierson, Seni0r Attorney, Market
Regulation, PSE, to Diana Luka-Hopson, Branch Chief, Commission,
dated January 6, 1994; letter from William W. Uchimoto, Vice
President and General Counsel, Phlx, to Louis A. Randazzo, Attorney,
Commission, dated January 13, 1994.
\6\In its orders approving the pilot programs, the Commission
requested that the Exchanges provide the Commission with specific
data regarding the operation of their respective after-hours pilots.
The Commission requested that the Exchanges report on, among other
things, GTX executions on its trading floor to ensure that their
specialists are not taking unfair advantage of information derived
regarding which orders on their books are designated GTX and the
priority among those orders. In addition, the Commission requested
that the Exchanges submit a report to the Commission describing
their experiences with the new rule during the pilot period. The
Commission requested that the following information (broken down by
month) be included in the reports: (1) Whether customers who have
entered GTX orders experienced any problems when they attempted to
cancel such orders; (2) whether the Exchange has experienced any
difficulties in monitoring the activities of specialists with regard
to determining their particular obligations to fill GTX orders; (3)
the number, if any, of GTX orders executed after the close of the
regular auction trading session pursuant to the new rule; (4) the
number, if any, of GTX orders that remain unexecuted after the
specialist has fulfilled his or her obligations in connection with
the new rule; (5) the number and percentage of good until cancelled
orders on the book that were designated ``GTX'' and thus eligible to
be filled; (6) whether the marketplace has experienced any increased
volatility during the last hour of the 9:30 a.m. to 4 p.m. trading
sessions after the initiation of the new rule; (7) whether there
were greater (wider) quote spreads during the last hour of the 9:30
a.m.to 4 p.m. trading session after the initiation of the new rule;
and (8) whether the Exchange or any specialist has given any special
guarantees to execute GTX orders over and above the requirements of
the new rule.
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2. Statutory Basis
The proposed rule changes are consistent with Sections 6(b)(5) and
11A of the Act in that they are designed to promote just and equitable
principles of trade, perfect the mechanism of a free and open national
market system, and, in general, further investor protection and the
public interest in fair and orderly markets on national securities
exchanges.
B. Self-Regulatory Organization's Statement on Burden on Competition
The exchanges believe that no burdens will be placed on competition
as a result of the proposed rule changes.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No comments were received on the proposed rule changes.
III. 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, NW., Washington, DC 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 Room, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the filing will also be available for inspection
and copying at the principal offices of the CHX, BSE, PSE and Phlx. All
submissions should refer to File Nos. SR-CHX-93-23, SR-BSE-93-18, SR-
PSE-1 and SR-Phlx-94-7, and should be submitted by March 1, 1994.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the Regional Exchanges' proposals to
extend their respective pilot programs, until April 10, 1994, to
provide price protection of limit orders executable after the close of
regular trading hours 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
proposals are reasonably designed to promote just and equitable
principles of trade, perfect the mechanism of a free and open market
and a national market system, and, in general, further investor
protection and the public interest in fair and orderly markets on
national securities exchanges. For these reasons, as discussed in more
detail below and in the original approval orders, the Commission finds
that approval of the proposed rule changes, for a temporary period
ending on April 30, 1994, is consistent with the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and in particular, with the requirements of Section 6 of the Act.\7\
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\7\15 U.S.C. 78f (1988).
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In the Commission's release approving the NYSE's OHT facility, the
Commission noted the benefits that would accrue to investors through
the development of an after-hours trading session.\8\ Although the
Regional Exchanges' proposals did not establish after-hours sessions
identical to that of the NYSE, the Commission believes that they
provide a reasonable competitive response. By allowing GTX orders that
would be executed on the NYSE to receive a similar fill on the
Exchanges, the proposal is providing a mechanism for maintaining its
own individual marketplace on a competitive level with the primary
market.\9\
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\8\See Securities Exchange Act Release No. 29237, supra note 4.
\9\In addition to extending the after-hours GTX pilot programs,
the Commission today is also approving proposals submitted by the
NYSE and Amex to extend, through April 30, 1994, their respective
pilot programs which provide for executions of securities during
after-hours trading sessions. Each of these pilot programs were
scheduled to expire on January 31, 1994. See File Nos. SR-NYSE-93-51
(filed on December 23, 1993) and SR-Amex-93-15 (filed on April 21,
1993).
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In the original approval and extension orders, the Commission
requested reports on the pilot programs, as well as weekly data.\10\
The Commission expects the Regional Exchanges to submit to the
Commission by March 15, 1994, updated reports concerning pilot activity
through February 28, 1994.\11\
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\10\See original approval orders and extension orders, supra
note 4.
\11\See supra note 6 for the information required to be provided
in the updated report.
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The Commission continues to expect the Regional Exchanges, through
use of their surveillance procedures, to monitor for, and report to the
Commission, any patterns of manipulation or trading abuses or unusual
trading activity resulting from these pilot programs. In addition, the
Commission continues to request that the Exchanges keep the Commission
apprised of any technical problems which may arise regarding the
operation of the pilot programs, such as difficulties in order
execution or order cancellation.
The Commission believes that it is reasonable to extend the pilot
programs until April 30, 1994, in order to provide the Commission with
an opportunity to continue to review the reports submitted by the
Exchanges. The Commission also will be considering the various requests
for permanent approval of these programs during the three-month
extensions.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register. The Commission
believes that accelerated approval of the proposal is appropriate in
order to allow the Exchanges' procedures to remain in place on an
uninterrupted basis. This will permit the Exchanges to continue to
compete with Crossing Session I of the NYSE's OHT facility, which in
turn should benefit investors and promote competition among markets.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act\12\ that the CHX, BSE, PSE, and Phlx proposed rule changes (CHX-93-
23, BSE-93-18, PSE-94-1, and Phlx-94-7) are hereby approved on a pilot
basis until April 30, 1994.
\12\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2769 Filed 2-7-94; 8:45 am]
BILLING CODE 8010-01-M
