[Federal Register Volume 59, Number 62 (Thursday, March 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7646]
[[Page Unknown]]
[Federal Register: March 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33806; File No. SR-CHX-94-03]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange,
Inc. To Publish a Policy Concerning Instinet Terminals on the CHX Floor
March 23, 1994.
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 March 3,
1994, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
amended proposed rule change as described in Items I, II and III
below,\1\ 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.
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\1\The CHX initially filed the instant proposed rule change on
January 31, 1994. The CHX subsequently filed Amendment No. 1 on
March 3, 1994 in which it clarified the intent of the Exchange that
all orders, resulting from interest reflected in the Instinet
terminals, must be executed in accordance with the CHX auction
market rules of priority, parity and precedence. See letter from J.
Craig Long, Foley & Lardner, to Sharon Lawson, Assistant Director,
Division of Market Regulation, Commission, dated March 2, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Chicago Stock Exchange, Incorporated (``CHX'' or ``Exchange'')
has issued the Notice to Members which constitutes a stated policy
requiring that any orders received or originated on the floor clear the
post prior to execution.\2\ In sum, the Notice reinforces the status of
INC Trading Corporation (``INCT'') (an Instinet subsidiary) as an
exchange member, and as such, all executions resulting from bids and
offers reflected on Instinet terminals resident on the CHX floor
constitute ``orders'' which are ``communicated'' to the CHX floor.\3\
Therefore, all such orders are to be handled as any other order
communicated to the floor and must be presented to the post during
normal trading hours.
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\2\The Notice of Members is consistent with the clearing the
post requirement already adopted in Securities Exchange Act Release
Nos. 17766 (May 4, 1981), and 28638 (November 21, 1990). See also
CHX Article XXXIV; Rule 1; Article VIII, Rule 7; and Article XX,
Rule 10.
\3\The CHX emphasizes that all trades between Instinet and CHX
floor members are CHX trades and must be executed on the CHX.
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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 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 change is to publish to members an
existing Exchange policy concerning the use of Instinet terminals on
the CHX floor and the manner in which orders that result from interest
reflected in the Instinet system must be handled on the floor. Among
other things, the Notice to Members makes clear that all orders
resulting from interest reflected on Instinet terminals on the CHX
floor must be handled as any other order communicated to the floor. As
such, those orders must be presented to the post during normal trading
hours.
This clearing the post requirement is consistent with prior
Commission approval orders (Securities Exchange Act Release No. 17766
approving SR-MSE-81-3 and SR-MSE-81-5 and Securities Exchange Act
Release No. 28638 approving SR-MSE-90-7). These prior approval orders
explain the Exchange's clearing the post requirements. Although there
are differences in the requirements as they apply to market makers and
brokers, at a minimum, to preserve existing auction-market principles,
the Exchange's clearing the post rules require the broker or market
maker to be physically present at the post.
A Market Maker, after requesting the specialist's market quote,
must bid or offer the price and size of his intended interest at the
post. A Floor Broker must clear the post by requesting a market quote
from the specialist. If the specialist or any other member who has the
post indicates an interest to trade at the price that was bid or
offered by the market maker or the price of the floor broker's order
(even though that order has not yet been bid or offered), then the
trade may be consummated with the specialist (or whomever has the post)
in accordance with existing CHX priority, parity and precedence rules.
If the specialist (or any other member who has the post) indicates an
interest to trade at that price but the member communicating the
Instinet interest determines not to consummate the trade with the
specialist or such member, then, to preserve the Exchange's existing
priority, parity, and precedence rules, the trade may not be done with
any other CHX floor member. (See Article XXX, Rule 2.) If the trade is
consummated with the specialist or other member who has the post, the
specialist (or any customer represented by the specialist) is not
required to pay any fees to the broker or market maker in connection
with the execution of the order.
The Exchange's clearing the post policy derives from a floor
broker's fiduciary responsibility to seek the best price execution for
his or her order and from the responsibility of floor brokers and
market makers to adhere to traditional agency/auction market principles
on the floor. Failure to clear the post may result in a ``trade-
through'' or ``trading ahead'' of other CHX floor interest. (See
Article XX, Rule 40.) In addition, failure to properly clear the post
may result in a violation of the CHX Just and Equitable Trade
Principles Rule (Article VIII, Rule 7) and a market maker rule that
requires all market maker transactions to constitute a course of
dealing reasonably calculated to contribute to the maintenance of a
fair and orderly market (Article XXXIV, Rule 1).
The Notice to Members specifically provides that all orders
resulting from an interest on the Instinet terminal, once presented to
the specialist post, are to be treated as follows:
1. If the specialist indicates an interest to trade at the
price, then the trade must be consummated with the specialist
without requiring the specialist, or any customer order represented
by the specialist, to pay any fees in connection with the execution
of such order.
2. If the specialist indicates an interest to trade at the price
but the member communicating the Instinet interest determines not to
consummate the trade with the specialist, the trade may not be done
with any other CHX floor member.
3. If the specialist does not indicate an interest to trade,
then the trade may be done with another CHX floor member on this
floor with a resultant CHX print.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act 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.
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
The proposed rule change has been endorsed by the Exchange's Floor
Procedure Committee.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change constitutes a stated policy, practice or
interpretation with respect to the meaning, administration or
enforcement of an existing rule of the Exchange and therefore has
become effective pursuant to section 19(b)(3)(A) of the Act and
subparagraph (e) of rule 19b-4 thereunder. At any time within 60 days
of the filing of such proposed rule change, the Commission may
summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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, 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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the CHX. All
submissions should refer to File No. SR-CHX-94-03 and should be
submitted by April 21, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-7646 Filed 3-30-94; 8:45 am]
BILLING CODE 8010-01-M
