[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8402]
[[Page Unknown]]
[Federal Register: April 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33849; File No. SR-CSE-94-01]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
Cincinnati Stock Exchange, Inc. Relating to the Exchange's Policy
Governing Quality of Markets
April 1, 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 February
25, 1994, 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 the policy of the Exchange
governing the quality of its markets.
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 CSE has grown as a direct result of the mandate in section 11A
of the Act, 15 U.S.C. 78k-1, to modernize this country's securities
market. The CSE states that, through its automated trading system, the
National Securities Trading System (``NSTS''), the CSE has eliminated
the need for a physical, centralized trading floor, replacing it, and
all its attendant overhead, with an efficient, computerized auction
market which provides market information and trading interaction
equivalent to that provided on the traditional floors of the other
exchanges. The CSE also has replaced the specialist system with a
competing specialist/open book system. Finally, the CSE states that it
is the only exchange that provides automatic executions to other stock
exchanges in the Intermarket Trading System (``ITS''). According to the
CSE, this makes the CSE's quotes the firmest quotes in the national
market system.
The CSE is no longer the smallest regional stock exchange, having
recently passed both of its two closest regional rivals in trade and
share volume. Drawing upon the value of the CSE's preferencing
initiative and the strength of the Exchange's affiliation with the
Chicago Board Options Exchange, which manages the CSE's computer
facility, Cincinnati has experienced a fourfold growth in trade volume
and a threefold growth in share volume during the past two years. The
CSE currently receives seven to nine times as many ITS commitments to
trade from the primary market as it generates to the primary market, a
standard unmatched by any other regional exchange.
In order to continue this trend of increasing participation as a
competitive alternative marketplace in the national market system, the
CSE proposes to make two major changes to its quality of markets
policy. First, the Exchange proposes to eliminate the use of
autoquoting. The CSE will define autoquoting as the computerized
tracking of either the primary market quote or the national best bid or
offer. Elimination of autoquoting, in combination with the new spread
parameter policy described below, will encourage all CSE market makers
to make deeper, more competitive markets.
Consistent with its character as an electronic marketplace, the CSE
will permit its specialists to generate their quotes with computers as
long as they do not autoquote and as long as their quotes are
accessible. Accessibility will be defined by quantifiable standards
involving ITS inbound activity, price improvement, and the number of
quotes generated. In addition, all CSE market makers, whether they
generate their quotes automatically or manually, will be limited to a
specific number of quotes depending on the number of issues they trade
and the number of trades they produce.
The second change to the Exchange's quality of markets policy is a
proposal to narrow the maximum allowable quotation spread that may be
entered by a CSE specialist in a particular security to 125% of the
average of the three narrowest quotation spreads for that security then
being disseminated by the CSE and all the other ITS participant market
centers.\1\ The proposal also reaffirms the CSE's commitment to minimum
size quotations of 500 shares for ``active'' stocks (ie., stocks with
greater than five million shares of consolidated monthly volume) and
200 shares for ``inactive'' stocks. The CSE believes that its proposal
will make the CSE the most stringent of any regional exchange with
respect to its spread and size parameters.
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\1\The Commission has requested data from the Exchange showing
that the rule change will result in narrower maximum allowable
quotations spreads.
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In combination, the elimination of autoquoting and the narrowing of
allowable quotation spread parameters represent a serious commitment by
the CSE to improve the quality and credibility of its marketplace.
These changes will add liquidity to the national market system, provide
a better opportunity for order interaction, and improve the CSE's
ability to compete.
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
No written comments were solicited or received with respect to the
proposed rule change.
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, 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 CSE. All
submissions should refer to File No. SR-CSE-94--01 and should be
submitted by April 29, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8402 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M
