[Federal Register Volume 60, Number 102 (Friday, May 26, 1995)]
[Notices]
[Pages 28007-28008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12981]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35753; File No. SR-CHX-95-08]
Self-Regulatory Organizations; Chicago Stock Exchange,
Incorporated; Order Granting Approval to Proposed Rule Change and
Notice of Filing and Order Granting Accelerated Approval to Amendment
No. 1 Relating to Order Execution Guarantees
May 22, 1995.
I. Introduction
On March 2, 1995, the Chicago Stock Exchange, Incorporated (``CHX''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt new Rule 37(d), Article
XX to allow specialists on the Exchange to provide order execution
guarantees that are more favorable than those currently required under
CHX Rule 37(a), Article XX (``BEST Rule'')\3\ through the Exchange's
automated execution system (``MAX'').
\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
\3\See CHX 37(a), Article XX. [[Page 28008]]
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 35547 (Mar. 29, 1995), 60 FR 17375 (Apr. 5,
1995). No comments were received on the proposal. On April 13, 1995,
the Exchange submitted Amendment No. 1 to the proposed rule change.\4\
This order approves the proposed rule change, including Amendment No. 1
on an accelerated basis.
\4\See letter from David Rusoff, Foley & Lardner, to Glen
Barrentine, Senior Counsel, SEC, dated April 12, 1995. Amendment No.
1 amends the text of the proposed rule change and clarifies its
intent and scope.
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II. Description of Proposal
At the present time, under the BEST Rule, Exchange specialists are
required to guarantee executions of market and limit orders under
certain circumstances. Under the rule, specialists must accept and
guarantee execution of all agency orders, other than limit orders in
Nasdaq/NMS Securities, from 100 up to and including 2099 shares. For
all agency market orders, the specialist must fill the orders at the
best bid or best offer disseminated pursuant to Rule 11Ac1-1 under the
Act.\5\ For all agency limit orders in Dual Trading System issues,\6\
the specialist must fill the order if the bid or offer at the limit
price has been exhausted in the primary market, there has been a price
penetration of the limit in the primary market (trade through of a CHX
limit order), or the issue is trading at the limit price on the primary
market unless it can be demonstrated that such order would not have
been executed if it had been transmitted to the primary market or the
broker and specialist agree to a specific volume related or other
criteria for requiring a fill.
\5\17 CFR 240.11Ac1-1 (1994).
\6\The Dual Trading System of the Exchange allows the execution
of both round-lot and add-lot orders in certain issues assigned to
specialists on the Exchange and listed on either the New York Stock
Exchange or the American Stock Exchange.
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Moreover, pursuant to current Rule 37(b), Article XX, the
Exchange's MAX system provides for the automatic execution of orders
that are eligible for execution under the Exchange's BEST Rule as
discussed above and certain other orders as long as such orders are
less than or equal to the auto-execution threshold. The specialist must
set the auto-execution threshold at 1099 shares or greater on a stock-
by-stock basis.
The Exchange proposes to amend Rule 37, Article XX by adding new
subsection (d) to allow specialists to provide guarantees that are more
favorable than those required under the BEST Rule. Moreover, under Rule
37(d), the Exchange, at the request of a specialist, may provide for
automatic execution of orders through MAX in accordance with the
additional guarantees that the specialists decide to provide. The
Exchange expects to file with the Commission at a later time the
specific modifications to the parameters of the automated execution
system that are required to implement the additional guarantees.\7\
\7\Some examples provided by the Exchange of the different
options that may be available to specialists include SuperMAX and,
if reactivated, Enhanced MAX. See letter from David Rusoff, Foley &
Lardner, to Glen Barrentine, Senior Counsel, SEC, dated April 12,
1995.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\8\ The Commission
believes the proposal is consistent with the Section 6(b)(5)
requirements that the rules of an exchange be designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts, and, in general, to protect investors and the public
interest.
\8\15 U.S.C. 78f(b) (1988 & Supp. v 1993).
The Commission believes that the proposed rule change to allow
specialists to provide more favorable guarantees than those currently
required under CHX's Best Rule will benefit investors. For example,
public customers may benefit by receiving executions at a better price
or for a greater size than the minimum requirements under the Best
Rule. The Commission believes that the proposal also would enhance
competition on the Exchange by providing specialists with the
opportunity to compete based upon the additional guarantees they offer.
The Commission notes, however, that the Exchange has indicated that
this proposal is intended to be an ``enabling rule.'' Accordingly, the
Commission expects that the future filings proposing further
modifications to MAX will describe in detail the more favorable
guarantees being offered. Moreover, the Commission will review such
proposals to ensure that they do not detract from order exposure.
The Commission finds good cause for approving amendment No. 1 to
the proposed rule change prior to the thirteenth day after the date of
publication of notice of filing thereof. The Exchange's original
proposal was published in the Federal Register for the full statutory
period and no comments were received.\9\ Amendment No. 1 amends the
text of the rule to delete extraneous language and to make clear that
the guarantee is not ``promised'' to a particular individual, but
provided for issues chosen by the specialist. Moreover, Amendment No. 1
clarifies the intent and scope of the proposed rule change and the
options that the Exchange anticipates for the automated system.
\9\See Securities Exchange Act Release No. 35547 (Mar. 29,
1995), 60 FR 17375 (Apr. 5, 1995).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street NW., Washington,
D.C. 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. Sec. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street
NW., Washington, D.C. 20549. Copies of such filing will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-CHX-95-08 and
should be submitted by June 16, 1995.
V. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CHX-95-08) is approved.
\10\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.\11\
\11\17 CFR 200.30-34(a)(12) (1004).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12981 Filed 5-25-95; 8:45 am]
BILLING CODE 8010-01-M
