[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32870-32872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16165]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37327; File No. SR-CHX-96-15]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Incorporated Relating To
Assignment and Reassignment of NASDAQ/NMS Issues
June 19, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 16, 1996, the Chicago
Stock Exchange, Inc. (``CHX'' 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.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend interpretation and policy .01 of
Rule 1 of Article XXX relating to assignments and reassignments of
Nasdaq National Market (``NM'') securities. Below is the text of the
proposed rule change. Proposed new language is italicized:
CHICAGO STOCK EXCHANGE RULES
ARTICLE XXX
Specialists
Registration and Appointment
Rule 1.
* * * Interpretations and Policies
.01 Committee on Specialist Assignment & Evaluation.
Assignment Function
I. Events Leading to Assignment Proceedings
Pursuant to Article XXX, Rules 1 and 8, the Committee may, when
circumstances require, assign or reassign a security. Seven
circumstances may lead to the need for assignment or reassignment of
a security. They are:
1. New listing or obtaining unlisted trading privilege;
2. Specialist request;
3. Corporation request;
4. Split-up and/or merger of specialist units;
5. Fundamental change of specialist unit;
6. Unsatisfactory performance action; or
7. Disciplinary action.
The following guidelines have been adopted by the Committee for
its use in the assignment or reassignment of stocks among
specialists and co-specialists. These guidelines set forth the
general policy of the Committee concerning the posting and
allocation of stocks. They are not, however, rigid rules to be
strictly followed regardless of unique circumstances. These
guidelines form only the starting point of the Committee's
deliberations; they will be applied in light of the facts in each
individual case.
1. New Listing--Unlisted Trading Privilege.
(a) Initial listing of a security or obtaining unlisted trading
privileges from the S.E.C. for a security will lead automatically to
an assignment proceeding..
(b) Nasdaq/NM Securities--Subsequent Exchange Listing..
(i) Initial 100 stocks in Nasdaq/NM Pilot. In the event that one
of the initial 100 Nasdaq/NM Securities currently assigned to a
specialist unit under the Exchange's Nasdaq/NM Pilot Program becomes
a Dual Trading System issue, the Committee will utilize the
following guidelines in determining whether the security should be
posted and re-assignment proceedings should be initiated or whether
the specialist unit should be allowed to continue as the specialist
unit for the security:.
(A) If the specialist unit has designated the security as a
security that the specialist unit desires to continue to trade as a
Dual Trading System Issue (``Non-Reassignment Issue''), the
Committee, under normal circumstances, will not post the security or
initiate re-assignment proceedings. Each specialist unit may
designate five (5) issues as Non-Reassignment Issues under this
paragraph (A), which designation may be changed no more than once a
year. In the event that a Non-Reassignment Issue becomes a Dual
Trading System issue, the total number of stocks that the specialist
unit can designate as a Non-Reassignment Issue will be decremented.
For example, if 2 Non-Reassignment Issues become Dual Trading System
Issues, the specialist will only be able to designate a total of
three (3) issues as Non-Reassignment Issues going forward..
(B) If the specialist unit has not designated the issues as a
Non-Reassignment Issue, the specialist unit can nonetheless
designate its interest to continue to trade the issue as a Dual
Trading System Issue. Such designation can only be made for one out
of every three Nasdaq/NM issues that the specialist unit trades that
becomes a Dual Trading System Issue. If such designation is made by
the specialist, the Committee, under normal circumstances, will not
post the issue or initiate re-assignment proceedings. If no such
designation is made by the specialist, the Committee will post the
issue and initiate re-assignment proceedings. In such event, the
specialist unit trading the issue will not be eligible to apply for
the security in such proceedings. The specialist unit cannot
accumulate the number of stocks for designation. If the specialist
unit does not make such designation for any of three consecutive
issues that become Dual Trading System issues, he or she cannot
carry forward the unused designation.
(ii) All other Nasdaq/NM Stocks. In the event that a Nasdaq/NM
Security (other than a security described in (i) above) currently
assigned to a specialist unit becomes a Dual Trading System issue
within one year of the date that the specialist unit began trading
the security, the security will be posted and the Committee will
initiate a re-assignment proceeding for such security. In the event
that such security becomes a Dual Trading System issue more than one
year after the date the specialist unit began trading the security,
the Committee will utilize the following guidelines in determining
whether the security should be posted and re-assignment proceedings
commenced or whether the specialist unit should be allowed to
continue as the specialist without posting the security:
(A) If the specialist unit has designated the security as a Non-
Reassignment Issue, the Committee, under normal circumstances, will
not post the security or initiate re-assignment proceedings. Each
specialist unit may designate 20% of the Nasdaq/NM securities (not
including the securities described in (i) above) assigned to such
specialist unit as Non-Reassignment Issues under this paragraph (A),
which designations may be changed no more than once a year.
(B) If the specialist has not designated the issue as a Non-
Reassignment Issue, the specialist may nonetheless designate its
interest to continue to trade the issue as a Dual Trading System
issue, and the procedures set forth in (i)(B) above shall apply to
such issue.
(iii) Nothing contained in this paragraph 1(b) shall be
construed to limit or modify the authority of the Committee pursuant
to the other provisions of this Rule.
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
[[Page 32871]]
Sections A, B, and C below, of the most significant aspects of these
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 1987, the Commission approved the trading of Nasdaq/NM
Securities (previously known as NASDAQ/NMS Securities) on the Exchange
on a pilot basis.\2\ When these stocks were initially allocated, the
Exchange's Committee on Specialist Assignment and Evaluation (``CSAE'')
established certain guidelines for assignment on Nasdaq/NM stocks.
These guidelines required a firm that desired to trade these stocks to
assign a separate co-specialist that only trades Nasdaq/NM stocks. As a
result, only a small number of firms could receive allocations of
Nasdaq/NM stocks. In part because of this limitation, the CSAE also
determined to re-post any Nasdaq/NM stocks when they list on an
exchange.
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\2\ See Securities Exchange Act Release Nos. 24407 (April 29,
1987), 52 FR 17349 (May 7, 1987) (Order Approving Proposed Reporting
Plan for National Market System Securities Traded on an Exchange);
24406 (April 29, 1987), 52 FR 17495 (May 8, 1987) (Order granting
Unlisted Trading Privileges (``UTP'') in 25 issues).
The Commission notes that prior to the enactment of the UTP Act
of 1994 (``UTP Act''), Section 12(f) of the Act required exchanges
to apply to the Commission, and receive Commission approval of the
exchange's application, before extending UTP to a particular
security. When an exchange ``extends UTP'' to a security, the
exchange allows its members to trade the security as if it were
listed on the exchange. The Commission was required to provide
interested parties with at least ten days notice of the application
and the Commission had to determine whether the extension of UTP to
each security named met certain criteria. If so, the Commission
published an approval order in the Federal Register. Accordingly,
Exchange Interpretation and Policy .01 of Rule 1 of Article XXX
reflects this statutory scheme in that it references ``obtaining''
UTP from the Commission. The UTP Act, however, removed the
application, notice, and Commission approval process from Section
12(f) of the Act. For this reason, the Commission requests that the
Exchange submit a rule proposal that approximately amends Exchange
Interpretation and Policy .01 of Rule 1 to reflect the current
statutory scheme.
In addition, the Commission notes that NASDAQ/NMS Securities are
now known as Nasdaq/NM Securities and, therefore, requests that the
Exchange submit a rule proposal that amends all appropriate Exchange
Rules and Interpretation to reflect this new terminology.
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Because of the recent expansion \3\ of the number (from 100 to 500)
of Nasdaq/NM securities that are eligible for trading on the CHX, the
Exchange believes that a more equitable balance is needed between the
ability of the current specialist firm in the Nasdaq stock to continue
to trade the stock after it lists on an exchange and other specialists
that desire to trade the stock. Thus, the purpose of the proposed rule
change is to amend the Exchange's allocation policy in order to achieve
this equitable balance.
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\3\ See Securities Exchange Act Release Nos. 28146 (Jun. 26,
1990), 55 FR 27917 (Jul. 6, 1990) (Order Expanding the Number of
Eligible Securities to 100); 36102 (Aug. 14, 1995), 60 FR 43626
(Aug. 22, 1995) (Order Expanding the Number of Eligible Securities
to 500).
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Under the proposed policy, the 500 Nasdaq/NM stocks that are
eligible for trading on the CHX would be divided into two groups: the
100 original issues and the 400 recently added issues.
100 Original Issues
A specialist unit that traded one or more of the original 100
Nasdaq/NM issues would be permitted to designate up to 5 of these
issues as ``Non-Reassignment Issues.'' In the event that a Non-
Reassignment Issue became listed, i.e., a Dual Trading System
issues,\4\ CSAE under normal circumstances would not post the issue for
reassignment. Instead, the existing Nasdaq/NM specialist unit would be
permitted to continue to trade the issue assuming the proposed co-
specialist for the issue is qualified. A specialist unit could change
the issues it designates as Non-Reassignment Issues once a year. Every
time a Non-Reassignment Issue becomes a Dual Trading System issue,
however, the total number of stocks that the specialist unit can
designate as a Non-Reassignment Issue is decremented.
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\4\ According to the Exchange, Dual Trading System Issues are
issues that are traded on the CHX and listed on either the New York
Stock Exchange or American Stock Exchange. Telephone conversation on
June 5, 1996 between David T. Rusoff, Attorney, Foley & Lardner, and
George A. Villasana, Attorney, Division of Market Regulation, SEC.
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For all other Nasdaq/NM issues that are part of the initial 100
issues, a specialist unit can nonetheless designate its interest to
continue trading the issue as a Dual Trading System issue. This
designation can only be made at the time that an issue becomes a Dual
Trading System issue and can only be made for one out of every three
issues that the specialist unit trades that becomes a Dual Trading
System issue. If the designation is made, the CSAE, under normal
circumstances, will not post the issue or initiate reassignment
proceedings. If a designation is not made, the issue will be posted and
reassignment proceedings will commence. The specialist unit that traded
the issue will not be eligible to apply for the security in these
proceedings. Finally, if the specialist unit does not make this
designation for any of three consecutive issues that become Dual
Trading System issues, he or she cannot carry forward the unused
designation.
Other Nasdaq/NM Securities
A specialist unit that trades Nasdaq/NM securities that are not
part of the original 100 issues will be permitted to designate 20% of
the Nasdaq/NM securities assigned to that specialist unit (excluding
the original 100 Nasdaq/NM securities) as Non-Reassignment Issues.
For all other Nasdaq/NM securities, the specialist can designate
its interest to continue trading the issue as a Dual Trading System
issue. This designation can also only be made at the time an issue
becomes a Dual Trading System issue and can also only be made for one
out of every three issues that the specialist unit trades that becomes
a Dual Trading System issue. This designation will operate in the same
manner as the similar designation described above for the original 100
issues.
Finally, this proposed rule change does not limit or modify the
authority of the CSAE granted to the CSAE under any other provision of
Rule 1 of Article XXX.
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 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 either solicited or received.
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 longer 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:
[[Page 32872]]
(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, N.W., 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. 552, will be available for inspection and copying at the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principle office of the
Exchange. All submissions should refer to File No. SR-CHX-96-15 and
should be submitted by July 16, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16165 Filed 6-24-96; 8:45 am]
BILLING CODE 8010-01-M
