[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30909-30911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14689]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38699; File No. 4-208]
Intermarket Trading System; Order Approving Twelfth Amendment to
the Restated ITS Plan Relating to Amending the Pre-Opening Application,
Deleting Text No Longer Applicable, and Making Technical Amendments
May 30, 1997.
I. Introduction
On January 31, 1997, the Intermarket Trading System (``ITS'')
submitted to the Securities and Exchange Commission (``Commission'') an
amendment to the Restated ITS Plan (``Plan'') pursuant to Section 11A
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 11Aa3-2
thereunder \2\ to amend the Pre-Opening Application, to delete text no
longer applicable, and to make technical amendments.\3\ The proposed
plan amendment was published for comment in Securities Exchange Act
Release No. 38520 (April 17, 1997), 62 FR 19846 (April 23, 1997). No
comments were received on the proposal. For the reasons discussed
below, the Commission is approving the proposal.
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\1\ 15 U.S.C. 78k-1.
\2\ 17 CFR 240.11Aa3-2.
\3\ The ITS, a communications and order routing network linking
eight national securities exchanges and the electronic over-the-
counter (``OTC'') market operated by the National Association of
Securities Dealers, Inc. (``NASD''), is a National Market System
(``NMS'') plan approved by the Commission pursuant to Section 11A of
the Act and Rule 11Aa3-2 thereunder. The ITS was designed to
facilitate intermarket trading in exchange-listed equity securities
based on current quotation information emanating from the linked
markets.
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Participants to the Plan include the American Stock Exchange, Inc.
(``Amex''), the Boston Stock Exchange, Inc. (``BSE''), the Chicago
Board Options Exchange, Inc. (``CBOE''), the Chicago Stock Exchange,
Inc. (``CHX''), the Cincinnati Stock Exchange, Inc. (``CSE''), the
National Association of Securities Dealers, Inc. (``NASD''), the New
York Stock Exchange, Inc. (``NYSE''), the Pacific Stock Exchange, Inc.
(``PSE''), and the Philadelphia Stock Exchange, Inc. (``PHLX'').
II. Description
The purpose of the proposed changes to the Plan is amend the Pre-
Opening Application, to delete text relating to the NASD Pilot Phase
and the ITS/Computer Assisted Execution System (``CAES'') Linkage, and
the National Security Trading System (NSTS'')/ITS Automated Linkage,
which by their terms are no longer applicable, and to make technical
amendments. The current Pre-Opening Application sections of the Plan
trigger the use of the Pre-Opening Application whenever an ``indication
of interest'' (i.e., an opening price range) is sent to the
Consolidated Tape Association (``CTA'') Plan Processor prior to the
opening of trading in the relevant security or prior to reopening of
trading in the relevant security following the declaration of a trading
halt for certain defined reasons, even if the anticipated opening or
re-opening price is not greater than the ``applicable price change.''
The current Pre-Opening Application sections provide that the Pre-
Opening Application applies when an indication
[[Page 30910]]
of interest is disseminated following five defined trading halt
situations; reopenings following order imbalance, order influx,
equipment changeover, news pending and news dissemination, and for a
delay opening.
Under the proposed amendment, the Pre-Opening Application would not
also be triggered when indications of interest are disseminated in
situations other than those five defined trading halts, including the
resumption of trading following the activation of market-wide circuit
breakers. In particular, the proposed amendment deletes the definition
of ``Trading Halt,'' which is limited to the five defined trading halt
situations mentioned above,\4\ and replaces all references to ``Trading
Halt'' with ``halt or suspension in trading.'' As a result, one
standard procedure would then govern all trading halt situations and
would include suspensions of trading pursuant to circuit breakers.
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\4\ Mention of the five defined terms is also deleted from
Section 7(a) of the Plan.
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The proposed Plan amendment replaces ``NASD Market Services, Inc.''
with ``The Nasdaq Stock Market, Inc.,'' and ``MSI'' with ``Nasdaq,'' to
reflect the reorganization of the NASD. The amendment also deletes
references to and language regarding the operation of the ITS/CAES
linkage during the NASD Pilot Phase; restrictions of the participation
of the ITS/CAES market makers in the ITS during the Pilot Phase,
including the number of ITS/CAES securities the market makers can trade
through the ITS during the Pilot; and descriptions of the NASD Pilot
Phase, including entire Section 10(d).
The amendment to the Plan deletes reference to the limitations on
ITS/CAES third market commitments to sell short until the CAES is
modified to permit compliance with SEC Rule 10a-1 (the short sale
rule). In connection with this limitation, the proposed amendment to
the Plan deletes the body of Section 8(f)(vi) of the Plan, which states
that the NASD is to enhance CAES prior to the Pilot Phase to permit
execution of commitments to sell short routed through the CAES Switch
in compliance with SEC Rule 10a-1, and also deletes mention in Section
8(b) of the Plan of this short sale limitation. In addition, the
amendment deletes the limitation on commitments to trade in ITS in
Section 8(a)(iii) of the Plan, which states that the commitments can
only originate from an ITS/CAES third market maker during the two year
Pilot Phase, and then the NASD has to determine how they will be
handled, pursuant to Section 10(d) of the Plan.
The proposed Plan amendment deletes references and language
pertaining to first and second anniversaries of the NSTS/ITS Automated
Linkage (``CSE Linkage'') Commencement Date (which was April 1, 1986),
and the restrictions that applied to the CSE Linkage during that period
between the commencement date and the first or second anniversary. The
amendment deletes Sections 10(e)(ii) (A) and (B) of the Plan, which
discuss the capacity relief and terminal interface costs of the CSE
Linkage; language relating to only Designated Dealers being able to
trade System securities; deletes language in Section 8(a)(ii) of the
Plan that says for the two years following the CSE Linkage Commencement
Date, NSTS Users can only use the ITS as to System securities assigned
to a Designated Dealer(s), except they can use ITS with regard to other
System securities that are traded on the CSE for the purpose of
complying with the CSE trade through and block trade policies adopted
by Sections 8(d) (ii) and (iii) of the Plan.
The proposed amendment deletes the body of Section 7(d) of the
Plan, which states that the 1990 revised Pre-Opening Application would
commence on a date that the operating committee specified, but no later
than the 60th day following Commission approval of the 1990 revision of
the Pre-Opening Application. The commencement date was August 5, 1991.
The proposed amendment deletes language regarding the limitations
on how to calculate the NSTS/ITS Outgoing Agency Interest, Originating
Agency Interest, and Incoming Dealer Executions (Incremental Constant)
before the ``contributing dealer adjustment date,'' which is the later
of one year from the anniversary of the CSE Linkage commencement date
or from a determination that ``Approved Dealer'' no longer excludes
Contributing Dealers as anticipated by Section 2(1A).\5\ The proposed
amendment also changes the ``second anniversary of the NSTS/ITS
Automated Linkage Commencement Date'' to ``April 1, 1986,'' in sections
8(e)(iv)(A)(6) and 8(e)(iv)(B) of the Plan. The proposed amendment also
makes several technical changes to the Plan.
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\5\ This language is found in Section 8(e)(iv) of the Plan,
titled ``Operational Parameters for NSTS/ITS Automated Linkage.''
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III. Discussion
The Commission finds that the proposed amendments to the Plan are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national market system plan,
and, in particular, with the requirements of Section 11A.\6\ In
particular, the Commission believes the proposal is consistent with the
Sections 11A(a)(1) (C)(ii) and (D) \7\ requirements with provide for
fair competition among the ITS Participants and their members, and the
linking of all markets for qualified securities through communications
and data processing facilities which foster efficiency, enhance
competition, increase the information available to brokers, dealers,
and investors, facilitate the offsetting of investors' orders, and
contribute to the best execution of such orders. The Commission also
finds that the amendment is consistent with Rule 11Aa3-2(c)(2) \8\
which requires the Commission to determine that the amendment is
necessary and appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market system
or otherwise in furtherance of the purposes of the Act.
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\6\ 15 U.S.C. 78k-1.
\7\ 15 U.S.C. 78k-1(a)(1) (C)(ii) and (D).
\8\ 17 CFR 240.11Aa3-2(c)(2).
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The Commission believes that the proposed amendments to the Pre-
Opening Application portions of the Plan are consistent with the act
because they will facilitate transactions in securities while
continuing to further investor protection and the public interest, by
enhancing the linkage among all ITS Participant Markets and promoting
coordinated openings and reopenings in ITS securities. The proposed
Plan amendment achieves these goals by amending the Pre-Opening
Application so that one standard procedure governs all trading halt
situations, including circuit breaker halts.\9\
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\9\ The Commission published for notice and comment the proposed
rule changes by the nine Plan Participants to amend their respective
Pre-Opening Application rules, and the Commission is approving those
proposed rule changes the same day as this Plan approval order.
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The Commission believes that the changes to the Plan relating to
references to and language regarding the operation of the ITS/CAES
linkage during the NASD Pilot Phase, references to and language
pertaining to the restrictions that applied to the CSE Linkage during
the period between the commencement date and the first or second
anniversary of that commencement date, and to the commencement of the
1990 revisions to the Pre-Opening Application, are reasonable and
consistent with the Act
[[Page 30911]]
in that they are no longer applicable by their terms because the time
periods have expired.
The Commission also notes that the proposal provides additional,
technical amendments to the Plan consistent with the ITS's purpose of
facilitating intermarket trading in exchange-listed equity securities.
IV. Conclusion
It Is Therefore Ordered, pursuant to Section 11A(a)(3)(B) of the
Act,\10\ that the amendment be, and hereby is, approved.
\10\ 15 U.S.C. 78k-1(a)(3)(B).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14689 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M
