[Federal Register Volume 61, Number 111 (Friday, June 7, 1996)]
[Notices]
[Pages 29156-29158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14400]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37265; File No. SR-CHX-96-13]
Self-Regulatory Organizations; Order Granting Accelerated
Approval of Proposed Rule Change and Amendment No. 1 and Notice of
Filing and Order Granting Accelerated Approval of Amendment No. 2 by
the Chicago Stock Exchange, Incorporated Relating to the Modification
of the Hours of the Exchange's Primary Trading Session and the
Establishment of a Post Primary Trading Session
May 31, 1996.
I. Introduction
On April 9, 1996, the Chicago Stock Exchange, Incorporated (``CHX''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``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 modify the hours of the Exchange's Primary
Trading Session and to establish a Post Primary Trading Session. On May
10, 1996 the Exchange submitted to the Commission Amendment No. 1 to
the proposed rule change.\3\ The proposed rule change, as amended by
Amendment No. 1, was published for comment in Securities Exchange Act
Release No. 37204 (May 13, 1996), 61 FR 24988 (May 17, 1996). On May
29, 1996 the Exchange submitted Amendment No. 2 to the proposed rule
change.\4\ This order
[[Page 29157]]
approves the proposed rule change, as amended by Amendment Nos. 1 and
2, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from David T. Rusoff, Attorney, Foley & Lardner,
to Ivette Lopez, Assistant Director, Division of Market Regulation,
SEC, dated May 9, 1996 (``Amendment No. 1'').
\4\ See Letter from David T. Rusoff, Attorney, Foley & Lardner,
to Ivette Lopez, Assistant Director, Division of Market Regulation,
SEC, dated May 29, 1996 (``Amendment No. 2'') Amendment No. 2 amends
Article XX, Rule 2 to clarify that this rule also applies to the
Post Primary Trading Session and Interpretation and Policy .01 to
this rule to correct an inaccurate cross-reference. In addition,
Amendment No. 2 revises the proposed changes to Article IX, Rule
10(b) to clarify that if a security's primary market is the Pacific
Stock Exchange, Incorporated (``PSE''), the Primary Trading Session
for that security shall end no later than 3:00 p.m. (CT). Amendment
No. 2 also revises the proposed changes to Article IX, Rule 10(b) to
remove the extension of the Primary Trading Session for CHX
exclusive issues from 3:00 p.m. to 3:30 p.m. (CT) and to provide
that CHX exclusive issues are eligible for the Post Primary Trading
Session. Finally, Amendment No. 2 deletes a provision of proposed
Article XX, Rule 37, Interpretation and Policy .05 that would have
allowed a specialist to decline to accept, under certain
circumstances, orders entered during the Post Primary Trading
Session.
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II. Description
Currently, the Exchange's Primary Trading Session runs from 8:30
a.m. to 3:00 p.m. (CT), Monday through Friday. One purpose of the
proposed rule change is to amend Article XX, Rule 10(b) to conform the
Exchange's Primary Trading Session hours for each traded security to
the trading hours during which the security is traded on its primary
market.\5\ If a security's primary market is the CHX, the Primary
Trading Session for such security will continue to run from 8:30 a.m.
to 3:00 p.m. (CT).\6\
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\5\ The proposed rule change provides that for a security whose
primary market is the PSE, the Primary Trading Session for that
security shall end no later than 3:00 p.m. (CT). See Amendment No.
2, supra note 4.
\6\ See Amendment No. 2, supra note 4. The proposal, as
originally filed, would have changed the trading hours for
securities whose primary market is the CHX to 8:30 a.m.-3:30 p.m.
(CT). See Securities Exchange Act Release No. 37204 (May 13, 1996),
61 FR 24988 (May 17, 1996).
However, trading in the Chicago Basket, currently conducted on
the Floor of the Exchange from 8:30 a.m. to 3:15 p.m. (CT), will be
unaffected by the proposed rule change.
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The proposed rule change would also add a Post Primary Trading
Session (``PPS'') on the trading floor.\7\ The PPS for orders and
securities designated as eligible for the PPS would be for one-half
hour after the close of the regular trading session on the security's
primary market.\8\ Securities in which the CHX is the primary market
will be eligible for the PPS.
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\7\ The CHX represents that ITS will be available for both
inbound and outbound trades during the PPS to the extent that other
market centers (i.e., the PSE and the Philadelphia Stock Exchange,
Inc. (``Phlx'') are open for trading. The CHX also represents that
the PPS will be surveilled in the same manner and using the same
techniques as those used to surveil the Primary Trading Session. To
facilitate the surveillance of the PPS, CHX's surveillance staff
will remain on-site during the PPS and for any necessary additional
time period after the close of the PPS. See Letter from David T.
Rusoff, Attorney, Foley & Lardner, to Ivette Lopez, Assistant
Director, Division of Market Regulation, SEC, dated May 9, 1996
(``ITS/Surveillance Letter'').
\8\ For purposes of the PPS, the Exchange considers the close of
regular trading to occur at 3:00 p.m. (CT) with respect to
securities whose primary market is the PSE. Telephone conversation
between David T. Rusoff, Attorney, Foley & Lardner, and Jon Kroeper,
Attorney, SEC, dated May 31, 1996.
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Only orders designated as eligible for the PPS would be eligible
for execution during the PPS.\9\ Market, limit and contingent order
types currently acceptable would be accepted for PPS if so designated.
In this regard, GTX orders would only be accepted if specifically
designated as PPS-eligible. The Exchange's MAX System will not be
available as an automated execution system or as an automated routing
system during the PPS. As a result, order sending firms must contact a
floor broker in order to send an order to the CHX for execution during
the PPS.\10\ Because the PPS will be an extension of the Exchange's
daily auction market, all the Exchange's rules applicable to floor
trading during the Exchange's Primary Trading Session, as modified by
proposed Interpretation and Policy .05 of Rule 37, Article XX, will
continue to be applicable.\11\ For example, specialists will be
required to quote markets and trading will occur based on real-time
price and quote changes.
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\9\ The Exchange will require order tickets of PPS-eligible
orders to include an ``E'' designator, which will indicate that the
order is eligible for execution during the PPS. See ITS/Surveillance
Letter, supra note 7.
\10\ The CHX has represented that it has held a number of
meetings with its members in which it has explained the necessary
steps members must take in order to make orders eligible for
execution during the PPS. The CHX has represented further that it
will distribute a Notice to Members that will state, among other
things, that PPS orders may not be entered with a specialist prior
to 3:00 p.m. (CT) and orders entered during the Primary Trading
Session must be replaced after 3:00 p.m. (CT) with order tickets
bearing the ``E'' designator in order to be eligible for the PPS.
Telephone conversation between David T. Rusoff, Attorney, Foley &
Lardner, and Jon Kroeper, Attorney, SEC, dated May 31, 1996.
\11\ As part of the proposed rule change, the Exchange has moved
existing Interpretation and Policies .01-.03 of Rule 37(a), Article
XX, currently found at the end of subparagraph (a) of Rule 37, to
the end of Rule 37, and renumbered existing Interpretation and
Policy .01 of Rule 37 as Interpretation and Policy .04.
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To accomplish the foregoing, the Exchange is amending Article XX,
Rules 1 and 2 and Article XXI, Rule 1 to make it clear that these rules
also apply to the PPS.\12\ The Exchange is also amending Interpretation
and Policy .02 of Rule 37, Article XX to make it clear that although
GTX orders are executable after the close the PPS (i.e., in the
Exchange's Secondary Trading Session), they are executed based on
trading that occurs in a security in a primary market's after-hours
closing price trading session, at that closing price, and are not
executable based on trading in, or the closing price established in,
the PPS.\13\
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\12\ See Amendment Nos. 1 and 2, supra notes 3 and 4.
Article XX of the CHX Rules contains the Exchange's trading
rules. Article XX, Rule 1 currently states that the rules contained
in Article XX have general applicability to Exchange Contracts made
on the Exchange during the Primary Trading Session, and, to the
extent determined by the Exchange, to Exchange Contracts not made on
the Exchange. Article XX, Rule 2 currently states that no member or
member organization shall make any bid, offer or transaction upon
the Floor of the Exchange, issue an ITS commitment from the Floor,
or send an order in a Nasdaq National Market Security for execution
via telephone to a Nasdaq System market maker other than during the
Primary Trading Session, unless pursuant to the ITS Plan.
Article XXI, Rule 1 currently requires each Exchange member to
promptly advise the Exchange of each of his or her transactions that
are executed on the Floor of the Exchange during the Primary Trading
Session or through the Portfolio Trading System.
\13\ Therefore, under the proposed rule change, as amended, and
the rules of the other national securities exchanges, as of May 31,
1996: the Primary Trading Session will run from 8:30 a.m. to 3:00
p.m. (CT); the PPS will run from 3:00 p.m. to 3:30 p.m. (CT); and
the Secondary Trading Session will run from 3:30 p.m. to 5:00 p.m.
(CT).
For a description of operation of the Exchange's Secondary
Trading Session, see Securities Exchange Act Release No. 33991 (May
2, 1994), 59 FR 23904 (May 9, 1994) (File No. SR-CHX-93-23).
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In addition, the Exchange is amending Article IX, Rule 10(b) to
provide that if trading on the Exchange is halted during the Primary
Trading Session pursuant to Article XX, Rule 10A, and such trading halt
is still in effect at the close of the Primary Trading Session, the PPS
scheduled for that day will be canceled.\14\ Finally, Article XX, Rule
2, Interpretation and Policy .01 is being amended in order to correct
an inaccurate internal cross-reference.\15\
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\14\ See Amendment No. 1, supra note 3.
\15\ Currently, Interpretation and Policy .01 refers to the
Exchange's ITS rules as being located in Article XX, Rule 36,
whereas they are actually located in Article XX, Rule 39.
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The Exchange requests the Commission to find good cause, pursuant
to Section 19(b)(2) of the Act, for approving the proposed rule change
prior to the thirtieth day after publication in the Federal Register.
III. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the CHX's proposal to modify the
definition of its Primary Trading Session and to establish a post-
primary auction market trading session extending to 3:30 p.m. (CT) 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).\16\
Specifically, the Commission finds that the proposed rule change 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,
and, in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b).
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The Commission believes that the CHX's modification of the
definition of its Primary Trading Session to track the hours that each
security is traded on its primary market is a more flexible
[[Page 29158]]
definition that the existing one in that it can readily accommodate
future changes in the trading hours of the other national securities
exchanges, without, at present, affecting a substantive change to the
existing hours of trading in these securities on the Exchange.
The Commission also believes that the initiation of the PPS does
not raise any new regulatory concerns. Currently, auction market
trading after 4:00 p.m. (ET) occurs on the Phlx until 4:15 p.m. (ET)
and the PSE until 4:50 p.m. (ET).\17\ The CHX's PPS will operate in a
substantially similar manner and enable the CHX to compete with both
the Phlx and PSE for after-hours volume. Specifically, the CHX PPS will
continue to provide full transparency by disseminating quotes through
the Consolidated Quotation System and reporting trades to the
consolidated tape. In addition, although the Exchange's MAX System will
be unavailable for automated order routing or executions during the
PPS, there will continue to be complete access to the CHX and the usual
auction market trading rules of the Exchange will continue to
apply.\18\ Moreover, in order to preserve the execution quality of
market, limit, contingent (including GTX) orders placed on the CHX
specialists' books during the Primary Trading Session, such orders will
not automatically migrate to the PPS, but rather will do so only if the
order is so designated (i.e., with an ``E'' indicator on the ticket)
and entered with the specialist after 3:00 p.m. (CT).\19\
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\17\ See Securities Exchange Act Release No. 35188 (January 3,
1995), 60 FR 2422 (January 9, 1995) (SR-Phlx-94-46) (order approving
establishment of Phlx PPS from 4:00 to 4:15 (ET)); Securities
Exchange Act Release No. 29631 (August 30, 1991), 56 FR 46025
(September 9, 1991) (SR-PSE-91-21) (order approving extension of PSE
post-1 p.m. session from 1:30 to 1:50 p.m. (PT)).
\18\ The Commission notes that the CHX has represented that
trading during the PPS will be surveilled in the same manner and
using the same techniques as those used to surveil the Primary
Trading Session. See ITS/Surveillance Letter, supra note 7.
\19\ The Commission notes the CHX's representation that it will
distribute a Notice to Members setting forth the procedures to be
followed to make orders eligible for the PPS. See supra note 10.
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Furthermore, the Commission believes that the CHX's proposal to
cancel the PPS for a particular day as a result of any trading halt
during the Primary Trading Session pursuant to Article XX, Rule 10A
that is still in effect at the close of the Primary Trading Session
removes from its consideration any regulatory concerns that may have
existed if this provision was not present.
The Commission notes, however, that the only other national
securities exchanges that will be operating an auction market after
4:00 p.m. (ET) will be the Phlx and PSE. In this regard, the CHX has
represented to the Commission that the ITS will be available between
the three exchanges during their post-4:00 p.m. (ET) auction market
sessions.\20\ Thus, ITS commitments will be able to be routed back and
forth, just as during the regular hours of auction trading on the
primary markets.
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\20\ See ITS/Surveillance Letter, supra note 7.
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Although the NYSE is operating its Off-Hours Trading facility and
the Amex is operating its After-Hours Trading facility during this time
period, these sessions are limited to accepting single stock orders
priced at either the NYSE or Amex closing price, respectively, or
effecting portfolio trades. Because the PPS trading session will not
overlap the 5:00 p.m. (ET) executions in Crossing Session I of the
NYSE's Off-Hours Trading facility or the Amex's After-Hours Trading
Facility, the proposal being approved today does not raise market
structure issues regarding the interaction between the PPS and these
two after-hours trading facilities.
Accordingly, the Commission does not believe that an extension of
auction market trading on the CHX until 4:30 p.m. (ET) will have an
adverse effect on the maintenance of fair and orderly markets or
disadvantage public customers.
The Commission finds good cause for approving the proposed rule
change prior the thirtieth day after the date of publication of notice
of filing thereof in the Federal Register. The Commission believes that
accelerated approval of the proposal to modify the definition of the
Exchange's Primary Trading Session is appropriate because the CHX's
proposal does not alter, at present, the existing hours of the Primary
Trading Session. Moreover, the Commission will retain the ability to
consider the effects of any future change in the hours of the CHX's
Primary Trading Session brought about by the modification of another
exchange's trading hours through its review under Section 19(b) of the
Act of any proposed rule that would precipitate such a change.
The Commission believes that accelerated approval of the proposal
to establish a PPS is appropriate because the CHX's proposal is
substantively the same as the PPS currently operated by the Phlx, with
the exception that the CHX's PPS remains open for an additional fifteen
minutes.\21\ In this regard, the Commission does not believe that this
difference is a significant one, as the same market situation that
currently exists between 4:00 to 4:15 (ET) when only the Phlx and PSE
are conducting auction market trading will prevail between 4:15 to 4:30
p.m. (ET) when only the CHX and PSE will be conducting such trading.
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\21\ The Commission notes that the proposal to establish the
Phlx's PPS was noticed previously in the Federal Register for the
full statutory period and the Commission did not receive any
comments on it. See supra note 17.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 2. 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, Amendment Nos. 1 and 2, and 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,
N.W., 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-96-13 and
should be submitted by June 28, 1996.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\22\ that the proposed rule change is hereby approved on an accelerated
basis.
\22\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-14400 Filed 6-6-96; 8:45 am]
BILLING CODE 8010-01-M
