[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Notices]
[Pages 38442-38444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18906]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40187; File No. SR-CHX-98-13]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Inc. Amending the Exchange's
Clearing the Post Policy for Cabinet Securities
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 10, 1998, 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 CHX. 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) (1994).
\2\ 17 CFR 240.19b-4 (1997).
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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 .02 of CHX
Rule 10 of Article XX and amend CHX Rule 11 of Article XX relating to
clearing the post and to make permanent the policy contained in Article
XX, Rule 11 regarding the ability of oral bids and offers to clear the
cabinet post by phone. The text of the proposed rule change is as
follows: Additions are italicized; deletions are [bracketed].
ARTICLE XX
Rule 10. Manner of Bidding and Offering.
No change in text.
* * * Interpretations and Policies
02. Clearing the Post.
Policy. All orders received by floor brokers or originated by
market makers on the floor of the Exchange must effectively clear the
post before the orders may be routed to another market, either via the
ITS System or through the use of alternative means.
Floor brokers who receive an order on the floor have a fiduciary
responsibility to seek a best price execution for such order. This
responsibility includes clearing of the Exchange's post prior to
routing an order to another market so that other buying and selling
interest at the post can be checked for a potential execution that may
be as good as or better than the execution available in another market.
Market makers are required to provide depth and liquidity to the
Exchange market, among other things. Exchange Rules require that all
market maker transactions constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market. In so doing, market makers must adhere to traditional agency/
auction market principles on the floor. Transactions by Exchange market
makers on other exchanges which fail to clear the Exchange post do not
constitute such a course of dealings.
Notwithstanding the above, it is understood that on occasion a
customer will insist on special handling for a particular order that
would preclude it from clearing the post on the Exchange floor. For
example, a customer might request that a specific order be given a
primary market execution. These situations must be documented and
reported to the Exchange. Customer directives for special handling of
all orders in a particular stock or all stocks, however, will not be
considered as exceptions to clearing the post policy.
All executions resulting from bids and offers reflected on Instinet
terminals resident on the Exchange floor constitute ``orders'' which
are ``communicated'' to the Exchange floor. Therefore, all orders
resulting from interest reflected on Instinet terminals on the Exchange
floor must be handled as any other order communicated to the floor. All
such orders must be presented to the post during normal trading hours.
All trades between Instinet and Exchange floor members are Exchange
trades and must be executed on the Exchange.
Method of Clearing the Post. [Subject to Article XX, Rule 11
relating to cabinet securities,] [t]The Exchange's clearing the post
policy requires the floor broker or market maker to be physically
present on the Exchange floor and to be present at the post. So long as
the floor broker or market maker is physically present on the Exchange
floor, a floor broker's or market maker's bids and
[[Page 38443]]
offers may be made by clearing the post by phone provided that such
bids and offers are audibly announced at the post through a speaker
system maintained by the Exchange. A market maker, after requesting the
specialist's market quote, must bid or offer the price and size of his
intended interest at the post. A floor broker must clear the post by
requesting a market quote from the specialist. If the specialist or any
other member who has the post indicates an interest to trade at the
price that was bid or offered by the market maker or the price of the
floor broker's order (even though that order has not yet been bid or
offered), then the trade may be consummated with the specialist (or
whomever has the post) in accordance with existing Exchange priority,
parity and precedence rules. If the specialist (or any other member who
has the post) indicates interest to trade at that price but the member
communicating the intended interest, including Instinet interest,
determines not to consummate the trade with the specialist or such
member, then, to preserve the Exchange's existing priority, parity and
precedence rules, the trade may not be done with any other Exchange
floor member. (See Article XXX, Rule 2). If the trade is consummated
with the specialist or other member who has the post, the specialist
(or any customer represented by the specialist) is not required to pay
any fees to the broker or market maker in connection with the execution
of the order, unless such fee is expressly authorized by an Exchange
Rule. If the specialist does not indicate an interest to trade, then
the trade may be consummated with another Exchange floor member on the
Exchange floor with a resultant Exchange print.
Failure to clear the post may result in a ``trade-through'' or
``trading ahead'' of other floor interest. In addition, failure to
properly clear the post may result in a violation of the Exchange's
Just and Equitable Trade Principles Rule (Article VIII, Rule 7) and a
market maker rule that requires all market maker transactions to
constitute a course of dealing reasonably calculated to contribute to
the maintenance of a fair and orderly market (Article XXXIV, Rule 1).
Failure to properly clear the post may also subject the violator to a
minor rule violation under the Exchange's Minor Rule Violation Plan.
Rule 11. Cabinet Securities
Stocks having no designated specialist unit of trading shall be
assigned for dealings by use of cabinets and shall be dealt in at a
location designated for that purpose.
The Exchange may also designate bonds which are to be dealt in by
use of cabinets.
Bids and offers in securities dealt in by use of cabinets shall be
written on cards, which shall be filed in the cabinets in the following
sequence:
1. According to price, and
2. According to the time received at the cabinet.
Orders in such securities shall be filled according to the bids and
offers filed in the cabinets, in the sequence indicated above, except
that oral bids and offers in such securities may be made if not in
conflict with bids and offers in the cabinets. Oral bids and offers may
be made by clearing the cabinet post by phone provided that such bids
and offers are audibly announced at the cabinet post through a speaker
system maintained by the Exchange.
Every card placed in the cabinets shall bear a definite price and
number of shares and no mark or identification shall be placed thereon
to indicate it is other than a limited order at the price.
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 CHX 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 in the places specified in
Item IV below. The CHX 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 purpose of the proposed rule change is to make permanent the
policy contained in Article XX, Rule 11 regarding the ability of oral
bids and offers to clear the cabinet post by phone.\3\ The proposed
rule change will also amend Article XX, Rule 10 to expand this policy
to bids and offers in all securities traded on the trading floor.
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\3\ See Securities Exchange Act Release No. 39519 (January 6,
1998), 63 FR 1985 (January 13, 1998) (Order approving proposed rule
change SR-CHX-97-28 relating to a six month pilot program for
Exchange's clearing the post policy for cabinet securities); and
Securities Exchange Act Release No. 40144 (June 30, 1998), 63 FR
37157 (July 9, 1998) (Order approving proposed rule change SR-CHX-
98-17 relating to a five month extension of the pilot program for
the Exchange's clearing the post policy for cabinet securities).
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Under the proposed rule change, as long as the floor broker or
market maker is physically present on the Exchange floor, a floor
broker's or market maker's bids and offers in any security traded on
the trading floor may be made by clearing the post by phone, provided
they are audibly announced at the post through a speaker system
maintained by the Exchange. The Exchange has not experienced any
adverse effects from the implementation of this policy for cabinet
issues, and believes that the differences obtained with the use of a
speaker system in cabinet issues should be extended floor wide.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act \4\ in that it is designed to prevent fraudulent and manipulative
acts and practices and to perfect the mechanism of a free and open
market.
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\4\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden of 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 date of 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:
(A) By order approve such 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, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
[[Page 38444]]
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submissions, 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 principal office of the
Exchange. All submissions should refer to File No. SR-CHX-98-13 and
should be submitted by August 8, 1998.
For the Commission, by the Division of Market Regulations,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18906 Filed 7-15-98; 8:45 am]
BILLING CODE 8010-01-M
