[Federal Register Volume 60, Number 127 (Monday, July 3, 1995)]
[Notices]
[Pages 34563-34564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16400]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35910; File No. SR-CHX-95-10]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Incorporated Relating to
Permanent Approval of the Pilot Program for Stopped Orders in Minimum
Variations Markets
June 28, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on March
23, 1995, the Chicago Stock Exchange, Incorporated (``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.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange requests permanent approval of its pilot program for
stopped orders in minimum variation markets. The pilot was originally
approved on January 14, 1992.\1\ The first requested extension of the
pilot was approved by the Commission on March 10, 1993.\2\ The second
requested extension of the pilot was approved by the Commission on June
11, 1993.\3\ The third requested extension of the pilot was approved by
the Commission on March 21, 1994.\4\ The fourth requested extension of
the pilot was approved by the Commission on March 1, 1995.\5\ The pilot
program is set to expire on July 21, 1995.
\1\ See Securities Exchange Act Release No. 30189 (Jan. 14,
1992), 57 FR 2621 (Jan. 22, 1992) (File No. SR-MSE-91-10) (order
approving MSE pilot program for stopped orders in minimum variation
markets) (``1992 Approval Order'').
\2\ See Securities Exchange Act Release No. 31975 (Mar. 10,
1993), 58 FR 14230 (Mar. 16, 1993) (File No. SR-MSE-93-04) (order
granting accelerated approval of extension of pilot program for
stopped orders in minimum variation markets).
\3\ See Securities Exchange Act Release No. 32457 (June 11,
1993), 58 FR 33681 (June 18, 1993) (File No. SR-MSE-93-14) (order
granting accelerated approval of extension of pilot program).
\4\ See Securities Exchange Act Release No. 33790 (Mar. 21,
1994), 59 FR 14434 (Mar. 28, 1994) (File No. SR-MSE-93-30) (order
granting accelerated approval of extension of pilot program).
\5\ See Securities Exchange Act Release No. 35431 (Mar. 1,
1995), 60 FR 12796 (Mar. 8, 1995) (File No. SR-CHX-95-04) (order
granting accelerated approval of extension of pilot program).
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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 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 request permanent
approval of the pilot program implemented to establish a procedure
regarding the execution of ``stopped'' market orders in minimum
variation markets (usually an \1/8\th spread market). In 1992, the
[[Page 34564]]
Exchange adopted interpretation and policy .03 to Rule 37 of Article XX
on a pilot basis to permit ``stopped'' market orders in minimum
variation markets.\6\ Prior to the pilot program, no Exchange rule
required specialists to grant stops in minimum variation markets if an
out-of-range execution would result.\7\ Although the Exchange has a
policy regarding the execution of stopped market orders generally, the
Exchange believes it is necessary to establish a separate policy for
executing stopped market orders when there is a minimum variation
market.
\6\ See 1992 Approval Order, supra, note 1.
\7\ The term ``out-of-range'' means either higher or lower than
the price range in which the security traded on the primary market
during a particular trading day.
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The Exchange's general policy regarding the execution of stopped
orders is to execute them based on the next primary market sale. If
this policy were used in a minimum variation market, it would cause the
anomalous result of requiring the execution of all pre-existing order
even if those orders are not otherwise entitled to be filled.\8\
\8\ For example, assume the market in ABC stock is 20-20\1/8\;
50 x 50 with \1/8\th being out of range. A customer places an order
with the Exchange specialist to buy 100 shares of ABC at the market
and a stop is effected. The order is stopped at 20\1/8\ and the
Exchange specialist includes the order in his quote by bidding the
100 shares at 20. If the next sale on the primary market is for 100
shares at 20, adopting the Exchange's existing general policy to
minimum variation markets would require the specialist to execute
the stopped market order at 20. However, because the stopped market
order does not have time or price priority, its execution triggers
the requirement for the Exchange specialist to execute all pre-
existing bids (in this case 5,000 shares) based on the Exchange's
rules of priority and precedence. This is so even though the pre-
existing bids were not otherwise entitled to be filled.
In the above example, Exchange Rule 37 (Article XX) requires the
Exchange specialist to fill orders at the limit price only if such
orders would have been filled had they been transmitted to the
primary market. Therefore, the 100 share print at 20 in the primary
market would cause at the most 100 of the 5,000 share limit order to
be filled on the Exchange. However, the Exchange's general policy
regarding stopped orders, if applied to minimum variation markets,
would require the 100 share stopped market order to be filled, and
as a result, all pre-existing bids at the same price to be filled in
accordance with Exchange Rule 16 (Article XX) (Precedence of Bids at
Same Price).
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The Exchange's proposed policy will prevent unintended results by
continuing a pilot program for ``stopped'' market orders in minimum
variation markets.\9\ Specifically, the pilot program requires the
execution of stopped market orders in minimum variation markets after a
transaction takes place on the primary market at the stopped price or
worse (higher for buy orders and lower for sell orders), or after the
applicable Exchange share volume is exhausted. In no event will a
stopped order be executed at a price inferior to the stopped price.\10\
The Exchange believes that the proposed policy will continue to benefit
customers because they might receive a better price than the stop
price, yet it also protects Exchange specialists by eliminating their
exposure to executing potentially large amounts of pre-existing bids or
offers when such executions would otherwise not be required under
Exchange rules.
\9\ See 1992 Approval Order, supra, note.1.
\10\ Exchange Rule 28 (Article XX) states:
An agreement by a member or member organization to ``stop''
securities at a specified price shall constitute a guarantee of the
purchase or sale by him or it of the securities at the price or its
equivalent in the amount specified.
If an order is executed at a less favorable price than that
agreed upon, the member or member organization which agreed to stop
the securities shall be liable for an adjustment of the difference
between the two prices.
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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.
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 other 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 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, NW., Washington, DC 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, DC 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-95-10 and should be
submitted by July 24, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16400 Filed 6-30-95; 8:45 am]
BILLING CODE 8010-01-M
