00-21745. Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the Chicago Stock Exchange, Inc., Relating to the Exchange's SuperMAX Plus Price Improvement Program and Amendment No. 1 ...

August 18, 2000.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder ^[2] notice hereby is given that on July 21, 2000, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“SEC”) or “Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. On August 8, 2000, the Exchange filed Amendment No. 1 to the proposal.^[3]

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend the current CHX rule governing its SuperMAX Plus price improvement program. Specifically, the Exchange proposes to amend Article XX, Rule 37(d) to provide for additional price improvement opportunities, by deleting the requirement that the last primary market sale be at least 1/16 th of a point away from the ITS Best Bid or Offer (“ITS BBO”). The text of the proposed rule change is available upon request from the Commission or the CHX.^[4]

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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received regarding the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange 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

On May 22, 1995, the Commission approved a proposed CHX rule change that allows specialists on the Exchange, through the Exchange's MAX system, to provide order execution guarantees that are more favorable than those required under CHX Rule 37(a), Article XX.^[5] That approval order contemplated that the CHX would file with the Commission specific modifications to the parameters of MAX that are required to implement various options under this new rule.

SuperMAX, Enhanced SuperMAX, SuperMAX Plus and Derivative SuperMAX are four existing CHX programs within the MAX system that use computerized algorithms to provide automated price improvement.^[6] The primary purpose of this proposed rule change is to increase the number of orders that are eligible for SuperMAX Plus price improvement.

The Exchange believes that it is important to remain competitive by increasing, where possible, opportunities for price improvement and by responding in a swift and meaningful fashion to the price improvement considerations articulated by the Exchange's order sending firms and their customers. To this end, the Exchange proposes the following change to its SuperMAX Plus price improvement program.

Under the current version of SuperMAX Plus, agency market orders of 100-199 shares for Dual Trading System issues ^[7] are eligible for automatic price improvement of 1/16th of a point if: (a) The spread between the ITS Best Bid and ITS Best Offer is 1/8th of a point or greater; and (b) the last primary market sale is at least 1/16th of a point away from the ITS Best Bid or Offer (“BBO”). The proposal would delete the conditions relating to last primary market sales and thereby increase the number of orders eligible for price improvement.^[8]

If approved, the amended SuperMAX Plus algorithm would become operative when systems changes are implemented in late August or early September. The Exchange will announce the effective date of this new algorithm in a Notice to Members.

2. Statutory Basis

The proposed rule change is consistent with Section 6(b)(5) ^[9] 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 of 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 Regarding the Proposed Rule Change Received From Members, Participants or Others

Written comments were neither solicited nor received.

III. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing including whether the proposal is consistent with the Act. Persons making written submission should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0609. 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 filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CHX-00-24 and should be submitted by September 15, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change

The Exchange believes the accelerated implementation of the amended SuperMAX Plus algorithm will insure to the benefit of investors by providing a greater number of investors with an enhanced opportunity for price improvement, and has therefore requested that the Commission grant accelerated approval of the proposed rule change. After careful review, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange,^[10] and that accelerated approval is appropriate.

Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act ^[11] which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.

The Commission believes that the proposed SuperMax Plus price improvement algorithm will provide investors with enhanced investment opportunities because price improvement from the ITS BBO will be available regardless of the last primary market sale price in both Dual Trading System issues and Nasdaq NM securities. The Commission notes that while SuperMax Plus is a voluntary program that specialists choose to participate in, providing a greater number of investors an opportunity to achieve price improvement is compatible with the views expressed in the Order Handling Release.^[12] Because price improvement should encourage small investor participation in the securities market without sacrificing investor protection and the public interest, the Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the Federal Register.

It Is Therefore Ordered, pursuant to Section 19(b)(2) ^[13] of the Act that the proposed rule change (SR-CHX-00-24) be, and hereby is, approved.

For Commission, by the Division of Market Regulation, pursuant to delegated authority.^[14]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Letter from Ellen J. Neely, Vice President and General Counsel, CHX, to Jennifer Colihan, Attorney, Division of Market Regulation, Commission, dated August 7, 2000. (“Amendment No. 1”) In Amendment No. 1, the Exchange revised the proposed rule language for clarity. No substantive changes were made.

4.  Certain provisions of Article XX, Rule 37(d) are the subject of a CHX submission currently pending before the Commission as part of the CHX's decimalization-related rule filings. See SR-CHX-00-22 (filed July 17, 2000).

5.  See Securities Exchange Act Release No. 35753 (May 22, 1995), 60 FR 28007 (May 26, 1995) (File No. SR-CHX-95-08).

6.  Each of these price improvement programs has been approved by the Commission on a permanent basis. See Securities Exchange Act Release Nos. 40017 (May 20, 1998), 63 FR 29277 (May 28, 1998); 40235 (July 17, 1998), 63 FR 40147 (July 27, 1998) (File No. SR-CHX-98-9) (orders approving revised SuperMAX and Enhanced SuperMAX algorithms); 41480 (June 4, 1999), 64 FR 32570 (June 17, 1999) (order approving revised SuperMAX Plus algorithm); and 42565 (March 22, 2000), 65 FR 16442 (March 28, 2000) (order approving Derivative SuperMAX algorithm).

7.  Dual Trading System issues are issues that are traded on the Chicago Stock Exchange and either the New York Stock Exchange or the American Stock Exchange.

8.  After this change, the SuperMAX Plus algorithm would provide equivalent levels of price improvement for Dual Trading System and Nasdaq/NM issues. Nasdaq/NM issues are already entitled to price improvement under this algorithm if the spread between the National Best Bid and National Best Offer is 1/8th of a point or greater, without reference to the last sale in another market.

9.  15 U.S.C. 78f(b)(5).

10.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation.

11.  15 U.S.C. 78f(b)(5).

12.  See Securities Exchange Release No. 37619A (September 6, 1996), FR 48290 (September 12, 1996).

13.  15 U.S.C. 78s(b)(2).

14.  17 CFR 200.30-3(a)(12).