[Federal Register Volume 59, Number 150 (Friday, August 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19157]
[[Page Unknown]]
[Federal Register: August 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34469; File No. SR-CHX-93-19]
Self-Regulatory Organizations; Notice of Amendment Nos. 1, 2, 3
and 4 to Proposed Rule Change by Chicago Stock Exchange, Inc. Relating
to the Creation of the Chicago Match System
August 1, 1994.
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 April 4,
1994, May 4, 1994, June 7, 1994 and July 12, 1994, the Chicago Stock
Exchange, Inc. (``CHX'') filed with the Securities and Exchange
Commission (``Commission'') Amendment Nos. 1, 2, 3 and 4 to a proposed
rule change\1\ as described in Items I, II and III below, which items
have been prepared by the self-regulatory organization.\2\ The
Commission is publishing this notice to solicit comments on Amendment
Nos. 1, 2, 3 and 4 to the proposed rule change from interested persons.
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\1\File No. SR-CHX-93-19. The proposed rule change was
originally filed on August 6, 1993, and was published for comment in
Securities Exchange Act Release No. 33542 (January 28, 1994), 59 FR
5451.
\2\See Letter Amendment No. 1 to SR-CHX-93-19, from David T.
Rusoff, Attorney, Foley & Lardner to Sandy Sciole, Special Counsel,
Division of Market Regulation, Commission, dated March 29, 1994;
Letter Amendment No. 2 to SR-CHX-93-19, from David T. Rusoff,
Attorney, Foley & Lardner to Sharon M. Lawson, Assistant Director,
Division of Market Regulation, dated May 4, 1994; Letter Amendment
No. 3 to SR-CHX-93-19, from David T. Rusoff, Attorney, Foley &
Lardner to Sharon M. Lawson, Assistant Director, Division of Market
Regulation, dated June 7, 1994, and Amendment No. 4 to SR-CHX-93-19,
dated July 11, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Pursuant to Section 19(b)(1) of the Act, the Chicago Stock Exchange
is amending the rules for its institutional matching system, the
Chicago Match (formerly known as the Match Market Exchange Facility).
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 CHX submitted to the Commission Amendment Nos. 1, 2, 3 and 4 to
request that the Commission amend its proposed rules relating to the
proposed Chicago Match System (``Chicago Match'').
The purpose of Amendment No. 4 is to further amend the proposed
rules relating to the Chicago Match by (i) changing the cross price of
the match to the mid-point between the consolidated best bid and offer
regardless of the size of the spread; (ii) reporting to the
consolidated tape or NASDAQ the cross price plus or minus the average
liquidity fee for each stock stated in 256ths; (iii) limiting the
maximum liquidity fee or liquidity credit (received or paid) to \1/2\
of the spread of the consolidated best bid and offer at cross time
(regardless of the size of the spread); and (iv) not permitting orders
to sell short to be entered with a liquidity fee.
As stated above, this amendment changes the proposed cross price
for the Chicago Match. As initially proposed, all matched orders will
be executed at a random time within a pre-determined ten minute window
period at the market price at such time. The market price will still be
calculated based upon the spread of a particular issue. However, rather
than changing the price depending on whether there is a \1/8\, \1/4\,
\3/8\, etc. spread and determining whether there is an order imbalance,
Amendment No. 4 proposes to have the Chicago Match calculate the market
price as the mid-point between the consolidated best bid and offer
regardless of the size of the spread. For example, if the consolidated
best bid and best offer for stock X was 20-20 \1/8\, the cross price
would be 20\1/16\.
As a result of the above change, Amendment No. 4 also changes the
way trades in the Chicago Match are reported to the Consolidated Tape
or NASDAQ. As proposed, the Exchange will report one trade for each
stock executed in the Chicago Match. That trade report will include the
total number of shares executed in that stock and a price equal to the
cross price plus (or minus) the volume weighted average of liquidity
fees paid (or liquidity credits received) for that stock.
Also as a result of the above change to the cross price, limited
price orders, orders with a liquidity fee or credit entered in cents,
and orders that are entered with a liquidity fee or credit relative to
the consolidated best bid or offer or as a computed quantity (in
addition to liquidity fees or credits entered in cents) will be
eligible to be displayed orders. The Exchange will assign numeric
values to these orders based on the then current consolidated best bid
and offer. It is anticipated that initially the Exchange will update
this information at least every 15 minutes or such less time that is
possible.
In addition to the above changes, Amendment No. 4 changes how
orders in a specialist's book interact with the Chicago Match and
limits the maximum size of liquidity fees and credits. As before, the
CHX's CQS quotation will automatically be fed into the Chicago Match
facility on a real-time basis. These bids and/or offers will be entered
as an order in Chicago Match. Rather than limiting interaction with the
book to \1/8\ spread issues however, the revised rules would enter the
CHX CQS quotation into the match in all issues. If entered, these
orders will have the highest priority of execution at that liquidity
credit level.
As stated above, the Chicago Match will limit the maximum size of
liquidity fees and liquidity credits. With respect to the limitation of
the size of liquidity fees, if a liquidity fee is greater than \1/2\ of
the spread of the Consolidated Best Bid and Offer at cross time it will
be reduced to \1/2\ of the spread at cross time. For example, if \1/2\
of the spread is 6\1/4\ cents, and an order with a liquidity fee of 10
cents entered, the maximum liquidity fee that order can pay is 6\1/4\
cents. Liquidity credits, on the other hand, will be treated
differently than liquidity fees. For liquidity credits, the Chicago
Match will not permit liquidity credits to be received in an amount
greater than \1/2\ of the spread of the Consolidated Best Bid and
Offer. For example, if the spread of the Consolidated Best Bid and
Offer at cross time was \1/2\, the maximum liquidity credit allowed
would be 25 cents.\3\ If an order was entered with a liquidity credit
greater than 25 cents, the user would have an option of either having
the liquidity credit reduced to the Consolidated Best Bid and Offer or
having the order be excluded from the match.
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\3\This would be \1/2\ of the \1/2\ spread or \1/4\ which is 25
cents.
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The final change proposed by this amendment concerns short sales.
In order to ensure that any order to sell short can have no market
impact and not contribute to a volume weighted average liquidity fee
that is less than the middle of the spread, no order to sell short will
be permitted to be executed if it includes a liquidity fee. Liquidity
credits, however, will be allowed.
In addition to the amendments submitted in Amendment No. 4, the
Exchange also made changes to the Chicago Match Rules in Amendment Nos.
1, 2 and 3. Amendment No. 1 changed the name of this proposed system
from ``Match Market Exchange'' (``MMX'') to ``Chicago Match''.
Amendment No. 1 changed the definition of size conditions (in Rule
2(ab)) to be considered for a near match to be a specific number
entered by the User instead of the former procedure of designating the
size conditions as ``small,'' ``medium,'' and ``large.'' Amendment No.
1 required that liquidity fees and credits be entered in cents and
entered relative to the Consolidated Best Bid and Offer at cross time
or entered as a computed quantity (in Rule 6(e)(9)). Amendment No. 1
also made technical changes and corrections that do not affect the
substance of the proposal and made other substantive changes that
subsequently were amended.
Amendment No. 2 changed the definition of ``Near Match'' (in Rule
2(w)) to clarify that it means two orders for a particular security in
which (i) the number of shares of each order equals or exceeds the
minimum size specified by the other order; and (ii) the Liquidity
Credit required by one side is greater than the Liquidity Fee offered
by the other side. Amendment No. 2 clarified the meaning and intent of
proposed Rule 6(e)(8) which permits a user to enter another user's name
in order to prevent any matches between those two users, thereby
excluding certain users when necessary to comply with ERISA. Amendment
No. 2 also clarified the meaning and intent of proposed Rule 6(e)(7)
which permits a user to exclude an entire category of contra parties.
Amendment No. 2 further clarified that Conditional Orders may not be
Displayed Orders and that all confirmations will comply with the
requirements of Rule 10b-10 under the Act; and it noted that non-member
users will be required to have $10 million for investment purposes.
Amendment No. 3 amended Rule 3 to delete references to the Exchange
permitting orders for securities that are not listed or admitted to
unlisted trading privileges on the Exchange to be entered into the
Chicago Match System. Amendment No. 3 also made substantive changes to
proposed Rule 9(b) (which attempted to eliminate any argument that
trades executed in the Chicago Match could trade through other market's
published quotations) which were subsequently amended in Amendment No.
4.
2. Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Securities Exchange Act of 1934 in that it is designed to promote just
and equitable principles of trade and to protect investors and the
public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition.
The Exchange believes that no burden will be placed on competition
as a result of the proposed rule change.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No comments were 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 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 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. Sec. 552, will be available for inspection and copying at
the principal office of the above-referenced self-regulatory
organization. All submissions should refer to File No. SR-CHX-93-19 and
should be submitted by August 22, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19157 Filed 8-4-94; 8:45 am]
BILLING CODE 8010-01-M
