[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 639-640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-145]
[[Page Unknown]]
[Federal Register: January 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33401; File No. SR-CHX-93-29]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Granting Accelerated Approval to Proposed Rule Change Relating to
Extended Trading Hours for the Chicago Stock Basket
December 29, 1993.
On October 27, 1993, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``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 extend the trading hours for
the Chicago Stock Basket (``CXM'').
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 33241 (November 23, 1993), 58 FR 63407
(December 1, 1993). No comments were received on the proposal.
The CHX's primary trading session, including trading of the CXM,
currently ends at 3 Central time (4 Eastern time).\3\ The CXM is a
standardized basket product consisting of twenty-five shares of each of
the stocks included in the Chicago Mercantile Exchange's (``Merc'')
``MMI'' futures contract. That contract is based on the American Stock
Exchange's (``Amex'') Major Market Index (``MMI''), a broad-based
price-weighted index of twenty stocks listed on the New York Stock
Exchange (``NYSE'').\4\
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\3\See Article IX, Rule 10 of the CHX Rules.
\4\For further discussion of the terms of the CXM contract and
the market structure for trading the CXM, see Securities Exchange
Act Release No. 33053 (October 15, 1993), 58 FR 54610 (October 22,
1993) (File No. SR-CHX-93-18) (``CXM Approval Order'').
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The Exchange proposes to extend the hours for trading the CXM until
3:15 Central time (4:15 Eastern time). This proposal will make the
trading hours of the CXM consistent with the trading hours of
derivative products that are based on the same index as the CXM and
other derivative products that could be used as a hedge against the
CXM. According to the Exchange, similar trading hours should provide
risk management benefits when trading the CXM.
The Exchange states that 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, 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 finds that the proposed rule change 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).\5\ In particular,
the Commission believes the proposal 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, to prevent fraudulent
and manipulative acts, and, in general, to protect investors and the
public interest.
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\5\15 U.S.C. 78f(b) (1988).
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In recent years, concerns have been raised about the role that
index-related trading strategies (e.g., use of the equity cash market
to hedge positions in stock index futures and options contracts) played
in increasing market volatility.\6\ As a result, the Commission has,
among other things, encouraged the national securities exchanges to
list and trade standardized baskets of stocks.\7\ The Commission
believes that, in comparison to other methods of portfolio trading,
basket products, such as the CXM, are an efficient means to make
investment decisions based on the direction of standardized measures of
stock market performance, and may enhance the market's ability to
absorb program trading.\8\
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\6\See, e.g., SEC, Division of Market Regulation, The October
1987 Market Break (February 1988).
\7\In addition to the CXM, the Commission has approved the
trading of market baskets on the NYSE and the Chicago Board Options
Exchange (``CBOE''). See Securities Exchange Act Release Nos. 27382
(October 26, 1989), 54 FR 45834 (October 31, 1989) (File No. SR-
NYSE-89-05) (approving trading of basket of stocks comprising the
Standard & Poor's (``S&P'') 500 Portfolio Index); and 27383 (October
26, 1989), 54 FR 45846 (October 31, 1989) (File No. SR-CBOE-88-20)
(approving trading of basket of stocks comprising the S&P 100 and
S&P 500 Indexes).
\8\See CXM Approval Order, supra, note 4.
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The Commission has concluded that extending the trading hours for
the CXM will enhance market participants' ability to use that basket
for hedging purposes. The CXM offers a highly correlative hedge to the
Merc's ``MMI'' futures contract. In addition, the CXM could be used to
offset a position in the options on the MMI futures contract that are
traded on the Merc; in the options on the MMI that are traded on the
Amex; or in derivative products on other broad-based stock market
indexes.\9\ At the moment, however, CXM trading ends at 3 Central time
(4 Eastern time), while trading of such derivative products continues
until 3:15 Central time (4:15 Eastern time). The Commission recognizes
that the current lack of coordination may hinder market participants'
ability to adjust their risk in response to late price movements in the
derivatives market.
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\9\For example, the promotional literature for the CXM
illustrates how that basket could be used as a hedge against the S&P
100 options contract.
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Accordingly, the Commission believes that synchronizing the close
of trading for the CXM with the close of trading for such derivative
products will allow market participants to hedge their positions more
effectively. Specifically, traders and investors will be able to employ
closing strategies that reflect price movements that take place during
the last fifteen minutes of derivatives trading, as well as complete
last sale information for the various indexes' component stocks. To the
extent that the CHX proposal will promote fair hedging opportunities,
the Commission finds that extended trading hours should increase volume
in the CXM, thereby adding to the depth and liquidity of the market for
that basket product.\10\
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\10\The Commission used a similar rationale in approving
extended trading hours for stock index options. See Securities
Exchange Act Release No. 22957 (February 27, 1986), 51 FR 7869
(March 6, 1986) (File Nos. SR-CBOE-85-49, SR-Amex-86-02 and SR-NYSE-
86-06). See also Securities Exchange Act Release No. 31591 (December
11, 1992), 57 FR 60253 (December 18, 1992) (File No. SR-Amex-92-18)
(approving trading of portfolio depository receipts until 4:15
Eastern time).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of the
notice of filing thereof. The CHX proposal is designed to eliminate a
barrier to fair hedging opportunities; accelerated approval thereof
will allow the resulting risk management benefits for traders and
investors to be realized immediately. In addition, the proposed rule
change was published in the Federal Register for the full statutory
period and no comments were received on any aspect of the proposal.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-CHX-93-29) is approved.
\11\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-145 Filed 1-4-94; 8:45 am]
BILLING CODE 8010-01-M