[Federal Register Volume 59, Number 62 (Thursday, March 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7646]


[[Page Unknown]]

[Federal Register: March 31, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33806; File No. SR-CHX-94-03]

 

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc. To Publish a Policy Concerning Instinet Terminals on the CHX Floor

March 23, 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 March 3, 
1994, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
amended proposed rule change as described in Items I, II and III 
below,\1\ 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.
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    \1\The CHX initially filed the instant proposed rule change on 
January 31, 1994. The CHX subsequently filed Amendment No. 1 on 
March 3, 1994 in which it clarified the intent of the Exchange that 
all orders, resulting from interest reflected in the Instinet 
terminals, must be executed in accordance with the CHX auction 
market rules of priority, parity and precedence. See letter from J. 
Craig Long, Foley & Lardner, to Sharon Lawson, Assistant Director, 
Division of Market Regulation, Commission, dated March 2, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Chicago Stock Exchange, Incorporated (``CHX'' or ``Exchange'') 
has issued the Notice to Members which constitutes a stated policy 
requiring that any orders received or originated on the floor clear the 
post prior to execution.\2\ In sum, the Notice reinforces the status of 
INC Trading Corporation (``INCT'') (an Instinet subsidiary) as an 
exchange member, and as such, all executions resulting from bids and 
offers reflected on Instinet terminals resident on the CHX floor 
constitute ``orders'' which are ``communicated'' to the CHX floor.\3\ 
Therefore, all such orders are to be handled as any other order 
communicated to the floor and must be presented to the post during 
normal trading hours.
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    \2\The Notice of Members is consistent with the clearing the 
post requirement already adopted in Securities Exchange Act Release 
Nos. 17766 (May 4, 1981), and 28638 (November 21, 1990). See also 
CHX Article XXXIV; Rule 1; Article VIII, Rule 7; and Article XX, 
Rule 10.
    \3\The CHX emphasizes that all trades between Instinet and CHX 
floor members are CHX trades and must be executed on the CHX.
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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 change is to publish to members an 
existing Exchange policy concerning the use of Instinet terminals on 
the CHX floor and the manner in which orders that result from interest 
reflected in the Instinet system must be handled on the floor. Among 
other things, the Notice to Members makes clear that all orders 
resulting from interest reflected on Instinet terminals on the CHX 
floor must be handled as any other order communicated to the floor. As 
such, those orders must be presented to the post during normal trading 
hours.
    This clearing the post requirement is consistent with prior 
Commission approval orders (Securities Exchange Act Release No. 17766 
approving SR-MSE-81-3 and SR-MSE-81-5 and Securities Exchange Act 
Release No. 28638 approving SR-MSE-90-7). These prior approval orders 
explain the Exchange's clearing the post requirements. Although there 
are differences in the requirements as they apply to market makers and 
brokers, at a minimum, to preserve existing auction-market principles, 
the Exchange's clearing the post rules require the broker or market 
maker to be physically present at the post.
    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 CHX priority, parity and precedence rules. 
If the specialist (or any other member who has the post) indicates an 
interest to trade at that price but the member communicating the 
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 CHX 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.
    The Exchange's clearing the post policy derives from a floor 
broker's fiduciary responsibility to seek the best price execution for 
his or her order and from the responsibility of floor brokers and 
market makers to adhere to traditional agency/auction market principles 
on the floor. Failure to clear the post may result in a ``trade-
through'' or ``trading ahead'' of other CHX floor interest. (See 
Article XX, Rule 40.) In addition, failure to properly clear the post 
may result in a violation of the CHX 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).
    The Notice to Members specifically provides that all orders 
resulting from an interest on the Instinet terminal, once presented to 
the specialist post, are to be treated as follows:

    1. If the specialist indicates an interest to trade at the 
price, then the trade must be consummated with the specialist 
without requiring the specialist, or any customer order represented 
by the specialist, to pay any fees in connection with the execution 
of such order.
    2. If the specialist indicates an interest to trade at the price 
but the member communicating the Instinet interest determines not to 
consummate the trade with the specialist, the trade may not be done 
with any other CHX floor member.
    3. If the specialist does not indicate an interest to trade, 
then the trade may be done with another CHX floor member on this 
floor with a resultant CHX print.
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, 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 on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose a burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The proposed rule change has been endorsed by the Exchange's Floor 
Procedure Committee.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the meaning, administration or 
enforcement of an existing rule of the Exchange and therefore has 
become effective pursuant to section 19(b)(3)(A) of the Act and 
subparagraph (e) of rule 19b-4 thereunder. At any time within 60 days 
of the filing of such proposed rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.

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. 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 CHX. All 
submissions should refer to File No. SR-CHX-94-03 and should be 
submitted by April 21, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-7646 Filed 3-30-94; 8:45 am]
BILLING CODE 8010-01-M