[Federal Register Volume 59, Number 65 (Tuesday, April 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8081]


[[Page Unknown]]

[Federal Register: April 5, 1994]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33833; File No. 4-208]

 

Intermarket Trading System; Order Approving Eleventh Amendment to 
the ITS Relating To Use of a Back-Up System

March 30, 1994.
    On December 21, 1993, the Intermarket Trading System (``ITS'') 
submitted to the Securities and Exchange Commission (``Commission'') an 
amendment to the restated ITS Plan pursuant to Section 11A of the 
Securities Exchange Act of 1934 (``Act''), 15 U.S.C. 78k-1, and Rule 
11a3a-2 thereunder.\1\ The ITS participants filed the proposal to make 
several technical amendments to the ITS Plan including amendments 
relating to the use of a back-up system. Notice of the proposal 
appeared in the Federal Register on February 1, 1994.\2\ The Commission 
received no comments on the proposal. For the reasons discussed below, 
the Commission is approving the proposal.
---------------------------------------------------------------------------

    \1\The ITS is a National Market System (``NMS'') plan approved 
by the Commission pursuant to Section 11A of the Act and Rule 11Aa3-
2. The ITS was designed to facilitate intermarket trading in 
exchange-listed equity securities based on current quotation 
information emanating from the linked markets. Securities Exchange 
Act Release No. 19456 (January 27, 1983), 48 FR 4938.
    Participants to the ITS Plan include the American Stock 
Exchange, Inc. (``Amex''), the Boston Stock Exchange, Inc. 
(``BSE''), the Chicago Board Options Exchange, Inc. (``CBOE''), the 
Chicago Stock Exchange, Inc. (``CHX''), the Cincinnati Stock 
Exchange, Inc. (``CSE''), the National Association of Securities 
Dealers, Inc. (``NASD''), the New York Stock Exchange, Inc. 
(``NYSE''), the Pacific Stock Exchange, Inc. (``PSE''), and the 
Philadelphia Stock Exchange, Inc. (``PHLX'').
    \2\Securities Exchange Act Release No. 33520 (January 25, 1994), 
59 FR 4731.
---------------------------------------------------------------------------

    The proposal makes several technical amendments to the ITS Plan to: 
(1) Provide for use of a back-up system in the event ITS becomes 
inoperable; (2) recognize the use of the Regional Computer Interface 
(``RCI'') by the Amex; (3) eliminate references to line costs and line 
sharing; (4) require a biennial rather than an annual audit by an 
independent public accountant; (5) change all references to the Midwest 
Stock Exchange, Inc. (``MSE'') to CHX; and (6) correct the addresses of 
the CHX, CSE, and PSE.
    The proposal adds Section 15 to the ITS Plan to provide for the use 
of a back-up system. In the event the ITS system becomes inoperable, 
ITS would utilize a designated NYSE operating system (``NYSE System'') 
on a preemptive and priority basis. The NYSE System is comprised of 
computers and peripheral equipment sufficient to operate ITS at a 
minimum 50% of the ITS's rated 17 messages per second capacity and 75% 
of the ITS's disk capacity. The NYSE System would assume the functions 
of the ITS within two hours in the event of a limited disaster and on 
the next day in the event of a full site disaster.
    The proposal amends the ITS Plan to provide for the use of the RCI 
by the Amex through the Amex Display Book Manager (``DBM''). The Amex 
DBM is a computerized system that when fully implemented will, to some 
extent, replace the original ITS stations on the Amex trading floor. 
The proposal will permit communications, through the Amex DBM, between 
the ITS and the Amex floor.
    The proposal eliminates references in the ITS Plan to line costs 
and line sharing. Because of technological advances, references to line 
costs and line sharing are no longer applicable. The ITS Plan will 
continue to delineate development and production costs.
    The proposal amends the ITS Plan's audit provision to require a 
biennial rather than an annual audit of expenses, allocations, and 
computations, by an independent public accountant. The proposal 
requires an internal audit to review all expenses, allocations, and 
computations by ITS for those years when an independent audit is not 
conducted.
    The proposal provides other technical amendments to the ITS Plan. 
The proposal changes all references to the MSE to CHX; and would 
correct the addresses of the CHX, CSE, and PSE.
    The Commission finds that approval of the amendment is consistent 
with the Act, in particular, with sections 11A(a)(1) (C)(ii) and (D) 
which provide for fair competition among the ITS participants and their 
members, and the linking of all markets for qualified securities 
through communications and data processing facilities which foster 
efficiency, enhance competition, increase the information available to 
brokers, dealers, and investors, facilitate the offsetting of 
investors' orders, and contribute to the best execution of such orders. 
The Commission also finds the amendment consistent with Rule 11Aa3-
2(c)(2) which requires the Commission to determine that the amendment 
is necessary and appropriate in the public interest, for the protection 
of investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market system 
or otherwise in furtherance of the purpose of the Act.
    The proposal provides for the use of a back-up facility in the 
event the ITS system becomes inoperable, and enhances order routing and 
execution of communications between the Amex and the other ITS 
participants. This will improve the efficiency and reliability of ITS, 
especially during periods of high trading volume.\3\ The proposal 
provides additional, technical amendments to the ITS Plan consistent 
with ITS's purpose: To facilitate intermarket trading in exchange-
listed equity securities.
---------------------------------------------------------------------------

    \3\See Division of Market Regulation, Commission, Market 2000, 
An Examination of Current Equity Market Developments, (January 
1994), Appendix II.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the ITS 
amendment is consistent with the Act and the rules and regulations 
thereunder applicable to the ITS and, in particular, Sections 11A(a)(1) 
(C)(ii) and (D) of the Act and Rule 11Aa3-2(c)(2).
    It is therefore ordered, pursuant to Section 11A(a)(3)(B) of the 
Act, that the amendment be, and hereby is, approved.


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(29).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8081 Filed 4-4-94; 8:45 am]
BILLING CODE 8010-01-M