[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8402]


[[Page Unknown]]

[Federal Register: April 8, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33849; File No. SR-CSE-94-01]

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
Cincinnati Stock Exchange, Inc. Relating to the Exchange's Policy 
Governing Quality of Markets

April 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 February 
25, 1994, the Cincinnati Stock Exchange, Inc. (``CSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, 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.

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

    The CSE hereby proposes to amend the policy of the Exchange 
governing the quality of its markets.

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 CSE has grown as a direct result of the mandate in section 11A 
of the Act, 15 U.S.C. 78k-1, to modernize this country's securities 
market. The CSE states that, through its automated trading system, the 
National Securities Trading System (``NSTS''), the CSE has eliminated 
the need for a physical, centralized trading floor, replacing it, and 
all its attendant overhead, with an efficient, computerized auction 
market which provides market information and trading interaction 
equivalent to that provided on the traditional floors of the other 
exchanges. The CSE also has replaced the specialist system with a 
competing specialist/open book system. Finally, the CSE states that it 
is the only exchange that provides automatic executions to other stock 
exchanges in the Intermarket Trading System (``ITS''). According to the 
CSE, this makes the CSE's quotes the firmest quotes in the national 
market system.
    The CSE is no longer the smallest regional stock exchange, having 
recently passed both of its two closest regional rivals in trade and 
share volume. Drawing upon the value of the CSE's preferencing 
initiative and the strength of the Exchange's affiliation with the 
Chicago Board Options Exchange, which manages the CSE's computer 
facility, Cincinnati has experienced a fourfold growth in trade volume 
and a threefold growth in share volume during the past two years. The 
CSE currently receives seven to nine times as many ITS commitments to 
trade from the primary market as it generates to the primary market, a 
standard unmatched by any other regional exchange.
    In order to continue this trend of increasing participation as a 
competitive alternative marketplace in the national market system, the 
CSE proposes to make two major changes to its quality of markets 
policy. First, the Exchange proposes to eliminate the use of 
autoquoting. The CSE will define autoquoting as the computerized 
tracking of either the primary market quote or the national best bid or 
offer. Elimination of autoquoting, in combination with the new spread 
parameter policy described below, will encourage all CSE market makers 
to make deeper, more competitive markets.
    Consistent with its character as an electronic marketplace, the CSE 
will permit its specialists to generate their quotes with computers as 
long as they do not autoquote and as long as their quotes are 
accessible. Accessibility will be defined by quantifiable standards 
involving ITS inbound activity, price improvement, and the number of 
quotes generated. In addition, all CSE market makers, whether they 
generate their quotes automatically or manually, will be limited to a 
specific number of quotes depending on the number of issues they trade 
and the number of trades they produce.
    The second change to the Exchange's quality of markets policy is a 
proposal to narrow the maximum allowable quotation spread that may be 
entered by a CSE specialist in a particular security to 125% of the 
average of the three narrowest quotation spreads for that security then 
being disseminated by the CSE and all the other ITS participant market 
centers.\1\ The proposal also reaffirms the CSE's commitment to minimum 
size quotations of 500 shares for ``active'' stocks (ie., stocks with 
greater than five million shares of consolidated monthly volume) and 
200 shares for ``inactive'' stocks. The CSE believes that its proposal 
will make the CSE the most stringent of any regional exchange with 
respect to its spread and size parameters.
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    \1\The Commission has requested data from the Exchange showing 
that the rule change will result in narrower maximum allowable 
quotations spreads.
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    In combination, the elimination of autoquoting and the narrowing of 
allowable quotation spread parameters represent a serious commitment by 
the CSE to improve the quality and credibility of its marketplace. 
These changes will add liquidity to the national market system, provide 
a better opportunity for order interaction, and improve the CSE's 
ability to compete.
2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the Act 
in general and furthers the objectives of section 6(b)(5) in particular 
in that it is intended to promote just and equitable principles of 
trade and to remove impediments to and perfect the mechanism of a free 
and open market and a national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The CSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 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 CSE. All 
submissions should refer to File No. SR-CSE-94--01 and should be 
submitted by April 29, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8402 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M