[Federal Register Volume 59, Number 110 (Thursday, June 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14030]


[[Page Unknown]]

[Federal Register: June 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34155; File No. SR-CHX-94-14]

 

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc., to Establish a Policy Relating to the Automatic Execution Feature 
of the Midwest Automated Execution System

June 3, 1944.
    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 May 31, 
1994, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
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 CHX has published to members a policy relating to the automatic 
execution feature of the Midwest Automated Execution (``MAX'') System 
which, inter alia, automates the Exchange's Guaranteed Execution System 
(``BEST System'') pursuant to Article XX, Rule 37 of the CHX Rules.\1\
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    \1\The policy, which was included in a Notice To Members dated 
May 31, 1994, states, in part, that beginning with the opening on 
April 4, 1994, specialists have had the ability to switch their MAX 
terminals off automatic execution at their respective posts. This 
new functionality is being implemented to allow specialists to 
timely switch to a manual execution mode when a certain analyst's 
report is broadcast on cable T.V., if market conditions in a 
particular stock warrant it. Specialists should switch to manual 
mode only when absolutely necessary and are required to return to 
the automatic execution functionality immediately when the primary 
market quotes accurately reflect market conditions. A specialist 
cannot remain in manual mode, under this paragraph, for more than 10 
minutes without securing the permission of two (2) floor officials.
    In all other instances, when a specialist believes it is 
necessary to be in a manual execution mode, he or she must always 
seek the permission of two (2) floor officials before switching to 
manual. This new functionality cannot be used merely because of a 
volatile market, but shall only be permitted when the primary market 
quotes are inaccurate due to market conditions. For example, this 
new functionality might be used if it became apparent that the NYSE 
invoked its unusual market conditions rule (pursuant to SEC Rule 
11Ac1-1). Floor officials must be satisfied that the conditions 
which permit putting an issue on manual mode are present before 
granting a specialist's request to switch to the manual mode and 
shall monitor the conditions which formed the basis for their 
decision to ensure that specialists' return to the auto-execution 
feature when such conditions are no longer present. Specialists also 
have the responsibility, and are required, to immediately reinstate 
MAX's automatic execution functionality when the primary market 
quotes accurately reflect market conditions.
    Specialists are reminded that when operating in the manual mode 
they still have the responsibility to fill customer orders according 
to CHX rules--including the BEST Rule. All pricing executions will 
be reviewed for accuracy.
    The Exchange and the Committee on Floor Procedure anticipate 
that this capability will only be utilized on an infrequent basis 
and only in unusual circumstances.
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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

I. Purpose
    The MAX System automates the requirements of Rule 37 of Article XX 
(the BEST System) which guarantees executions at the best market up to 
a certain size for agency orders. Numbered paragraph 7 under Rule 37\2\ 
allows Specialists and floor brokers to seek relief from the 
requirements of the BEST System in unusual trading situations. For 
example, on January 26, 1994, the Exchange filed SR-CHX-94-2 which set 
forth a temporary policy that dealt with one type of unusual trading 
situation. That policy expired on April 9, 1994.\3\
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    \2\CHX Rule 37, Paragraph 7 states that in unusual trading 
situations, a specialist or floor broker may seek relief from the 
requirements of Rule 37, Paragraphs 1 through 6 from two members of 
the Committee on Floor Procedure or a designated member of the 
Exchange staff who would have authority to set execution prices.
    \3\The temporary policy in File No. SR-CHX-94-2 was amended by 
the Exchange to provide for a ``sunset'' provision whereby the 
effectiveness of the policy would terminate on April 9, 1994. See 
letter from J. Craig Long, Foley & Lardner, to Louis A. Randazzo, 
Attorney, Office of Derivative and Exchange Oversight, SEC, dated 
February 2, 1994.
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    The purpose of this rule filing is to publish to members a new 
policy that describes procedures to be followed in the event that 
unusual trading situations arise in the future which might require 
relief from the automatic execution feature of MAX in a particular 
stock.\4\ In the event that the automatic execution feature is switched 
to the manual mode, the Exchange will disseminate this fact to MAX 
terminals as an administrative message, if time permits.
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    \4\The Commission notes that the policy does not permit 
specialists to switch to manual execution mode merely because a 
certain analyst's report is broadcast on cable television. The 
Commission would be concerned if the MAX terminals were switched off 
automatic execution in the absence of market conditions that 
resulted in inaccurate primary market quotes.
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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 any 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 
Procedures 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 Room, 450 Fifth Street NW., Washington, 
DC 20549. Copies of the 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-94-14 and should be submitted by June 30, 
1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-14030 Filed 6-8-94; 8:45 am]
BILLING CODE 8010-01-M