[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Notices]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27160]


[[Page Unknown]]

[Federal Register: November 2, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34900; File Nos. SR-Amex-94-40, SR-NYSE-94-33, and SR-
Phlx-94-44]

 

Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Changes by the New York Stock Exchange and 
the Philadelphia Stock Exchange and Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change by the American Stock 
Exchange Relating to an Extension of Certain Market-Wide Circuit 
Breaker Provisions

October 26, 1994.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act),\1\ and Rule 19b-4 thereunder,\2\ on October 5, 1994, the 
American Stock Exchange, Inc., on September 22, 1994, the New York 
Stock Exchange, Inc. (``NYSE''), and on September 12, 1994, the 
Philadelphia Stock Exchange, Inc. (``Phlx''), respectively (each 
individually referred to herein as an ``Exchange'' and two or more 
collectively referred to as ``Exchanges''), submitted to the Securities 
and Exchange Commission (``Commission'') proposed rule changes relating 
to extending certain market-wide circuit breaker provisions. On 
September 30, 1994, the NYSE and the Phlx each filed an Amendment No. 1 
to their respective proposals.\3\ The NYSE proposal was published for 
comment in the Federal Register on October 14, 1994,\4\ and the Phlx 
proposal was published for comment in the Federal Register on October 
14, 1994.\5\ No comments were received on either of these proposed rule 
changes. This order approves the Exchanges' proposals and the 
Exchanges' Amendments.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\NYSE Amndment No. 1 requests that the Commission approve the 
NYSE's proposal on an accelerated basis pursuant to section 19(b)(2) 
of the Act to allow its circuit breaker provision to continue 
uninterrupted. In addition, NYSE Amendment No. 1 corrects a 
typographical error appearing in Section I of Exhibit 1 to its 
filing by replacing 1994 with 1995. See letter from Brian M. 
McNamara, Vice President, Market Surveillance, NYSE, to Sharon 
Lawson, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated September 29, 1994 (``NYSE 
Amendment No. 1''). In Phlx Amendment No. 1, the Phlx also requests 
accelerated approval of its proposal pursuant to Section 19(b)(2) of 
the Act. See letter from Gerald D. O'Connell, First Vice President, 
Regulation and Trading Operations, Phlx, to Michael Walinskas, 
Branch Chief, Division, Commission, dated September 30, 1994 (``Phlx 
Amendment No. 1'').
    \4\See Securities Exchange Act Release No. 34799 (October 6, 
1994), 59 FR 52204.
    \5\See Securities Exchange Act Release No. 34800 (October 6, 
1994), 59 FR 52205.
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II. Description of Proposals

    In 1988, the Commission approved circuit breaker proposals by the 
Exchanges.\6\ In general, the Exchanges' circuit breaker rules provide 
that trading would halt for one hour if the Dow Jones Industrial 
Average (DJIA'') were to decline 250 points from its previous day's 
closing level and, thereafter, trading would halt for an additional two 
hours if the DJIA were to decline 400 points from its previous day's 
close.\7\ These circuit breaker mechanisms are an important part of the 
measures adopted by the Exchanges to address market volatility concerns 
in the wake of the October 1987 Market Break.

    \6\See e.g., Securities Exchange Act Release Nos. 26386 
(December 22, 1988), 53 FR 52904 (Phlx); and 26198 (October 19, 
1988), 53 FR 41637 (Amex and NYSE).
    \7\If the 250-point trigger were reached within one hour of the 
scheduled close of trading for a day, or if the 400-point trigger 
were reached within two hours of the scheduled close of the trading 
day, trading would halt for the remainder of the day. If, however, 
the 250-point trigger were reached between one hour and one-half 
hour before the scheduled closing, or if the 400-point trigger were 
reached between two hours and one hour before the scheduled closing, 
the Exchanges would have the authority to use abbreviated reopening 
procedures either to permit trading to reopen before the scheduled 
closing or to establish closing prices.
    The Commission approved the Amex, Boston Stock Exchange, Inc. 
(``BSE''), Midwest Stock Exchange, Inc. (``MSE''), NYSE, Phlx and 
National Association of Securities Dealers' (``NASD'')\8\ circuit 
breaker proposals on a pilot program basis. Circuit breaker proposals 
by the Chicago Board Options Exchange, Inc. (``CBOE''),\9\ the Pacific 
Stock Exchange, Inc. (``PSE'')\10\ and the Cincinnati Stock Exchange, 
Inc. (``CSE'')\11\ were approved by the Commission on a permanent basis 
rather than as a pilot program. In 1989, the Exchanges and the NASD 
filed, and the Commission approved, proposals to extend their 
respective pilot programs.\12\ Subsequently, in 1990, 1991, 1992, and 
1993, the Amex, NYSE, and Phlx filed, and the Commission approved, 
proposals to extend their respective pilot programs.\13\ In 1993, the 
BSE and Chicago Stock Exchange, Inc. (``CHX'') (formerly MSE) filed, 
and the Commission approved, proposals to extend their respective pilot 
programs.\14\ In 1990, 1992, and 1993, the NASD filed, and the 
Commission approved, proposals to extend its pilot program.\15\ The 
proposals for the Exchanges are nearing their expiration dates and the 
Amex, NYSE, and Phlx have filed with the Commission proposals to extend 
further their respective pilot program until October 31, 1995.

    \8\See Securities Exchange Act Release No. 26198 (October 19, 
1988), 53 FR 41673 (order granting temporary approval to Amex, NASD, 
and NYSE circuit breaker rules); 26357 (December 14, 1988), 53 FR 
51182 (order granting temporary approval to BSE circuit breaker 
rule); 26218 (October 26, 1988), 53 FR 44137 (order granting 
temporary approval to MSE circuit breaker rule); and 26386 (December 
22, 1988), 53 FR 52904 (order granting temporary approval to Phlx 
circuit breaker rule).
    \9\See Securities Exchange Act Release No. 26198, supra note 7.
    \10\See Securities Exchange Act Release No. 26368 (December 16, 
1988), 53 FR 51942.
    \11\See Securities Exchange Act Release No. 26440 (January 10, 
1989), 54 FR 1830.
    \12\See Securities Exchange Act Release No. 27370 (October 23, 
1989), 54 FR 43881 (order approving extension of Amex, BSE, MSE, 
NASD, NYSE and Phlx circuit breaker rules).
    \13\See Securities Exchange Act Release Nos. 25580 (October 25, 
1990), 55 FR 45895; 29868 (October 28, 1991), 56 FR 56535; 31387 
(October 30, 1992), 57 FR 53157; and 33120 (October 29, 1993), 58 FR 
59503 (orders approving extensions of Amex, NYSE, and Phlx circuit 
breaker rules).
    \14\See Securities Exchange Act Release No. 33120 supra note 13 
(extending the BSE's and CHX's respective circuit breaker pilot 
programs until October 31, 1995).
    \15\See Securities Exchange Act Release No. 28694 (December 12, 
1990), 55 FR 52119; 30304 (January 29, 1992), 57 FR 4658; and 33292 
(December 6, 1993), 58 FR 65214 (orders approving extension of NASD 
circuit breaker rules, the most recent order approving the pilot 
through December 31, 1994).
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    The circuit breaker mechanisms were enacted in the wake of the 
October 1987 Market Break. Both the Report of the Presidential Task 
Force on Market Mechanisms (``Brady Report'') and the Working Group's 
Interim Report\16\ recommended that coordinated trading halts and 
reopening procedures be developed that would be implemented in all U.S. 
markets for equity and equity related products during large, rapid 
market declines.\17\ In response, the SROs submitted proposals to 
implement circuit breaker procedures that are designed to substitute 
planned trading halts for unplanned and destabilizing market closings. 
In addition, the stock index futures exchanges have implemented 
parallel circuit breakersthat were approved by the CFTC on a permanent 
basis.

    \16\The Working Group in Financial Markets was established by 
the President in March 1988 to provide a coordinating framework for 
consideration, resolution, recommendation, and action on the complex 
issues raised by the market break in October 1987. The Working Group 
consists of the Chairmen of the Commission, Board of Governors of 
the Federal Reserve System and the Commodity Futures Trading 
Commission (``CFTC''), and the Under Secretary for Finance of the 
Department of the Treasury.
    \17\In particular, the Working Group recommended a one-hour 
trading halt if the DJIA declined 250 points from its previous day's 
closing level, and a subsequent two-hour trading halt if the DJIA 
declined 400 points below its previous day's closing level. The 
Working Group also recommended that the NYSE use reopening 
procedures, similar to those used on Expiration Fridays, that are 
designed to enhance the information made public about market 
conditions.
III. Discussion

    The Commission believes that the Exchanges' proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to national securities exchanges. 
Specifically, the Commission believes the Exchanges' proposals are 
consistent with the requirements of section 6(b)(5) of the Act\18\ in 
that they are designed to remove impediments to, and perfect the 
mechanism of, a free and open market, and to protect investors and the 
public interest.

    \18\15 U.S.C. 78f(b)(5) (1988).
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    Since the Commission approved these proposals in October 1988, the 
DJIA has not experienced a one day, 250-point decline that would 
trigger a market halt. Nevertheless, the Commission continues to 
believe that circuit breaker procedures are desirable to deal with 
potential strains that may develop during periods of extreme market 
volatility, and, accordingly, the Commission believes that the pilot 
programs should be extended. The Commission also believes that circuit 
breakers represent a reasonable means to retard a rapid, one day market 
decline that can have a destabilizing effect on the nation's financial 
markets and participants in these markets.
    Accordingly, the Commission finds that the proposed rule change 
filed by the Exchanges, including NYSE Amendment No. 1 and Phlx 
Amendment No. 1, are consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange, and, in particular, the requirements of section 6 
and the rules and regulations thereunder.
    The Commission finds good cause for approving the proposed rule 
changes prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register because there are no 
changes being made to the current provisions, which originally were 
subject to the full notice and comment procedures, and accelerated 
approval would enable the pilots to continue on an uninterrupted basis. 
Due to the importance of these circuit breakers for market confidence, 
soundness, and integrity, it is necessary and appropriate that these 
procedures continue on an uninterrupted basis. Therefore, the 
Commission believes that granting accelerated approval of the proposed 
rule changes is appropriate and consistent with sections 6 and 19(b)(2) 
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 rules changes that are filed 
with the Commission, and all written communications relating to the 
proposed rule changes 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 in the Commission's Public Reference Room. Copies of such 
filings also will be available for inspection and copying at the 
principal offices of the above-mentioned exchanges. All submissions 
should refer to File Nos. SR-AMEX-94-40, SR-NYSE-94-33, or SR-Phlx-94-
44, and should be submitted by November 23, 1994.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\19\ that the Amex, NYSE, and Phlx proposed rule changes (SR-Amex-
94-40, SR-NYSE-94-33 and SR-Phlx-94-44), including NYSE Amendment No. 1 
and Phlx Amendment No. 1, are approved until October 31, 1994.

    \19\15 U.S.C. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\

    \20\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-27160 Filed 11-1-94; 8:45 am]
BILLING CODE 8010-01-M