[Federal Register Volume 60, Number 102 (Friday, May 26, 1995)]
[Notices]
[Pages 28007-28008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12981]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35753; File No. SR-CHX-95-08]


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 1 Relating to Order Execution Guarantees

May 22, 1995.

I. Introduction

    On March 2, 1995, the Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt new Rule 37(d), Article 
XX to allow specialists on the Exchange to provide order execution 
guarantees that are more favorable than those currently required under 
CHX Rule 37(a), Article XX (``BEST Rule'')\3\ through the Exchange's 
automated execution system (``MAX'').

    \1\15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
    \3\See CHX 37(a), Article XX. [[Page 28008]] 
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35547 (Mar. 29, 1995), 60 FR 17375 (Apr. 5, 
1995). No comments were received on the proposal. On April 13, 1995, 
the Exchange submitted Amendment No. 1 to the proposed rule change.\4\ 
This order approves the proposed rule change, including Amendment No. 1 
on an accelerated basis.

    \4\See letter from David Rusoff, Foley & Lardner, to Glen 
Barrentine, Senior Counsel, SEC, dated April 12, 1995. Amendment No. 
1 amends the text of the proposed rule change and clarifies its 
intent and scope.
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II. Description of Proposal

    At the present time, under the BEST Rule, Exchange specialists are 
required to guarantee executions of market and limit orders under 
certain circumstances. Under the rule, specialists must accept and 
guarantee execution of all agency orders, other than limit orders in 
Nasdaq/NMS Securities, from 100 up to and including 2099 shares. For 
all agency market orders, the specialist must fill the orders at the 
best bid or best offer disseminated pursuant to Rule 11Ac1-1 under the 
Act.\5\ For all agency limit orders in Dual Trading System issues,\6\ 
the specialist must fill the order if the bid or offer at the limit 
price has been exhausted in the primary market, there has been a price 
penetration of the limit in the primary market (trade through of a CHX 
limit order), or the issue is trading at the limit price on the primary 
market unless it can be demonstrated that such order would not have 
been executed if it had been transmitted to the primary market or the 
broker and specialist agree to a specific volume related or other 
criteria for requiring a fill.

    \5\17 CFR 240.11Ac1-1 (1994).
    \6\The Dual Trading System of the Exchange allows the execution 
of both round-lot and add-lot orders in certain issues assigned to 
specialists on the Exchange and listed on either the New York Stock 
Exchange or the American Stock Exchange.
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    Moreover, pursuant to current Rule 37(b), Article XX, the 
Exchange's MAX system provides for the automatic execution of orders 
that are eligible for execution under the Exchange's BEST Rule as 
discussed above and certain other orders as long as such orders are 
less than or equal to the auto-execution threshold. The specialist must 
set the auto-execution threshold at 1099 shares or greater on a stock-
by-stock basis.
    The Exchange proposes to amend Rule 37, Article XX by adding new 
subsection (d) to allow specialists to provide guarantees that are more 
favorable than those required under the BEST Rule. Moreover, under Rule 
37(d), the Exchange, at the request of a specialist, may provide for 
automatic execution of orders through MAX in accordance with the 
additional guarantees that the specialists decide to provide. The 
Exchange expects to file with the Commission at a later time the 
specific modifications to the parameters of the automated execution 
system that are required to implement the additional guarantees.\7\

    \7\Some examples provided by the Exchange of the different 
options that may be available to specialists include SuperMAX and, 
if reactivated, Enhanced MAX. See letter from David Rusoff, Foley & 
Lardner, to Glen Barrentine, Senior Counsel, SEC, dated April 12, 
1995.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6(b).\8\ The Commission 
believes the proposal is consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, and, in general, to protect investors and the public 
interest.

    \8\15 U.S.C. 78f(b) (1988 & Supp. v 1993).
    The Commission believes that the proposed rule change to allow 
specialists to provide more favorable guarantees than those currently 
required under CHX's Best Rule will benefit investors. For example, 
public customers may benefit by receiving executions at a better price 
or for a greater size than the minimum requirements under the Best 
Rule. The Commission believes that the proposal also would enhance 
competition on the Exchange by providing specialists with the 
opportunity to compete based upon the additional guarantees they offer.
    The Commission notes, however, that the Exchange has indicated that 
this proposal is intended to be an ``enabling rule.'' Accordingly, the 
Commission expects that the future filings proposing further 
modifications to MAX will describe in detail the more favorable 
guarantees being offered. Moreover, the Commission will review such 
proposals to ensure that they do not detract from order exposure.
    The Commission finds good cause for approving amendment No. 1 to 
the proposed rule change prior to the thirteenth day after the date of 
publication of notice of filing thereof. The Exchange's original 
proposal was published in the Federal Register for the full statutory 
period and no comments were received.\9\ Amendment No. 1 amends the 
text of the rule to delete extraneous language and to make clear that 
the guarantee is not ``promised'' to a particular individual, but 
provided for issues chosen by the specialist. Moreover, Amendment No. 1 
clarifies the intent and scope of the proposed rule change and the 
options that the Exchange anticipates for the automated system.

    \9\See Securities Exchange Act Release No. 35547 (Mar. 29, 
1995), 60 FR 17375 (Apr. 5, 1995).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street NW., Washington, 
D.C. 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. Sec. 552, will be available for inspection and 
copying at the Commission's Public Reference Section, 450 Fifth Street 
NW., Washington, D.C. 20549. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CHX-95-08 and 
should be submitted by June 16, 1995.

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CHX-95-08) is approved.

    \10\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\17 CFR 200.30-34(a)(12) (1004).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12981 Filed 5-25-95; 8:45 am]
BILLING CODE 8010-01-M