[Federal Register Volume 60, Number 130 (Friday, July 7, 1995)]
[Notices]
[Pages 35445-35446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16654]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35922; File No. 10-100]


Exempted Exchanges; AZX, Inc.; Amendment to Application for 
Exemption From Registration as an Exchange Under Section 5 of the 
Securities Exchange Act of 1934; Request for Comments

June 30, 1995.

I. Introduction

    AZX, Inc., formerly known as Wunsch Auction Systems, Inc., operates 
the Arizona Stock Exchange (``AZX''), a computerized, single-price 
auction system that facilitates trading of registered equity securities 
by broker-dealers and institutions. AZX's single-price auctions are 
conducted outside the regular trading hours of the New York Stock 
Exchange (``NYSE''), at 5:00 p.m. (ET) each trading day. AZX operates 
pursuant to the terms and conditions of a Commission order (``exemption 
order'') granting AZX a ``limited volume'' exemption from registration 
as a national securities exchange,\1\ and a staff no-action letter with 
respect to the non-registration of AZX as a broker-dealer, clearing 
agency, transfer agent, and exclusive securities information 
processor.\2\ In the exemption order, the Commission cited AZX's off 
hours operation as one of the factors that justified a prediction that 
AZX would have a limited volume of trading.\3\

    \1\ Securities Exchange Act Release No. 28899 (February 20, 
1991), 56 FR 8377.
    \2\ Letter regarding Wunsch Action Systems, Inc. (February 28, 
1991) (``no-action letter''). The no-action letter also provided 
AZX's original crossing broker, Bankers Trust Brokerage Corporation 
(``BTBC'') with relief with respect to non-registration as an 
exchange, clearing agency, transfer agent, and exclusive securities 
information processor. BTBC was replaced as AZX's crossing broker by 
Investment Technology Group, Inc. (``ITG, Inc.'') in February 1995.
    \3\ The other factors cited by the Commission in the exemption 
order that justified a prediction of limited volume were the 
relative infrequency of the auctions and the absence of 
participation by broker-dealers with market-making obligations. 56 
FR 8377, 8380.
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    On June 2, 1995, AZX, Inc. filed with the Commission, pursuant to 
Rule 6a-1 under the Act,\4\ an amendment to its application for 
exemption from registration as a national securities exchange. In its 
amendment, AZX, Inc. proposes to operate AZX during regular trading 
hours.\5\ Under the proposal, AZX would conduct one additional daily 
auction, at a yet-to-be chosen fixed time between 9:45 and 10:00 a.m. 
(ET), in Nasdaq National Market securities.\6\ AZX initially plans to 
trade only 15 of the approximately 4,140 Nasdaq National Market 
securities, but will expand as demand warrants.

    \4\ 17 CFR 240.6a-1.
    \5\ ``Regular trading hours'' refers to the time period in which 
the NYSE permits trading--9:30 a.m. to 4:00 p.m. (ET) each trading 
day.
    \6\ Nasdaq National Market securities were formerly known as 
``Nasdaq/MNS'' securities.
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    The Commission is soliciting public comment on whether it is 
appropriate to amend the exemption order to reflect AZX's proposed 
morning trading session in Nasdaq National Market securities.

II. The Morning Trading Session

    AZX's proposed morning auction is identical to AZX's current 
evening auction in terms of its: (1) Participation criteria; (2) means 
of access to the system; (3) classification and visibility of orders; 
(4) algorithm for discovering the price at which orders will be 
executed (the ``equilibrium'' or ``auction'' price); (5) confirmation, 
clearance and settlement of matched transactions; and (6) commission 
structure.
    The proposed morning trading auction will differ in terms of:
      Eligible securities. Securities eligible to be traded in 
the morning auction will be limited to Nasdaq National Market 
securities. Both Nasdaq National Market and exchange-listed 

[[Page 35446]]
securities are eligible for trading in the evening auction.
      Time period for order entry. The time period during which 
a participant may enter a limit order for auction trading will be 
limited to the period from 9:00 a.m. to ``auction end'' time--a minimum 
of 45 minutes and a maximum of one hour. Participants in the evening 
auction may enter orders within a two-hour period (from 3:00 p.m. to 
5:00 p.m.) prior to the auction end time.
      Price increments for entered orders. Order must be 
entered in \1/8\ point price increments, and are limited to ``odd'' 
sixteenths (i.e., \1/16\, \3/16\. \5/16\ etc). By contrast, 
participants in the evening auction enter orders in increments of \1/
16\ point, and those orders may fall both on even sixteenths and odd 
sixteenths.\7\

    \7\ The purpose of the minimum \1/8\ increment is to encourage 
early entry of Open Book orders, by protecting those orders from 
being out-bid or -offered by small amounts, such as sixteenths, at 
the end of the auction. The purpose of requiring the minimum 
increments to fall on odd sixteenths is to allow a participant to 
enter an order at the midpoint of the standard spread in the Nasdaq 
market, so that a participant may potentially trade at a price that 
is within that standard spread.
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      Transaction reporting. ITG, Inc. will report transactions 
executed in the morning auction to the Nasdaq transaction reporting 
system. This is unlike the current after-hours auction, in which 
completed transactions are not reported to any consolidated transaction 
reporting system.\8\

    \8\ AZX currently reports completed transactions to the NASD by 
facsimile transmission at the end of each auction. The transmissions 
include the name of the security traded, the volume sold, and the 
equilibrium price.
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III. Solicitation of Comment

    The Commission is soliciting public comment on whether to amend the 
AZX exemption order to reflect the proposed trading session during 
regular trading hours in Nasdaq National Market securities. Interested 
persons should submit six copies of their comment letter to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street 
NW., Washington, DC 20549. Copies of all submissions Commission will be 
available for inspection and copying in the Commission's Public 
Reference Room, 450 Fifth Street NW., Washington, DC. All submissions 
should refer to the file number in the caption above and should be 
submitted by July 28, 1995.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16654 Filed 7-6-95; 8:45 am]
BILLING CODE 8010-01-M