[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55630-55632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27004]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36414; File Nos. SR-Amex-95-40, SR-BSE-95-15, SR-CHX-
95-23, SR-NYSE-95-34, and SR-Phlx-95-72]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval of Amendment No. 1 Thereto by the 
Philadelphia Stock Exchange, Inc., and Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Changes by the American 
Stock Exchange, Inc., Boston Stock Exchange, Inc., Chicago Stock 
Exchange, Incorporated, and New York Stock Exchange, Inc. Relating to 
an Extension of Certain Market-Wide Circuit Breaker Provisions

October 25, 1995.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 18, 1995, the 
Philadelphia Stock Exchange, Inc. (``Phlx''), on October 5, 1995, the 
American Stock Exchange, Inc. (``Amex''), on October 6, 1995, the 
Chicago Stock exchange, Incorporated (``CHX''), on October 11, 1995, 
the New York Stock Exchange, Inc. (``NYSE''), and on October 16, 1995, 
the Boston Stock Exchange, Inc. (``BSE''), 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 the extension of certain market-wide circuit breaker provisions. The 
Phlx proposal was published for comment in the Federal Register on 
October 6, 1995.\3\ No comments were 

[[Page 55631]]
received regarding the Phlx's proposed rule change. On October 20, 
1995, the Phlx filed Amendment No. 1 to its proposal.\4\ This order 
approves the Exchanges' proposals.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
    \3\See Securities Exchange Act Release No. 36319 (September 29, 
1995), 60 FR 52444.
    \4\Letter from William W. Uchimoto, First Vice President and 
General Counsel, Phlx, to Francois Mazur, Attorney, Office of Market 
Supervision, Division of Market Regulation, Commission, dated 
October 20, 1995 (``Amendment No. 1'').
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II. Description, of Proposals

    In 1988, the Commission approved circuit breaker proposals by the 
Exchanges.\5\ 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.\6\ 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.

    \5\See e.g., Securities Exchange Act Release Nos. 26198 (October 
19, 1988), 53 FR 41637 (Amex and NYSE); 26218 (October 26, 1988), 53 
FR 44137 (Midwest Stock Exchange, Incorporated (``MSE'')); 26357 
(December 14, 1988), 53 FR 51182 (BSE); and 26386 (December 22, 
1988), 53 FR 52904 (Phlx).
    As of July 8, 1993, the MSE changed its name to the CHX. 
Securities Exchange Act Release No. 32488 (June 18, 1993), 58 FR 
32484.
    \6\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.
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    The Commission approved the Amex, BSE, MSE, NYSE, Phlx and National 
Association of Securities Dealers' (``NASD'') circuit breaker proposals 
on a pilot program basis.\7\ Circuit breaker proposals by the Chicago 
Board Options Exchange, Inc.,\8\ the Pacific Stock Exchange, Inc.\9\ 
and the Cincinnati Stock Exchange, Inc.\10\ were approved by the 
Commission on a permanent basis. In 1989, the Exchanges and the NASD 
filed, and the Commission approved, proposals to extend their 
respective pilot programs.\11\ Subsequently, in 1990, 1991, 1992, 1993, 
and 1994, the Amex, NYSE, and Phlx filed, and the Commission approved, 
proposals to extend their respective pilot programs.\12\

    \7\See Securities Exchange Act Release Nos. 26198 (also granting 
temporary approval to NASD policy statement on trading halts); 
26218; 26357; and 26386, supra note 4.
    \8\See Securities Exchange Act Release No. 26198, supra note 4.
    \9\See Securities Exchange Act Release No. 26368 (December 16, 
1988), 53 FR 51942.
    \10\See Securities Exchange Act Release No. 26440 (January 10, 
1989, 54 FR 1830.
    \11\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).
    \12\See Securities Exchange Act Release Nos. 28580 (October 25, 
1990), 55 FR 45895; 29868 (October 28, 1991), 56 FR 56535; 31387 
(October 30, 1992), 57 FR 53157; 33120 (October 29, 1993, 58 FR 
59503; and 34900 (October 26, 1995), 59 FR 54932 (orders approving 
extensions of Amex, NYSE, and Phlx circuit breaker rules).
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    In 1991 and 1993, the BSE filed, and the Commission approved, 
proposals to extend its pilot program.\13\ In 1990, 1991, 1992, and 
1993, the CHX filed, and the Commission approved, proposals to extend 
its pilot program.\14\ In 1990, 1992, 1993, and 1994, 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 programs until October 31, 1996. 
The BSE and CHX filings propose extending their respective pilot 
programs until October 31, 1997.

    \13\See Securities Exchange Act Release Nos. 29868 and 33120, 
supra note 11 (orders approving the extension of the BSE circuit 
breaker rules, the most recent approving the pilot through October 
31, 1995).
    \14\Securities Exchange Act Release Nos. 28580, 29868, 31387, 
and 33120, supra not 11 (orders approving the CHX circuit breaker 
rules, the most recent approving the pilot through October 31, 
1995).
    \15\See Securities Exchange Act Release Nos. 28694 (December 12, 
1990), 55 FR 52119; 30304 (January 29, 1992), 57 FR 4658; 33292 
(December 6, 1993), 58 FR 65214; and 35133 (December 21, 1994), 59 
FR 67361 (orders approving NASD circuit breaker rules, the most 
recent approving the pilot through December 31, 1995).
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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 breakers that 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.
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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. Sec. 78f(b)(5) (1988).
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    Since the Commission approved these proposals in 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 changes 
filed by the Exchanges 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 Exchanges' 
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 

[[Page 55632]]
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 
uninterrupted. 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-95-40, SR-BSE-95-15, SR-CHX-95-23, SR-NYSE-95-34, or SR-Phlx-
95-72 and should be submitted by November 22, 1995.

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-
95-40, SR-NYSE-95-34 and SR-Phlx-95-72), are approved until October 31, 
1996; and that the BSE and CHX proposed rule changes (SR-BSE-95-15 and 
SR-CHX-95-23) are approved until October 31, 1997).

    \19\15 U.S.C. Sec. 78s(b)(2) (1988).
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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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27004 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M