[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Notices]
[Pages 1803-1805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-833]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36723; File No. SR-CHX-95-29]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Stock Exchange, Incorporated Relating to Revisions to Its Rules in 
Connection With the Chicago Stock Exchange, Incorporated's Decision To 
Withdraw From the Clearance and Settlement and Securities Depository 
Businesses

January 16, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 26, 1995, the Chicago Stock Exchange, 

[[Page 1804]]
Incorporated (``CHX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II 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.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Interpretation and Policy .01 to Rule 
3 of Article XXI, add Rule 14 to Article XXI, and amend Rule 4, Rule 12 
and Rule 13 of Article XXI of the Exchange's rules.

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 III below. The self-regulatory 
organization has prepared summaries, set forth in Sections A, B, and C 
below, of the most significant aspect of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In Securities Exchange Act Release No. 36684 (January 5, 1996) File 
No. SR-CHX-95-27), the Commission approved a proposed rule change by 
the Exchange relating to a decision by the CHX to withdraw from the 
clearance and settlement and securities depository businesses, 
conducted through its subsidiaries, the Midwest Clearing Corporation 
(``MCC'') and the Midwest Securities Trust Company (``MSTC''), among 
other things.\3\ The purpose of the current proposed rule change is to 
make certain changes to the CHX rules, which changes have been 
necessitated because of the arrangements between the CHX, MCC, MSTC, 
The Depository Trust Company (``DTC''), the National Securities 
Clearing Corporation, and the Securities Trust Company of New Jersey 
that are described in SR-CHX-95-27.\4\

    \3\ In connection with the CHX's withdrawal from these 
businesses, in SR-CHX-95-27 the Exchange also eliminated the 
Participant Governor positions from the CHX Board of Governors.
    \4\ The arrangement relevant to this proposed rule change 
provide for the following: (1) MSTC and MCC would cease providing 
securities depository and clearing services by January 15, 1996; (2) 
MSTC and MCC sole participants would be offered the opportunity to 
become DTC and NSCC participants if they met DTC and NSCC 
qualifications; (3) DTC and NSCC would cooperate with MSTC and NSCC 
to assure the orderly transfer of securities and positions from MSTC 
and NSCC participants that authorize such transfers; and (4) under 
certain circumstances, CHX and its subsidiaries would be free to 
provide certain specified securities depository and clearing-related 
services and products to CHX members and certain third parties.
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    Amended Rule 4 of Article XXI will codify an existing policy that 
all CHX members that clear transactions executed on the floor of the 
Exchange maintain an account at a Registered Clearing Agency \5\ that, 
among other things, has entered into appropriate agreements with the 
Exchange for the recording of all their transactions (a ``Qualified 
Clearing Agency''). Rule 4 also will require all specialists and market 
makers to maintain special, designated accounts at a Qualified Clearing 
Agency, either directly or through a clearing member, in which all 
transactions that the specialist or market maker effects in its 
capacity as a specialist or market maker are recorded.

    \5\ Article XXI, Rule 4, Interpretation and Policy .01 of the 
proposed rule change defines a Registered Clearing Agency as an 
entity that meets the definition of ``clearing agency'' as that term 
is defined in Section 3(a)(23) of the Act, 15 U.S.C. 78c(a)(23), and 
is registered with the SEC pursuant to Section 19(a) of the Act, 15 
U.S.C. 78s(a).
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    The Exchange is also adding Interpretation and Policy .01 to 
Article XXI, Rule 3--Delivery of Tickets to be Compared, which states 
that members shall only submit to the Exchange trade data for 
executions on the CHX floor pursuant to this rule for dissemination or 
forwarding to a Qualified Clearing Agency.
    In addition to the changes to Rules 3 and 4 of Article XXI, the 
Exchange is amending existing Rule 12 and Rule 13 of Article XXI to 
delete references to services provided by MSTC. Furthermore, the 
Exchange is adding a new Rule 13 to Article XXI to enable the Exchange 
to provide special services to, and act as agent for, specialists, 
market makers and floor brokers. Such services may include making 
deposits or withdrawals from a bank account, borrowing securities, 
providing and keeping reports and records, and special cashiering, 
among other things. Finally, the Exchange is adding a new Rule 14 to 
Article XXI relating to its guaranty of certain obligations of MCC and 
MSTC to a Qualified Clearing Agency and to DTC, as the case may be. 
Members of the Exchange that are Sponsored Participants or Temporary 
Sponsored Participants of MCC and MSTC will indemnify the Exchange and 
hold it harmless against any losses and liabilities incurred by the 
Exchange under the guaranty.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \6\ 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 interests.

    \6\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were either solicited or received.

III. 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, N.W., 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. 552, will be available for inspection and copying at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
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-95-29 and should be 
submitted by February 13, 1996.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the CHX's proposal to revise its rules in 


[[Page 1805]]
connection with the Exchange's withdrawal from the clearance and 
settlement and securities depository businesses is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange. In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act.\7\ Section 6(b)(5) requires, among other 
things, that the rules of an exchange are designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.

    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed amendments to Article 
XXI, Rules 3 and 4, regarding members' submission of trade data to the 
Exchange and maintenance of accounts with Qualified Clearing Agencies 
for recording purposes, fosters such cooperation and coordination with 
Qualified Clearing Agencies by providing an appropriate mechanism for 
the submission and recording of CHX members' trade information.
    The Commission also believes that Article XXI, Rules 12 and 13, as 
amended, which allows the Exchange to adopt procedures for the closure 
of overdue contracts in securities and to provide certain special 
services for its members (including making deposits or withdrawals from 
a bank account, borrowing securities, providing and keeping reports and 
records, and special cashiering), respectively, give the Exchange 
appropriate authority to perform such services and thereby facilitates 
the implementation of the proposed arrangements relating to the CHX's 
decision to withdraw from the businesses it conducted through MCC and 
MSTC.\8\

    \8\ See supra note 4 and accompanying text.
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    Finally, the Commission believes that the proposed Article XXI, 
Rule 14, which indemnifies the Exchange for providing a guaranty to DTC 
or a Qualified Clearing Agency to guarantee the obligations of MSTC and 
MCC to DTC or such Qualified Clearing Agency, should ensure that the 
Exchange is not discouraged from providing such guaranties, thus 
fostering cooperation and coordination with those persons engaged in 
the clearance and settlement of Exchange transactions.
    The Commission finds good cause for approving the proposed rule 
change prior the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register. The Commission believes that 
accelerated approval of the proposal is appropriate to ensure that 
adequate rules are in place as of January 16, 1996, the date by which 
CHX members must find substitute service providers as a result of the 
Exchange's withdrawal from the securities clearing services and 
depository businesses it conducted through MCC and MSTC. Further, the 
proposal involving the arrangements relating to the CHX's decision to 
withdraw from such businesses was noticed previously in the Federal 
Register for the full statutory period and has been approved by the 
Commission.\9\

    \9\ See supra text accompanying note 3.
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    It is therefore ordered, pursuant to Section 19(b)(2) \10\ that the 
proposed rule change is hereby approved on an accelerated basis.

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

    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-833 Filed 1-22-96; 8:45 am]
BILLING CODE 8010-01-M