[Federal Register Volume 61, Number 22 (Thursday, February 1, 1996)]
[Notices]
[Pages 3739-3741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2059]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36777; File No. SR-CHX-96-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc. Relating to MAX

January 26, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
January 25, 1996, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The exchange proposes to amend subsection (e) of Rule 37 of Article 
XX relating to the CHS's MAX System. The test of the proposed rule 
change is as follows [new text is italicized; deleted text is 
bracketed]:

Article XX

Rule 37

    (e) The Exchange's Enhanced SuperMAX program shall be an 
automatic execution program within MAX in which a Specialist may 
voluntarily choose to participate on a stock-by-stock basis. A 
Specialist shall decide if his or her stock will be eligible for 
Enhanced SuperMAX treatment. In the event that a stock is eligible 
for Enhanced SuperMAX treatment (pursuant to paragraph (e) of this 
Rule) and SuperMAX treatment (pursuant to paragraph (c) of this 
Rule) at the same time, the size of the order and the inclusion of 
security in the S&P 500TM Index will determine which program 
will be followed for execution. If a stock is not included in the 
S&P 500TM Index, an order of 299 shares or less will execute 
according to the SuperMAX program and an order from 300 shares up to 
and including 1099 shares (or such greater size specified by the 
specialist and approved by the Exchange) will execute according to 
the Enhanced SuperMAX program. If a stock is included in the S&P 
500TM Index, or if a specialist in a non-S&P 500TM Index 
issue so chooses, a[A]n order of 599 shares or less will execute 
according to the SuperMAX program and an order from 600 shares up to 
and including 1099 shares (or such greater size specified by the 
specialist and approved by the Exchange) [greater than 599] will 
execute according to the Enhanced SuperMAX program. In the 

[[Page 3740]]
event that a Specialist determines that his stock is eligible for 
Enhanced SuperMAX program only and voluntarily chooses to 
participate in Enhanced SuperMAX program, agency market orders up to 
and including 1099 shares (or such greater size specified by a 
specialist and approved by the Exchange) in that stock may 
automatically be stopped and executed in MAX, through the Enhanced 
SuperMAX program, without any specialist intervention based on the 
following criteria:
    (1)-(7) No change in text.

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

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

1. Purpose
    On May 22, 1995, the Commission approved a proposed rule change of 
CHX that allows specialists on the Exchange, through the Exchange's MAX 
System, to provide order execution guarantees that are more favorable 
than those required under CHX Rule 37(a), Article XX.\1\ That approval 
order contemplated that the CHX would file with the Commission specific 
modifications to the parameters of MAX that are required to implement 
various options available under this new rule.

    \1\ See Securities Exchange Act Release No. 35753 (May 22, 
1995), 60 FR 28007 (May 26, 1995).
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    The purpose of this proposed rule change is to amend an existing 
option currently available under this new rule. Specifically, the 
Exchange proposes to provide a specialist with more flexibility in 
placing a stock on both SuperMAX and Enhanced SuperMAX. Currently, if a 
specialist places a stock in both programs, orders from 100 to 599 
shares are executed under the SuperMAX algorithm and orders greater 
than 599 shares up to 1099 shares are executed under the Enhanced 
SuperMAX algorithm. Specialists, however, have been hesitant to use 
this combination feature for stocks that are not included in the S&P 
500 Index. While the specialists are in favor of price improvement, 
they believe that, at least with respect to the less liquid stocks, 
using the SuperMAX automated price improvement algorithm, which 
historically has provided price improvement to approximately 50% of 
eligible orders in stocks that participate in the program, for 
executions of orders up to 599 shares is not feasible or economically 
practical. For the larger size orders in these non-S&P issues (i.e., 
order greater than 299 shares), the Enhanced SuperMAX algorithm, which 
appears, based on the Exchange's limited experience with this program, 
to provide price improvement less often than SuperMAX, may be more 
appropriate.
    Thus, this rule change will permit a specialist to place a stock 
that is not listed in the S&P 500 Index on both SuperMAX and Enhanced 
SuperMAX and have orders from 100 to 299 shares execute under the 
SuperMAX algorithm and orders from 300 to 1099 shares execute under the 
Enhanced SuperMAX algorithm. As a practical matter, despite the fact 
that the SuperMAX threshold will be reduce by this new feature, the 
SuperMAX algorithm will still apply to the majority of orders using 
this feature. In December 1995, for example, approximately 60% of the 
orders that were sent to the Exchange through the MAX System were 
orders for 100 to 299 shares. Under this new feature, these orders are 
still eligible for execution under the SuperMAX algorithm.
    By providing additional flexibility to specialists, the Exchange 
believes that this rule change will significantly increase the number 
of issues and orders that participate in the Exchange's SuperMAX price 
improvement program. Currently, out of the approximately 2600 Dual 
Trading System issues \2\ traded on the Exchange, approximately 2000 
have been made eligible for either SuperMAX or Enhanced SuperMAX. 
Approximately 1100 of these 2000 issues are currently on Enhanced 
SuperMAX and approximately 900 are either on SuperMAX or are on the 
current combined feature. Out of the approximately 900 issues on 
SuperMAX or on the current combined feature, approximately 460 are S&P 
500 Index issues. Out of the 1100 issues on Enhanced SuperMAX, about 
1080 are currently non-S&P 500 Index issues. This rule change is 
targeted at the 1080 non-S&P 500 Index issues currently on Enhanced 
SuperMAX and at the approximately 600 non S&P 500 Index issues that are 
not on any automated price improvement algorithm.\3\

    \2\ The Dual Trading System of the Exchange allows the execution 
of both round-lot and odd-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.
    \3\ The Exchange notes that price improvement is available for 
all orders submitted to the Exchange through the MAX System even if 
an automated price improvement algorithm is not used.
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    While it is possible that if this rule change is implemented, 
specialists in the approximately 460 non-S&P 500 issues that are 
currently on SuperMAX may switch those stocks to this new combined 
feature (which has a lower SuperMAX threshold than the current SuperMAX 
feature), the Exchange believes, after discussions with these 
specialists, that this proposed rule change will result in a greater 
number of issues and orders that will be made eligible for the SuperMAX 
algorithm and a greater overall incidence of price improvement on the 
Exchange. This is consistent with the Exchange's experience when it 
added the Enhanced SuperMAX program as an option last year. Despite the 
existence of this option, approximately 460 non-S&P 500 issues 
participate in SuperMAX and approximately 80 S&P 500 issues remain on 
SuperMAX up to 1099 shares.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act 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 interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no 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 solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) the Exchange has provided the Commission with written notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date, it has become effective 

[[Page 3741]]
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) 
thereunder.\4\

    \4\ 17 CFR 240.19b-4(e)(6) (1994).
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    A proposed rule change filed under Rule 19b-4(e) \5\ does not 
become operative prior to thirty days after the date of filing or such 
shorter time as the Commission may designate if such action is 
consistent with the protection of investors and the public interest. 
CHX has requested, in order for it to encourage CHX specialists to add 
more stocks to automated price improvement algorithm programs as soon 
as possible, that the Commission accelerate the implementation of the 
proposed rule change so that it may take effect prior to the thirty 
days specified under Rule 19b-4(e)(6)(iii).\6\ The Commission finds 
that the proposed rule change is consistent with the protection of 
investors and the public interest and therefore has determined to make 
the proposed rule change operative as of the date of this order.

    \5\ 17 CFR 240.19b-4(e).
    \6\ 17 CFR 240.19b-4(e)(6)(iii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes 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, 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-96-01 and should be 
submitted by February 22, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margert H. McFarland,
Deputy Secretary.
[FR Doc. 96-2059 Filed 1-31-96; 8:45 am]
BILLING CODE 8010-01-M