[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32870-32872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16165]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37327; File No. SR-CHX-96-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating To 
Assignment and Reassignment of NASDAQ/NMS Issues

June 19, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 16, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend interpretation and policy .01 of 
Rule 1 of Article XXX relating to assignments and reassignments of 
Nasdaq National Market (``NM'') securities. Below is the text of the 
proposed rule change. Proposed new language is italicized:

CHICAGO STOCK EXCHANGE RULES

ARTICLE XXX

Specialists

Registration and Appointment

Rule 1.

* * * Interpretations and Policies

    .01  Committee on Specialist Assignment & Evaluation.

Assignment Function

I. Events Leading to Assignment Proceedings

    Pursuant to Article XXX, Rules 1 and 8, the Committee may, when 
circumstances require, assign or reassign a security. Seven 
circumstances may lead to the need for assignment or reassignment of 
a security. They are:
    1. New listing or obtaining unlisted trading privilege;
    2. Specialist request;
    3. Corporation request;
    4. Split-up and/or merger of specialist units;
    5. Fundamental change of specialist unit;
    6. Unsatisfactory performance action; or
    7. Disciplinary action.
    The following guidelines have been adopted by the Committee for 
its use in the assignment or reassignment of stocks among 
specialists and co-specialists. These guidelines set forth the 
general policy of the Committee concerning the posting and 
allocation of stocks. They are not, however, rigid rules to be 
strictly followed regardless of unique circumstances. These 
guidelines form only the starting point of the Committee's 
deliberations; they will be applied in light of the facts in each 
individual case.

1. New Listing--Unlisted Trading Privilege.

    (a) Initial listing of a security or obtaining unlisted trading 
privileges from the S.E.C. for a security will lead automatically to 
an assignment proceeding..
    (b) Nasdaq/NM Securities--Subsequent Exchange Listing..
    (i) Initial 100 stocks in Nasdaq/NM Pilot. In the event that one 
of the initial 100 Nasdaq/NM Securities currently assigned to a 
specialist unit under the Exchange's Nasdaq/NM Pilot Program becomes 
a Dual Trading System issue, the Committee will utilize the 
following guidelines in determining whether the security should be 
posted and re-assignment proceedings should be initiated or whether 
the specialist unit should be allowed to continue as the specialist 
unit for the security:.
    (A) If the specialist unit has designated the security as a 
security that the specialist unit desires to continue to trade as a 
Dual Trading System Issue (``Non-Reassignment Issue''), the 
Committee, under normal circumstances, will not post the security or 
initiate re-assignment proceedings. Each specialist unit may 
designate five (5) issues as Non-Reassignment Issues under this 
paragraph (A), which designation may be changed no more than once a 
year. In the event that a Non-Reassignment Issue becomes a Dual 
Trading System issue, the total number of stocks that the specialist 
unit can designate as a Non-Reassignment Issue will be decremented. 
For example, if 2 Non-Reassignment Issues become Dual Trading System 
Issues, the specialist will only be able to designate a total of 
three (3) issues as Non-Reassignment Issues going forward..
    (B) If the specialist unit has not designated the issues as a 
Non-Reassignment Issue, the specialist unit can nonetheless 
designate its interest to continue to trade the issue as a Dual 
Trading System Issue. Such designation can only be made for one out 
of every three Nasdaq/NM issues that the specialist unit trades that 
becomes a Dual Trading System Issue. If such designation is made by 
the specialist, the Committee, under normal circumstances, will not 
post the issue or initiate re-assignment proceedings. If no such 
designation is made by the specialist, the Committee will post the 
issue and initiate re-assignment proceedings. In such event, the 
specialist unit trading the issue will not be eligible to apply for 
the security in such proceedings. The specialist unit cannot 
accumulate the number of stocks for designation. If the specialist 
unit does not make such designation for any of three consecutive 
issues that become Dual Trading System issues, he or she cannot 
carry forward the unused designation.
    (ii) All other Nasdaq/NM Stocks. In the event that a Nasdaq/NM 
Security (other than a security described in (i) above) currently 
assigned to a specialist unit becomes a Dual Trading System issue 
within one year of the date that the specialist unit began trading 
the security, the security will be posted and the Committee will 
initiate a re-assignment proceeding for such security. In the event 
that such security becomes a Dual Trading System issue more than one 
year after the date the specialist unit began trading the security, 
the Committee will utilize the following guidelines in determining 
whether the security should be posted and re-assignment proceedings 
commenced or whether the specialist unit should be allowed to 
continue as the specialist without posting the security:
    (A) If the specialist unit has designated the security as a Non-
Reassignment Issue, the Committee, under normal circumstances, will 
not post the security or initiate re-assignment proceedings. Each 
specialist unit may designate 20% of the Nasdaq/NM securities (not 
including the securities described in (i) above) assigned to such 
specialist unit as Non-Reassignment Issues under this paragraph (A), 
which designations may be changed no more than once a year.
    (B) If the specialist has not designated the issue as a Non-
Reassignment Issue, the specialist may nonetheless designate its 
interest to continue to trade the issue as a Dual Trading System 
issue, and the procedures set forth in (i)(B) above shall apply to 
such issue.
    (iii) Nothing contained in this paragraph 1(b) shall be 
construed to limit or modify the authority of the Committee pursuant 
to the other provisions of this Rule.

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

[[Page 32871]]

Sections A, B, and C below, of the most significant aspects of these 
statements.

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

1. Purpose
    In 1987, the Commission approved the trading of Nasdaq/NM 
Securities (previously known as NASDAQ/NMS Securities) on the Exchange 
on a pilot basis.\2\ When these stocks were initially allocated, the 
Exchange's Committee on Specialist Assignment and Evaluation (``CSAE'') 
established certain guidelines for assignment on Nasdaq/NM stocks. 
These guidelines required a firm that desired to trade these stocks to 
assign a separate co-specialist that only trades Nasdaq/NM stocks. As a 
result, only a small number of firms could receive allocations of 
Nasdaq/NM stocks. In part because of this limitation, the CSAE also 
determined to re-post any Nasdaq/NM stocks when they list on an 
exchange.
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    \2\ See Securities Exchange Act Release Nos. 24407 (April 29, 
1987), 52 FR 17349 (May 7, 1987) (Order Approving Proposed Reporting 
Plan for National Market System Securities Traded on an Exchange); 
24406 (April 29, 1987), 52 FR 17495 (May 8, 1987) (Order granting 
Unlisted Trading Privileges (``UTP'') in 25 issues).
    The Commission notes that prior to the enactment of the UTP Act 
of 1994 (``UTP Act''), Section 12(f) of the Act required exchanges 
to apply to the Commission, and receive Commission approval of the 
exchange's application, before extending UTP to a particular 
security. When an exchange ``extends UTP'' to a security, the 
exchange allows its members to trade the security as if it were 
listed on the exchange. The Commission was required to provide 
interested parties with at least ten days notice of the application 
and the Commission had to determine whether the extension of UTP to 
each security named met certain criteria. If so, the Commission 
published an approval order in the Federal Register. Accordingly, 
Exchange Interpretation and Policy .01 of Rule 1 of Article XXX 
reflects this statutory scheme in that it references ``obtaining'' 
UTP from the Commission. The UTP Act, however, removed the 
application, notice, and Commission approval process from Section 
12(f) of the Act. For this reason, the Commission requests that the 
Exchange submit a rule proposal that approximately amends Exchange 
Interpretation and Policy .01 of Rule 1 to reflect the current 
statutory scheme.
    In addition, the Commission notes that NASDAQ/NMS Securities are 
now known as Nasdaq/NM Securities and, therefore, requests that the 
Exchange submit a rule proposal that amends all appropriate Exchange 
Rules and Interpretation to reflect this new terminology.
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    Because of the recent expansion \3\ of the number (from 100 to 500) 
of Nasdaq/NM securities that are eligible for trading on the CHX, the 
Exchange believes that a more equitable balance is needed between the 
ability of the current specialist firm in the Nasdaq stock to continue 
to trade the stock after it lists on an exchange and other specialists 
that desire to trade the stock. Thus, the purpose of the proposed rule 
change is to amend the Exchange's allocation policy in order to achieve 
this equitable balance.
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    \3\ See Securities Exchange Act Release Nos. 28146 (Jun. 26, 
1990), 55 FR 27917 (Jul. 6, 1990) (Order Expanding the Number of 
Eligible Securities to 100); 36102 (Aug. 14, 1995), 60 FR 43626 
(Aug. 22, 1995) (Order Expanding the Number of Eligible Securities 
to 500).
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    Under the proposed policy, the 500 Nasdaq/NM stocks that are 
eligible for trading on the CHX would be divided into two groups: the 
100 original issues and the 400 recently added issues.

100 Original Issues

    A specialist unit that traded one or more of the original 100 
Nasdaq/NM issues would be permitted to designate up to 5 of these 
issues as ``Non-Reassignment Issues.'' In the event that a Non-
Reassignment Issue became listed, i.e., a Dual Trading System 
issues,\4\ CSAE under normal circumstances would not post the issue for 
reassignment. Instead, the existing Nasdaq/NM specialist unit would be 
permitted to continue to trade the issue assuming the proposed co-
specialist for the issue is qualified. A specialist unit could change 
the issues it designates as Non-Reassignment Issues once a year. Every 
time a Non-Reassignment Issue becomes a Dual Trading System issue, 
however, the total number of stocks that the specialist unit can 
designate as a Non-Reassignment Issue is decremented.
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    \4\ According to the Exchange, Dual Trading System Issues are 
issues that are traded on the CHX and listed on either the New York 
Stock Exchange or American Stock Exchange. Telephone conversation on 
June 5, 1996 between David T. Rusoff, Attorney, Foley & Lardner, and 
George A. Villasana, Attorney, Division of Market Regulation, SEC.
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    For all other Nasdaq/NM issues that are part of the initial 100 
issues, a specialist unit can nonetheless designate its interest to 
continue trading the issue as a Dual Trading System issue. This 
designation can only be made at the time that an issue becomes a Dual 
Trading System issue and can only be made for one out of every three 
issues that the specialist unit trades that becomes a Dual Trading 
System issue. If the designation is made, the CSAE, under normal 
circumstances, will not post the issue or initiate reassignment 
proceedings. If a designation is not made, the issue will be posted and 
reassignment proceedings will commence. The specialist unit that traded 
the issue will not be eligible to apply for the security in these 
proceedings. Finally, if the specialist unit does not make this 
designation for any of three consecutive issues that become Dual 
Trading System issues, he or she cannot carry forward the unused 
designation.

Other Nasdaq/NM Securities

    A specialist unit that trades Nasdaq/NM securities that are not 
part of the original 100 issues will be permitted to designate 20% of 
the Nasdaq/NM securities assigned to that specialist unit (excluding 
the original 100 Nasdaq/NM securities) as Non-Reassignment Issues.
    For all other Nasdaq/NM securities, the specialist can designate 
its interest to continue trading the issue as a Dual Trading System 
issue. This designation can also only be made at the time an issue 
becomes a Dual Trading System issue and can also only be made for one 
out of every three issues that the specialist unit trades that becomes 
a Dual Trading System issue. This designation will operate in the same 
manner as the similar designation described above for the original 100 
issues.
    Finally, this proposed rule change does not limit or modify the 
authority of the CSAE granted to the CSAE under any other provision of 
Rule 1 of Article XXX.
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 Exchange does not believe that the proposed rule change will 
impose any inappropriate 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 32872]]

    (A) by order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 Room. Copies of such filing will also be 
available for inspection and copying at the principle office of the 
Exchange. All submissions should refer to File No. SR-CHX-96-15 and 
should be submitted by July 16, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16165 Filed 6-24-96; 8:45 am]
BILLING CODE 8010-01-M