[Federal Register Volume 61, Number 151 (Monday, August 5, 1996)]
[Notices]
[Pages 40690-40692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19763]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37491; File No. SR-CHX-96-19]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Stock Exchange, Incorporated Relating to Enhanced SuperMAX and Timed 
Enhanced SuperMAX

July 29, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on July 2, 
1996, the Chicago Stock Exchange, 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 CHX. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to grant accelerated approval of the 
proposed rule change.

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

    The Exchange is proposing to extend its Enhanced SuperMAX and Timed 
Enhanced SuperMAX pilot program, described in subsections (e) and (f) 
of Rule 37 of Article XX of the Exchange Rules, for five months, until 
December 31, 1996, and the deadline for filing a report to the 
Commission describing its experience with the pilot program, to August 
31, 1996.
    The text of the proposed rule change is available at the Office of 
the Secretary, CHX, and at the Commission.

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 Exchange 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 CHX has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 40691]]

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

1. Purpose
    On May 22, 1996, 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.
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    \1\ See Securities Exchange Act Release No. 35753 (May 22, 
1995), 60 FR 28007 (May 26, 1995).
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    On July 27, 1995, the Commission approved a proposed rule change of 
the CHX that implemented two options to be available under this new 
rule.\2\ These two new options, Enhanced SuperMAX and Timed Enhanced 
SuperMAX, were approved on a pilot basis until July 31, 1996. The 
Commission, in the Pilot Approval Order, requested that the CHX provide 
a report to the Commission, by May 31, 1996, describing its experience 
with the pilot program.
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    \2\ See Securities Exchange Act Release No. 36027 (July 27, 
1995), 60 FR 39465 (August 2, 1995) (``Pilot Approval Order'').
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    The purpose of the proposed rule change is to request a five-month 
extension of the pilot program, until December 31, 1996, and to request 
an extension, until August 31, 1996, of the deadline for submitting the 
monitoring report to the Commission. The Exchange requests the five-
month extension of the pilot program to give the CHX additional time to 
prepare the report for submission to the Commission. The Exchange 
requests additional time to prepare the monitoring report because of 
the increased amount of staff time and resources that the Exchange 
devoted in ensuring smooth transitions that were necessitated by the 
Exchange's decision to withdraw from the clearance and settlement and 
securities depository businesses.\3\ Now that this transition is 
virtually complete, the Exchange can devote the necessary time and 
resources needed to provide the Commission with the information 
requested in the report.
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    \3\ See Securities Exchange Act Release No. 36684 (January 5, 
1996), 61 FR 1195 (January 17, 1996).
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    As stated above, the two options available in the pilot program are 
Enhanced SuperMAX and Timed Enhanced SuperMAX. Enhanced SuperMAX is 
merely a reactivation of the Exchange's Enhanced SuperMAX program, a 
program originally approved by the Commission on a pilot basis in 
1991.\4\ Unlike the old pilot program, however, the new Enhanced 
SuperMAX program is available starting at 8:45 a.m. instead of 9:00 
a.m. This program differs from the Exchange's SuperMAX program in that 
under this program, certain orders are ``stopped'' at the NBBO \5\ and 
are executed with reference to the next primary market sale instead of 
the previous primary market sale. Timed Enhanced SuperMAX is a slight 
variation on the Enhanced SuperMAX program. It executes orders in the 
same manner as the Enhanced SuperMAX program except that if there are 
no executions in the primary market after the order has been stopped 
for a designated time period, the order is executed at the stopped 
price at the end of such period. Such period, known as a time out 
period, is pre-selected by a specialist on a stock-by-stock basis based 
on the size of the order, may be changed by a specialist no more 
frequently than once a month and may be no less than 30 seconds.
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    \4\ See Securities Exchange Act Release No. 30058 (December 10, 
1991), 56 FR 65765 (December 18, 1991).
    \5\ The term national best bid or offer (``NBBO'') is defined 
under SEC Rule 11Ac1-2 as the highest bid or lowest offer for a 
reported security made available by any reporting market center 
pursuant to Rule 11Ac1-1 or the highest bid or lowest offer for a 
security other than a reported security disseminated by an over-the-
counter market maker in Level 2 or 3 of Nasdaq.
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2. Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act, in general, and furthers the objectives 
of Section 6(b)(5) in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to 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 CHX 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 solicited or received with respect to the 
proposed rule change.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange and, in 
particular, with Section 6(b)(5).\6\ More specifically, the Commission 
continues to believe that the pricing and execution procedures of 
Enhanced SuperMAX and Timed Enhanced SuperMAX are consistent with the 
maintenance of fair and orderly auction markets on national securities 
exchanges.
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    \6\ 15 U.S.C. 78f.
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    In the Pilot Approval Order,\7\ the Commission asked the Exchange 
to monitor the operation of the systems and determine their 
effectiveness and to submit a report to the Commission by May 31, 1996 
describing its experience with the pilot program. Moreover, the 
Commission requested that the Exchange assure the Commission that the 
pilot program has no adverse effects on the quality of customer order 
executions and determine whether specialists were choosing the 
appropriate system for each of their stocks. The Exchange has 
represented that it has not had available the necessary human resources 
to gather the relevant data and prepare the monitoring report and, 
therefore, requests an extension of the deadline for filing the report 
until August 31, 1996, and an extension of the pilot program until 
December 31, 1996.
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    \7\ See supra, note 2.
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    The Commission believes that the empirical data in the monitoring 
report and the conclusions reached therein will be critical in 
determining whether to further extend or permanently approve the 
Enhanced SuperMAX and Timed Enhanced SuperMAX pilot program. Moreover, 
extending the effectiveness of the pilot program until December 31, 
1996 will provide the Commission with four months in which to carefully 
and comprehensively evaluate the information provided by the Exchange. 
Accordingly, the Commission believes that it is reasonable to extend 
the Enhanced SuperMAX and Timed Enhanced SuperMAX pilot program until 
December 31, 1996, and extend the deadline for filing the monitoring 
report until August 31, 1996.
    Any requests to modify this pilot program, to extend its 
effectiveness, or to seek permanent approval for the pilot program 
should be submitted to the

[[Page 40692]]

Commission by October 15, 1996 as a proposed rule change pursuant to 
Section 19(b) of the Act.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. This will permit the 
pilot program to remain in effect until December 31, 1996 without 
interruption. In addition, the Exchange has represented that no 
problems have arisen and no complaints have been received concerning 
the pilot program since its implementation.\8\ Accordingly, the 
Commission believes it is consistent with Section 6(b)(5) of the Act to 
approve the proposed rule change on an accelerated basis.
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    \8\ Telephone conversation between David T. Rusoff, Esq., Foley 
& Lardner, and James T. McHale, Attorney, Office of Market 
Supervision, Division of Market Regulation, SEC on July 17, 1996.
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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 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 in the 
Commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC. Copies of such filing will also be available for 
inspection and copying at the principal office of the CHX. All 
submissions should refer to File No. SR-CHX-96-19 and should be 
submitted by August 26, 1996.
    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CHX-96-19), extending the 
pilot program until December 31, 1996 and extending the deadline for 
filing the monitoring report to August 31, 1996, is hereby approved.

    \9\ U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19763 Filed 8-2-96; 8:45 am]
BILLING CODE 8010-01-M