[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