[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48184-48185]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23310]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37644; File No. SR-CHX-96-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to ``Stop'' 
Orders and ``Stopped'' Orders

September 5, 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 22, 
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, II, 
and III below, which Items have been prepared by the self-regulatory 
organization.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change and Amendment No. 1 thereto from 
interested persons.
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    \1\ See Letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Jon Kroeper, Attorney, SEC, dated August 27, 1996 (``Amendment 
No. 1''). Amendment No. 1 added language clarifying the manner by 
which sell stop limit orders would be elected under proposed CHX 
Article XX, Rule 28A(b)(2) and corrected the text of the proposed 
amendment to CHX Article XX, Rule 37(a)6.
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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 Article XX, Rule 28 and Article XX, 
Rule 37 of the Exchange's Rules and add Article XX, Rule 28A to the 
Exchange's Rules. The text of the proposed rule change is as follows 
[new text is italicized; deleted text is bracketed]:

Article XX

Liability for [``Stop''] ``Stopped'' Orders

    Rule 28  An agreement by a member or member organization to have 
an order ``stopped'' [``stop'' securities]] at a specified price 
shall constitute a guarantee of the purchase or sale by him or it of 
the security[ies] at the stopped price or its equivalent in the 
amount specified; but in no event shall the guarantee be greater 
than the greater of (i) the size disseminated in the primary market 
at the time the order was stopped, or (ii) the size disseminated by 
the Exchange at the time the order was stopped. If an order is 
executed at a price less favorable [price than that agree upon] than 
the stopped price, the member or member organization which agreed to 
stop the securities shall be liable for an adjustment of the 
difference between the two prices.

Rule 28A  Stop Orders.

    (a) Stop Orders.
    A ``stop'' order to buy shall only be entered at a price above 
the current primary market offer. A ``stop'' order to sell shall 
only be entered at a price below the current primary market bid. 
Once entered, a ``stop'' order may not be executed until a trade 
(the ``effective trade'') occurs in the primary market that is at or 
through the price of the ``stop'' order. Once the effective trade 
occurs, the ``stop'' order shall be executed based upon the next 
primary market trade, but at a price no better than the effective 
trade (i.e. the ``stop'' order shall be executed on a next-no better 
basis).
    (b) Stop Limit Orders.
    (1) Buy Stop Limit Orders. A buy stop limit order shall only be 
entered at a price above the current primary market offer and shall 
become a limit order when a round-lot transaction takes place in the 
primary market at or above the stop price. The order shall then be 
filled in the manner prescribed for handling a limit order to buy.
    (2) Sell Stop Limit Orders. A sell stop limit order shall only 
be entered at a price below the current primary market bid and shall 
become a limit order when a round-lot transaction takes place in the 
primary market at or below the stop price. The order shall then be 
filled in the manner prescribed for handling a limit order to sell.

Article XX

Rule 37(a)

    1.-5. No change in text.
    6. Since executions are guaranteed on the basis of the size and 
price of the best bid or offering, the order may be executed out of 
the primary market range for the day, but in a Dual Trading System 
issue a stop must be granted if requested.

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
    The primary purpose of the proposed rule change are to clarify that 
the existing Rule 28 of CHX Article XX relates to ``stopped'' orders 
and not ``stop'' orders, and to add a provision to the Exchange's Rules 
relating to ``stop''

[[Page 48185]]

orders, among other things. With regard to ``stop'' orders, proposed 
CHX Article XX, Rule 28A permits such orders only to be entered at a 
price above (for buy orders) or below (for sell orders) the current 
primary market offer or bid, respectively.
    In addition, the Exchange's rules on ``stopped'' orders are being 
clarified to make it clear that the execution guarantee of the 
``stopped'' order is limited to the size displayed in the primary 
market when the ``stopped'' order is entered. This is consistent with 
the execution guarantee on orders that are subject to the BEST Rule 
that are not stopped, which are guaranteed an execution on the lesser 
of the size displayed in the primary market or 2099 shares.\2\
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    \2\ See CHX Article XX, Rule 37. The Exchange's BEST System 
specifies certain conditions under which CHX specialists are 
required to accept and guarantee executions of market and limit 
orders from 100 up to and including 2099 shares.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \3\ 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.
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    \3\ 15 U.S.C. 78f(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 a 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:
    (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 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-96-21 and should be 
submitted by October 3, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23310 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M