[Federal Register Volume 62, Number 4 (Tuesday, January 7, 1997)]
[Notices]
[Pages 1008-1009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-237]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38098; File No. SR-CHX-96-26]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving and Notice of Filing and Order Granting Accelerated 
Approval of Amendment No. 2 to Proposed Rule Change Relating to 
Enhanced SuperMAX and Timed Enhanced SuperMAX

December 30, 1996.

I. Information

    On October 9, 1996, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal relating to its SuperMAX system, seeking 
permanent approval of the existing pilot program. The proposed rule 
change was published for comment in the Federal Register on November 
20, 1996.\3\ The CHX filed an amendment (``Amendment No. 2'') to the 
proposal on December 30, 1996.\4\ No comments were received on the 
proposed rule change. This order approves the Exchange's proposal as 
amended.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 37947 (November 13, 
1996), 61 FR 59124. In Amendment No. 1 to the proposed rule change, 
submitted on November 8, 1996, the Exchange replaced the text of the 
proposed rule change originally filed with rule text changed to 
reflect previously inadvertently omitted language. See Securities 
Exchange Act Release No. 37947 at note 2.
    \4\ Letter from David T. Rusoff, Esq., Foley & Lardner, to Janet 
W. Russell-Hunter, Special Counsel, Office of Market Supervision, 
Division of Market Regulation, SEC, dated December 23, 1996. In 
Amendment No. 2, the CHX amended the proposed rule change to request 
an extension of the pilot through March 1, 1997, rather than a 
request for permanent approval of the program, and agreed to submit 
additional data regarding the pilot by January 31, 1997.
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II. Description of the Proposal

    On May 22, 1995, the Commission approved a proposed rule change of 
the 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.\5\ 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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    \5\ See Securities Exchange Act Release No. 35753 (May 22, 
1995), 60 FR 28007.
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    On July 27, 1995, the Commission approved a proposed rule change of 
the CHX that implemented two options available under this new rule.\6\ 
These two new options, Enhanced SuperMAX and Timed Enhanced SuperMAX, 
were approved on a pilot basis until July 31, 1996. The Commission 
extended the pilot program until December 31, 1996 and requested that 
the CHX provide a report to the Commission, by August 31, 1996,\7\ 
describing its experience with the pilot program. On August 30, 1996, 
the CHX submitted a report.
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    \6\ See Securities Exchange Act Release No. 36027 (July 27, 
1995), 60 FR 39465.
    \7\ See Securities Exchange Act Release No. 37491 (July 29, 
1996), 61 FR 40690.
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    The Exchange, based on its amended proposal, has requested a 
further extension for its Enhanced SuperMAX and Timed Enhanced SuperMAX 
pilot program\8\ through March 1, 1997. 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.\9\ The proposed Enhanced 
SuperMAX program differs from the original pilot program approved in 
1991 in that it is available starting at 8:45 a.m. instead of 9:00 a.m. 
This program also differs from the Exchange's SuperMAX program in that 
under this program, certain orders are ``stopped'' at the consolidated 
best bid or offer 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

[[Page 1009]]

a month, and may be no less than 30 seconds.
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    \8\ CHX Rule 37 (e)-(f).
    \9\ See Securities Exchange Act Release No. 30058 (December 10, 
1991), 56 FR 65765.
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III. Discussion

    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) of the Act, in that the proposal 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. 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.The Commission 
asked the Exchange to monitor the operation of the systems and 
determine their effectiveness and to submit a report to the Commission 
describing its experience with the pilot program.\10\ While the 
Exchange submitted a report on August 30, 1996, the Commission has 
requested and the Exchange has agreed to submit, by January 31, 1997, 
certain supplemental data regarding the pilot program.
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    \10\ See Securities Exchange Act Release No. 36027, supra note 
6.
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    The Commission believes that this additional data and conclusions 
reached therefrom will be critical in determining whether to further 
extend or permanently approve the program. Moreover, extending the 
effectiveness of the pilot program until March 1, 1997 will give the 
Commission an opportunity to carefully and comprehensively evaluate the 
information provided by the Exchange. Accordingly, the Commission 
believes it is reasonable to extend the Enhanced SuperMAX and Timed 
Enhanced SuperMAX pilot program until March 1, 1997, and to request 
that the Exchange submit additional data to the Commission by January 
31, 1997.
    Any requests to modify this pilot program, extend its 
effectiveness, or to seek permanent approval for the pilot program 
should be submitted to the Commission by January 31, 1997 as a proposed 
rule change pursuant to Section 19(b) of the Act.
    The Commission finds good cause for approving Amendment No. 2 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Amendment No. 2 
requests that rather than being approved on a permanent basis, that the 
Enhanced SuperMAX and Timed Enhanced SuperMAX features of the SuperMAX 
system be approved through March 1, 1997, which will permit the pilot 
program to remain in effect 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.\11\ Accordingly, the Commission believes there is good 
cause, consistent with Sections 6(b)(5) and 19(b)(2) of the Act, to 
approve Amendment No. 2 on an accelerated basis.
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    \11\ Telephone conversation between David T. Rusoff, Esq. Foley 
& Lardner, and Janet Russell-Hunter, Special Counsel, Office of 
Market Supervision, Division of Market Regulation, SEC, on December 
23, 1996.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2. 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 submission should refer to File No. SR-CHX-96-26 and 
should be submitted by January 28, 1997.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CHX-96-26), as amended, is 
approved, and accordingly, that the pilot program is extended until 
March 1, 1997.

    \12\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.20-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-237 Filed 1-6-97; 8:45 am]
BILLING CODE 8010-01-M