[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30912-30914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14686]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38700; File Nos. SR-AMEX-97-07, SR-BSE-96-11, SR-CBOE-
97-12, SR-CHX-96-34, SR-CSE-97-03, SR-NASD-97-09, SR-NYSE-97-03, and
SR-PSE-97-05]
Self-Regulatory Organizations; Order Granting Approval to
Proposed Rule Changes by the American Stock Exchange, Inc., Boston
Stock Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago
Stock Exchange, Inc., Cincinnati Stock Exchange, Inc., National
Association of Securities Dealers, Inc., New York Stock Exchange, Inc.,
and the Pacific Stock Exchange, Inc., and Notice of Filing and Order
Granting Accelerated Approval to Amendment No. 1 to Proposed Rule
Change by the National Association of Securities Dealers, Inc., to
Amend Each Participant's Rules Concerning the Pre-Opening Application
of the Intermarket Trading System
May 30, 1997.
I. Introduction
On December 10, 1996, December 19, 1996, January 29, 1997, January
31, 1997, February 10, 1997, February 11, 1997, and February 26, 1997,
respectively, the Boston Stock Exchange Incorporated (``BSE''), the
Chicago Stock Exchange, Incorporated (``CHX''), the Cincinnati Stock
Exchange, Incorporated (``CSE''), the New York Stock Exchange,
Incorporated (``NYSE''), the Americal Stock Exchange, Incorporated
(``AMEX''), the Pacific Stock Exchange, Incorporated (``PSE''), the
National Association of Securities Dealers, Incorporated (``NASD''),
and the Chicago Board Options Exchange, Incorporated (``CBOE'') (each
individually referred to herein as a ``Participant'' and two or more
collectively referred to as ``Participants'') submitted to 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\ proposed rule changes to enhance the
operation of their respective Pre-Opening Applications \3\ by
effectively including circuit breakers as a trading halt situation that
will trigger the Pre-Opening Application.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Participants filed substantially similar proposed rule
changes to amend their respective Intermarket Trading System
(``ITS'') Rules regarding the ITS Pre-Opening Application. The
Commission notes that some of the proposed rule changes by the ITS
Participants contain additional technical changes. In addition, the
NASD is proposing to incorporate language into NASD Rule 5240 from
the model Pre-Opening Application Rule contained as Exhibit A to the
ITS Plan that was previously inadvertently omitted. The PSE and CHX
are proposing amendments to their respective Pre-Opening Application
rules to add a footnote from the model Pre-Opening Application Rule
regarding the definition of when a market in a security is
considered opened or re-opened, for purposes of pre-opening
responses. The language of each proposed rule change is on file at
the Commission and at the principal offices of the various
Participants. The file numbers for the rule filings are as follows:
SR-AMEX-97-07; SR-BSE-96-11; SR-CBOE-97-12, SR-CHX-96-34; SR-CSE-97-
03, SR-NASD-97-09; SR-NYSE-97-03; and SR-PSE-97-05.
\4\ The respective Pre-Opening Application Rules that the
Participants are proposing to amend are: AMEX, Rule 232; BSE,
Chapter XXXI; CBOE, Rule 30.72; CHX, Article XX, Rule 39, CSE,
Chapter 14, rules 14.1 and 14.3; NASD, Rules 5210, 5240 and 5250;
NYSE, Rule 15; and PSE, Rule 5.20.
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The proposed rule changes, together with the substance of the
proposal, were published for comment in Securities Exchange Act Release
No. 38285 (February 13, 1997) 62 FR 8065 (February 21, 1997). CBOE's
proposed rule change was separately published for comment in Securities
Exchange Act Release No. 38393 (March 12, 1997) 62 FR 13201 (March 19,
1997).\5\ No comment letters were received in response to the
proposals. The NASD subsequently filed Amendment No. 1 to the proposed
rule change on February 14, 1997.\6\
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\5\ The Philadelphia Stock Exchange's (``PHLX'') proposed Pre-
Opening Application rule filing (SR-PHLX-97-13) was published for
comment separately, and is being approved in a separate order issued
on the same day as this order. See Securities Exchange Act Release
Nos. 38507 (April 14, 1997), 62 FR 19383 (April 21, 1997) (notice)
and 38701 (May 30, 1997) (approval order).
\6\ Amendment No. 1 adds language to NASD's Rule 5250(c), Pre-
Opening Notification from Other Markets, that conforms the rule with
corresponding Pre-Opening Application rules of other ITS Participant
markets and with the ITS Plan. The last sentence of revised Rule
5250(c) states that ``[n]o ITS/CAES Market Maker that has opened for
trading or, with respect to a halt or suspension in trading
initiated by another Participant Market, did not halt trading in the
security reasonably contemporaneously with the Participant Market or
resumed trading during such trading halt or suspension, shall
respond to a pre-opening notification.'' See letter from Joan
Conley, Corporate Secretary, NASD, to Katherine England, Assistant
Director, Market Regulation, Commission, dated February 13, 1997
(``Amendment No. 1'').
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II. Background and Description
The purpose of the proposed rule changes is to enhance the
operation of each Participant's Pre-Opening Application by effectively
including circuit breakers as a trading halt situation that will
trigger the Pre-Opening Application. The Participants' Intermarket
Trading System (``ITS'') Pre-Opening Application rules contain basic
definitions pertaining to ITS, prescribe the types of transactions that
may be
[[Page 30913]]
effected through ITS and the pricing of commitments to trade, and
specify the procedures pertaining to the Pre-Opening Application,
whereby an Exchange specialist (``specialist'') or Designated Primary
Market Maker (``DPM''), or a ITS/CAES market maker (``market maker'')
in any ITS participant market who wishes to open his or her market in
an ITS security may obtain any pre-opening interest in that security by
other market makers registered in that security in other Participant
markets.
The current Pre-Opening Application prescribes that if a specialist
or a market maker anticipates that its opening transaction in the
security the specialist, DPM, or market maker trades through ITS will
be at a price that represents a change from the security's previous
day's consolidated closing price of more than the ``applicable price
change,'' the specialist, DPM, or market maker shall notify other
Participant markets by sending a pre-opening notification through the
ITS.\7\ Thereafter, the specialist, DPM, or market maker shall not open
the market in the security until not less than three minutes after the
transmission of the pre-opening notification. Once a specialist, DPM,
or market maker has issued a pre-opening notification, other
Participant markets may transmit ``pre-opening responses'' to the
specialist, DPM, or market maker through the ITS that contain
``obligations to trade.'' The specialist, DPM, or market maker is then
obligated to combine these obligations with orders it already holds in
the security, and, on the basis of this aggregated information, decide
upon the opening transaction in the security.
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\7\ The ``applicable price changes'' are:
If the previous day's consolidated closing price of the security
exceeded $100 and the security does not underlie an individual stock
option contract listed and currently trading on an exchange, the
``applicable price change'' is one point. Network A is comprised of
NYSE securities; Network B is comprised of securities admitted on
the AMEX, BSE, CBOE, CHX, CSE, PSE, PHLX, or any other exchange, but
not also admitted to dealings on the NYSE.
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Applicable price change
Consolidated closing price (more than)
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Network A:
Under $15.............................. \1/8\ point.
$15 or over............................ \1/4\ point.
Network B:
Under $5............................... \1/8\ point.
$5 or over............................. \1/4\ point.
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The Pre-Opening Application also applies whenever an ``indication
of interest'' is sent to the Consolidated Tape Association (``CTA'')
Plan Processor prior to the opening of trading in the relevant security
or prior to the reopening of trading in the relevant security following
the declaration of a trading halt for certain defined reasons, even if
the anticipated opening or re-opening price is not greater than the
``applicable price change.'' The current Pre-Opening Application rules
provide that the Pre-Opening application applies when an indication of
interest is disseminated following five defined trading halt
situations; reopenings following order imbalance, order influx,
equipment changeover, news pending and news dissemination, and for a
delayed opening.
The purpose of the proposed amendments to the Participants'
respective rules, to which all the Participants have agreed, is to
amend the Pre-Opening Application rules to provide that the Pre-Opening
Application will be triggered whenever an ``indication of interest''
(i.e., an anticipated opening price range) is sent to the Consolidated
Tape System prior to the opening or reopening of trading in the
relevant security. Under the proposed change, the Pre-Opening
Application would also be triggered when indications of interest are
disseminated in situations other than the five defined trading halts
specified above, including the resumption of trading following the
activation of market-wide circuit breakers. In particular, the proposed
amendment would delete the definition of ``Trading Halt,'' which is
limited to the five defined trading halt situations mentioned above,
and replace all references to ``Trading Halt'' with ``halt or
suspension in trading.'' As a result, one standard procedure would
govern all trading halt situations and would include suspensions of
trading pursuant to circuit breakers.\8\
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\8\ In its proposed rule change, the NYSE notes that indications
are also required pursuant to NYSE rules in other situations,
including circuit breaker halts, when a stock's price will change
the lesser of 10% or three points from the last sale, or five points
for stocks over $100, unless the price change is less than one
point. The NYSE notes that NYSE rules would continue to govern when
NYSE specialists would be required to issue indications of interest.
See NYSE filing SR-NYSE-97-03. Similarly, AMEX notes that in
connection with a reopening following a ``circuit breaker'' halt,
AMEX's rules require dissemination of an indication in the same
circumstances as the NYSE. AMEX notes that its proposed amendments
are intended to conform to the amendment to the ITS Plan agreed to
by the Participants. See AMEX filing SR-AMEX-97-07.
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III. Discussion
The Commission finds that the proposed rule changes are consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and a national
securities association, and, in particular, with the requirements of
Sections 6(b)(5) and 15A(b)(6).\9\ The Commission believes that the
proposed rule changes are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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.
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\9\ 15 U.S.C. 78f(b)(6); 15 U.S.C. 78o-3(b)(6).
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The Commission finds that the changes are also consistent with
Section 11A(a)(1)(D) of the Act \10\ which provides that the linking of
all markets for qualified securities through communications and date
processing facilities will foster efficiency, enhance competition,
increase the information available to brokers, dealers, and investors,
facilitate the offsetting of investors' orders, and contribute to the
best execution of such orders.\11\
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\10\ 15 U.S.C. 78k-1(a)(1)(D).
\11\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule changes are
consistent with the Act because they will facilitate transactions in
securities while continuing to further investor protection and the
public interest by enhancing the linkage among all ITS Participant
Markets and promoting coordinated openings and reopenings in ITS
securities. The proposed rule changes achieve these goals by applying a
standard procedure to govern all trading halt situations, including
circuit breaker halts.
The proposed rule changes to PSE and CHX's Pre-Opening Application
Rules add a footnote from the model Pre-Opening Application rule that
defines when a market in a security is opened or reopened, for purposes
of when the specialist or market maker at those markets must accept
pre-opening responses from other Participant markets.\12\ The NASD is
incorporating previously inadvertently omitted language into NASD Rule
5240(e)(1) and 5240(e)(2) that describes when an ITS/CAES market maker
has to accept pre-opening responses from other Participant markets
prior to reopening a security, and what the ITS/CAES market
[[Page 30914]]
maker may do with regard to accepting pre-opening responses from other
participant markets when the other market has already opened trading in
the relevant security or, with respect to a halt or suspension in
trading, either did not halt trading in the relevant security or has
already resumed trading in the relevant security. The Commission finds
that these additional substantive proposed rule changes are consistent
with the Act because they should facilitate transactions in securities
between and promote the linkage among the ITS Participants by
conforming the CHX, PSE, and NASD's ITS rules with the model Pre-
Opening Application rules contained as Exhibit A to the ITS Plan and
the other ITS Participants' rules.
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\12\ The footnote is added to a section in PSE and CHX's rules
titled ``Pre-Opening Responses from Open Markets.''
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The Commission finds good cause to approve Amendment No. 1 to the
NASD's proposed rule change prior to the thirtieth day after the date
of publication of notice of filing thereof in the Federal Register.
Amendment No. 1 amends NASD Rule 5250(c), titled ``Pre-Opening
Notification from Other Markets,'' to state that no ITS/CAES Market
Maker that has opened for trading or, with respect to a halt or
suspension in trading initiated by another Participant Market, did not
halt trading in the security reasonably contemporaneously with the
Participant Market or resumed trading during such trading halt or
suspension, shall respond to a pre-opening notification. The Commission
notes that this language aligns the NASD's Rule 5250(c) with comparable
rules of other Participants and with Exhibit A of the ITS Plan itself.
By conforming the NASD's rule language with that of the other ITS
Participants, Amendment No. 1 should ensure that all the Participants
operate under similar rules that are designed to achieve similar goals,
thereby facilitating transactions in securities and fostering the
linking of all securities markets in the national market system through
ITS. Accordingly, the Commission believes that it is consistent with
Section 15A(b)(6) of the Act to approve Amendment No. 1 to the NASD's
proposal on an accelerated basis so that all the markets have parallel
requirements at the same time.
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1 to the NASD's rule proposal.
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. Sec. 552, will
be available for inspection and copying at the Commission's Public
Reference Room. Copies of such filing also will be available for
inspection and copying at the principal office of the NASD. All
submissions should refer to File No. SR-NASD-97-09 and should be
submitted by June 26, 1997.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule changes (SR-AMEX-97-07, SR-BSE-96-11,
SR-CBOE-97-12, SR-CHX-96-34, SR-CSE-97-03, SR-NASD-97-09, SR-NYSE-97-
03, and SR-PSE-97-05), including NASD Amendment No. 1, are approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14686 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M