[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30909-30911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14689]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38699; File No. 4-208]


Intermarket Trading System; Order Approving Twelfth Amendment to 
the Restated ITS Plan Relating to Amending the Pre-Opening Application, 
Deleting Text No Longer Applicable, and Making Technical Amendments

May 30, 1997.

I. Introduction

    On January 31, 1997, the Intermarket Trading System (``ITS'') 
submitted to the Securities and Exchange Commission (``Commission'') an 
amendment to the Restated ITS Plan (``Plan'') pursuant to Section 11A 
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 11Aa3-2 
thereunder \2\ to amend the Pre-Opening Application, to delete text no 
longer applicable, and to make technical amendments.\3\ The proposed 
plan amendment was published for comment in Securities Exchange Act 
Release No. 38520 (April 17, 1997), 62 FR 19846 (April 23, 1997). No 
comments were received on the proposal. For the reasons discussed 
below, the Commission is approving the proposal.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 240.11Aa3-2.
    \3\ The ITS, a communications and order routing network linking 
eight national securities exchanges and the electronic over-the-
counter (``OTC'') market operated by the National Association of 
Securities Dealers, Inc. (``NASD''), is a National Market System 
(``NMS'') plan approved by the Commission pursuant to Section 11A of 
the Act and Rule 11Aa3-2 thereunder. The ITS was designed to 
facilitate intermarket trading in exchange-listed equity securities 
based on current quotation information emanating from the linked 
markets.
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    Participants to the Plan include the American Stock Exchange, Inc. 
(``Amex''), the Boston Stock Exchange, Inc. (``BSE''), the Chicago 
Board Options Exchange, Inc. (``CBOE''), the Chicago Stock Exchange, 
Inc. (``CHX''), the Cincinnati Stock Exchange, Inc. (``CSE''), the 
National Association of Securities Dealers, Inc. (``NASD''), the New 
York Stock Exchange, Inc. (``NYSE''), the Pacific Stock Exchange, Inc. 
(``PSE''), and the Philadelphia Stock Exchange, Inc. (``PHLX'').

II. Description

    The purpose of the proposed changes to the Plan is amend the Pre-
Opening Application, to delete text relating to the NASD Pilot Phase 
and the ITS/Computer Assisted Execution System (``CAES'') Linkage, and 
the National Security Trading System (NSTS'')/ITS Automated Linkage, 
which by their terms are no longer applicable, and to make technical 
amendments. The current Pre-Opening Application sections of the Plan 
trigger the use of the Pre-Opening Application whenever an ``indication 
of interest'' (i.e., an opening price range) is sent to the 
Consolidated Tape Association (``CTA'') Plan Processor prior to the 
opening of trading in the relevant security or prior to 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 sections provide that the Pre-
Opening Application applies when an indication

[[Page 30910]]

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 
delay opening.
    Under the proposed amendment, the Pre-Opening Application would not 
also be triggered when indications of interest are disseminated in 
situations other than those five defined trading halts, including the 
resumption of trading following the activation of market-wide circuit 
breakers. In particular, the proposed amendment deletes the definition 
of ``Trading Halt,'' which is limited to the five defined trading halt 
situations mentioned above,\4\ and replaces all references to ``Trading 
Halt'' with ``halt or suspension in trading.'' As a result, one 
standard procedure would then govern all trading halt situations and 
would include suspensions of trading pursuant to circuit breakers.
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    \4\ Mention of the five defined terms is also deleted from 
Section 7(a) of the Plan.
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    The proposed Plan amendment replaces ``NASD Market Services, Inc.'' 
with ``The Nasdaq Stock Market, Inc.,'' and ``MSI'' with ``Nasdaq,'' to 
reflect the reorganization of the NASD. The amendment also deletes 
references to and language regarding the operation of the ITS/CAES 
linkage during the NASD Pilot Phase; restrictions of the participation 
of the ITS/CAES market makers in the ITS during the Pilot Phase, 
including the number of ITS/CAES securities the market makers can trade 
through the ITS during the Pilot; and descriptions of the NASD Pilot 
Phase, including entire Section 10(d).
    The amendment to the Plan deletes reference to the limitations on 
ITS/CAES third market commitments to sell short until the CAES is 
modified to permit compliance with SEC Rule 10a-1 (the short sale 
rule). In connection with this limitation, the proposed amendment to 
the Plan deletes the body of Section 8(f)(vi) of the Plan, which states 
that the NASD is to enhance CAES prior to the Pilot Phase to permit 
execution of commitments to sell short routed through the CAES Switch 
in compliance with SEC Rule 10a-1, and also deletes mention in Section 
8(b) of the Plan of this short sale limitation. In addition, the 
amendment deletes the limitation on commitments to trade in ITS in 
Section 8(a)(iii) of the Plan, which states that the commitments can 
only originate from an ITS/CAES third market maker during the two year 
Pilot Phase, and then the NASD has to determine how they will be 
handled, pursuant to Section 10(d) of the Plan.
    The proposed Plan amendment deletes references and language 
pertaining to first and second anniversaries of the NSTS/ITS Automated 
Linkage (``CSE Linkage'') Commencement Date (which was April 1, 1986), 
and the restrictions that applied to the CSE Linkage during that period 
between the commencement date and the first or second anniversary. The 
amendment deletes Sections 10(e)(ii) (A) and (B) of the Plan, which 
discuss the capacity relief and terminal interface costs of the CSE 
Linkage; language relating to only Designated Dealers being able to 
trade System securities; deletes language in Section 8(a)(ii) of the 
Plan that says for the two years following the CSE Linkage Commencement 
Date, NSTS Users can only use the ITS as to System securities assigned 
to a Designated Dealer(s), except they can use ITS with regard to other 
System securities that are traded on the CSE for the purpose of 
complying with the CSE trade through and block trade policies adopted 
by Sections 8(d) (ii) and (iii) of the Plan.
    The proposed amendment deletes the body of Section 7(d) of the 
Plan, which states that the 1990 revised Pre-Opening Application would 
commence on a date that the operating committee specified, but no later 
than the 60th day following Commission approval of the 1990 revision of 
the Pre-Opening Application. The commencement date was August 5, 1991.
    The proposed amendment deletes language regarding the limitations 
on how to calculate the NSTS/ITS Outgoing Agency Interest, Originating 
Agency Interest, and Incoming Dealer Executions (Incremental Constant) 
before the ``contributing dealer adjustment date,'' which is the later 
of one year from the anniversary of the CSE Linkage commencement date 
or from a determination that ``Approved Dealer'' no longer excludes 
Contributing Dealers as anticipated by Section 2(1A).\5\ The proposed 
amendment also changes the ``second anniversary of the NSTS/ITS 
Automated Linkage Commencement Date'' to ``April 1, 1986,'' in sections 
8(e)(iv)(A)(6) and 8(e)(iv)(B) of the Plan. The proposed amendment also 
makes several technical changes to the Plan.
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    \5\ This language is found in Section 8(e)(iv) of the Plan, 
titled ``Operational Parameters for NSTS/ITS Automated Linkage.''
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III. Discussion

    The Commission finds that the proposed amendments to the Plan are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national market system plan, 
and, in particular, with the requirements of Section 11A.\6\ In 
particular, the Commission believes the proposal is consistent with the 
Sections 11A(a)(1) (C)(ii) and (D) \7\ requirements with provide for 
fair competition among the ITS Participants and their members, and the 
linking of all markets for qualified securities through communications 
and data processing facilities which 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. The Commission also 
finds that the amendment is consistent with Rule 11Aa3-2(c)(2) \8\ 
which requires the Commission to determine that the amendment is 
necessary and appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market system 
or otherwise in furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78k-1.
    \7\ 15 U.S.C. 78k-1(a)(1) (C)(ii) and (D).
    \8\ 17 CFR 240.11Aa3-2(c)(2).
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    The Commission believes that the proposed amendments to the Pre-
Opening Application portions of the Plan 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 
Plan amendment achieves these goals by amending the Pre-Opening 
Application so that one standard procedure governs all trading halt 
situations, including circuit breaker halts.\9\
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    \9\ The Commission published for notice and comment the proposed 
rule changes by the nine Plan Participants to amend their respective 
Pre-Opening Application rules, and the Commission is approving those 
proposed rule changes the same day as this Plan approval order.
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    The Commission believes that the changes to the Plan relating to 
references to and language regarding the operation of the ITS/CAES 
linkage during the NASD Pilot Phase, references to and language 
pertaining to the restrictions that applied to the CSE Linkage during 
the period between the commencement date and the first or second 
anniversary of that commencement date, and to the commencement of the 
1990 revisions to the Pre-Opening Application, are reasonable and 
consistent with the Act

[[Page 30911]]

in that they are no longer applicable by their terms because the time 
periods have expired.
    The Commission also notes that the proposal provides additional, 
technical amendments to the Plan consistent with the ITS's purpose of 
facilitating intermarket trading in exchange-listed equity securities.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 11A(a)(3)(B) of the 
Act,\10\ that the amendment be, and hereby is, approved.

    \10\ 15 U.S.C. 78k-1(a)(3)(B).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14689 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M