[Federal Register Volume 62, Number 110 (Monday, June 9, 1997)]
[Notices]
[Pages 31467-31468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14902]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38704; File No. SR-CHX-97-11]


Self-Regulatory Organizations; Notice of Filing of and Order 
Granting Temporary Accelerated Approval to a Proposed Rule Change by 
the Chicago Stock Exchange, Incorporated Relating to Trading Variations

May 30, 1997.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 29, 1997, 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 self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to grant accelerated approval on a 
temporary basis to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Article XX, Rule 22 of the CHX's 
Rules, relating to trading variations.

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 III 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
    Article XX, Rule 22 of the Exchange's Rules gives the Exchange's 
Committee on Floor Procedure the authority to fix minimum variations 
for bids and offers in specific securities or classes of securities. 
Pursuant to this authority, the Exchange proposes to change its minimum 
variation to \1/16\ of $1.00 per share for securities traded both on 
the Exchange and the Nasdaq National Market that are selling at or 
greater than $10.00 and to \1/32\ of $1.00 per share for such 
securities that are selling below $10.00.
    The proposed rule change will become effective upon the 
Commission's approval and implementation of File No. SR-NASD-97-27.\2\ 
The proposed rule change will only be effective until such time as the 
Commission approves File No. SR-CHX-97-13, a proposed rule change 
regarding general changes to the Exchange's Rules on trading 
variations.
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    \2\ The Commission notes that it approved File No. SR-NASD-97-27 
on May 27, 1997. Securities Exchange Act Release No. 38678 (May 27, 
1997).
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2. Statutory Basis
    The Exchange believes 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 to and 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(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will not impose any 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments.

III. 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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference

[[Page 31468]]

Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Also, copies of 
such filing will be available for inspection and copying at the 
principal office of the CHX. All submissions should refer to File No. 
SR-CHX-97-11 and should be submitted by June 30, 1997.

IV. 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 the requirements of Section 6 and Section 11A of the 
Act.\4\
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    \4\ 15 U.S.C. Secs. 78f(b) and 78k-1. In approving this rule 
change, the Commission notes that it has considered the proposal's 
impact on efficiency, competition, and capital formation, consistent 
with Section 3 of the Act. Id. Sec. 78c(f).
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    The Commission believes the proposed rule change will likely 
enhance the quality of the market for the affected Nasdaq securities. 
Nasdaq currently allows quotes as small as \1/32\ for Nasdaq securities 
whose bid price is below $10.00 and, on June 2, 1997, Nasdaq will 
implement the necessary systems changes to allow market makers and ECNs 
to quote Nasdaq securities whose bid price is equal to or greater than 
$10.00 in sixteenths. Allowing the CHX to quote these securities in 
increments finer than eights will facilitate quote competition.\5\ This 
should help to produce more accurate pricing of such securities and can 
result in tighter quotations.\6\ In addition, if the quoted markets are 
improved by reducing the minimum increment, the change could result in 
added benefits to the market such as reduced transaction costs.
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    \5\ The rule change is consistent with the Recommendation of the 
Division of Market Regulation (``Division'') in its Market 2000 
Study, in which the Division noted that the \1/8\ minimum variation 
can cause artificially wide spreads and hinder quote competition by 
preventing offers to buy or sell at prices inside the prevailing 
quote. See SEC, Division of Market Regulation, Market 2000: An 
Examination of Current Equity Market Developments 18-19 (Jan. 1994).
    \6\ A study that analyzed the reduction in the minimum tick size 
from \1/8\ to \1/16\ for securities listed on the American Stock 
Exchange (``Amex'') priced between $1.00 and $5.00 found that, in 
general, the spreads for those securities decreased significantly 
while trading activity and market depth were relatively unaffected. 
See Hee-Joon Ahn, Charles Q. Chao, and Hyuk Choe, Tick Size, Spread, 
and Volume, 5 J. fin. Intermediation 2 (1996).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. As previously noted, market 
makers and ECNs will be able to quote Nasdaq securities whose bid is 
$10.00 or greater in sixteenths beginning June 2, 1997. Currently, bids 
and offers for these securities are publicly displayed in eights.\7\ 
The proposed rule change will enable the CHX to continue to 
competitively quote such securities. Requiring the Exchange to wait the 
full statutory review period for the proposed rule change could place 
the CHX at a significant competitive disadvantage vis-a-vis other 
markets. At the same time, the proposal is effective only until the 
Commission acts on File No. SR-CHX-97-13.\8\ This will provide the 
Commission with a sufficient period to receive and assess comments on 
SR-CHX-97-11. Therefore, the Commission believes it is consistent with 
Section 6(b)(5) and Section 19(b)(2) of the Act to grant accelerated 
approval on a temporary basis to the proposed rule change.\9\
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    \7\ Although some ECNs allow increments finer than an eighth, 
Nasdaq currently rounds all ECN orders for such securities that are 
priced in sixteenths to the nearest eighth for public display
    \8\ File No. SR-CHX-97-13 is a companion filing that requests 
permanent approval of the procedures described herein.
    \9\ 15 U.S.C. Secs. 78f(b)(5) and 78s(b)(2).
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V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CHX-97-11) is hereby 
approved on an accelerated basis until the Commission acts on File No. 
SR-CHX-97-13.

    \10\ 15 U.S.C. 78s(b)(2).
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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)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14902 Filed 6-6-97; 8:45 am]
BILLING CODE 8010-01-M