[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