[Federal Register Volume 62, Number 113 (Thursday, June 12, 1997)]
[Notices]
[Pages 32131-32132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38719; File No. SR-CHX-97-14]


Self-Regulatory Organization's; 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

June 5, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 2, 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 in CHX-exclusive issues.

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 exclusively 
on the Exchange that are selling at greater than $1.00, and 1/32 of 
$1.00 per share for such securities that are selling at or below $1.00. 
The proposed rule change will only be effective until such time as the 
Commission approves SR-CHX-97-13, a proposed rule change regarding 
general changes to the Exchange's Rules on trading variations.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(5) of the Act \2\ 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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    \2\ 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, 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, 450 Fifth Street, NW., 
Washington, DC 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-97-14 and should be 
submitted by July 3, 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.\3\
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    \3\ 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 CHX securities. The 
Exchange currently only allows quotes in eighths for CHX securities 
that are above $1.00 and sixteenths for CHX securities that are below 
$1.00 but above $0.50. Allowing the CHX to quote these securities in 
finer increments will facilitate quote competition.\4\ This should help 
to produce more accurate pricing of such securities and can result in 
tighter quotations.\5\ 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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    \4\ 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).
    \5\ 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 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

[[Page 32132]]

prior to the thirtieth day after the date of publication of notice 
thereof in the Federal Register. This will allow the Exchange to quote 
all the securities listed on the Exchange in finer increments. 
Requiring the Exchange to wait the full statutory review period for the 
proposed rule change would unnecessarily complicate the CHX's 
transition to finer increments and could place the Exchange at a 
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.\6\ This will provide the Commission with a sufficient period 
to receive and assess comments on SR-CHX-97-14. 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.\7\
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    \6\ File No. SR-CHX-97-13 is a companion filing that requests 
permanent approval of the procedures described herein. Securities 
Exchange Act Release No. 38718 (June 5, 1997). File Nos. SR-CHX-97-
11 and SR-CHX-97-12 are related filings whose effectiveness is 
linked to SR-CHX-97-13. See Securities Exchange Act Release Nos. 
38704 (May 30, 1997) (approving File No. SR-CHX-97-11 on a temporary 
basis; reducing the trading increment from eights to sixteenths for 
securities that are traded on the Exchange and on Nasdaq) and 38717 
(June 5, 1997) (approving File No. SR-CHX-97-12 on a temporary 
basis; a similar reduction in the trading increment for securities 
that are traded on the CHX and on the New York Stock Exchange).
    \7\ 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,\8\ that the proposed rule change (SR-CHX-97-14) is hereby approved 
on an accelerated basis until the Commission acts on File No. SR-CHX-
97-13.

    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15403 Filed 6-11-97; 8:45 am]
BILLING CODE 8010-01-M