[Federal Register Volume 62, Number 113 (Thursday, June 12, 1997)]
[Notices]
[Pages 32134-32135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15405]



[[Page 32134]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38717; File No. SR-CHX-97-12]


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

June 5, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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
    Artical 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 \1/16\ of $1.00 per share for securities traded both on the 
Exchange and the New York Stock Exchange (``NYSE'') that are selling at 
or greater than $1.00 and to \1/32\ of $1.00 per share for such 
securities that are selling below $1.00.
    The Exchange proposes that the proposed rule change become 
effective at such time as enhancement to the Intermarket Trading System 
(``ITS'') is made to permit trading in Tape A issues in minimum 
variations of a sixteenth through ITS. \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.
---------------------------------------------------------------------------

    \2\ Tape A disseminates last sale information for securities 
listed on the NYSE, while Tape B disseminates last sale information 
for securities listed on any other national securities exchange.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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-97-12 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.\4\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    The Commission believes the proposed rule change will likely 
enhance the quality of the market for the affected NYSE securities. The 
NYSE and CHX currently only allow quotes in eighths for NYSE securities 
whose bid price is above $1.00. Allowing the CHX to quote these 
securities in increments finer than eighths 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.
---------------------------------------------------------------------------

    \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 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).
---------------------------------------------------------------------------

    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. Currently, bids and offers for 
NYSE securities selling at or above $1.00 are publicly displayed in 
eighths. On May 12, 1997, the ITS

[[Page 32135]]

Operating Committee agreed to modify ITS to permit Tape A securities to 
be quoted and traded in sixteenths. Shortly thereafter, several market 
centers publicly announced that they will allow the affected NYSE 
securities to be quoted in sixteenths as soon as modifications to ITS 
are implemented.\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-97-12. 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\
---------------------------------------------------------------------------

    \7\ ITS estimates that the implementation date for this change 
is late June.
    \8\ 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-97-14 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 eighths to sixteenths for 
securities that are traded on the Exchange and on Nasdaq) and 38719 
(June 5, 1997) (approving File No. SR-CHX-97-14 on a temporary 
basis; a similar reduction in the trading increment for securities 
that are traded only on the Exchange).
    \9\ 15 U.S.C. Secs. 78f(b)(5) and 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CHX-97-12) is hereby 
approved on an accelerated basis until the Commission acts on File No. 
SR-CHX-97-13.

    \10\ 15U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 C.F.R. 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15405 Filed 6-11-97; 8:45 am]
BILLING CODE 8010-01-M