[Federal Register Volume 62, Number 149 (Monday, August 4, 1997)]
[Notices]
[Pages 41981-41983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38882; File No. SR-CHX-97-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments Nos. 1, 2, and 3 Thereto by the Chicago Stock 
Exchange, Inc., Relating to a Specialist's De-Registration in an Issue

July 28, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 4, 
1997, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change, and on July 3, 1997, July 22, 1997, and July 28, 
1997, filed Amendment Nos. 1, 2, and 3,

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respectively,\1\ to the proposed rule change, as described in Items I, 
II, and III 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.
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    \1\ See Letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Sharon Lawson, Senior Special Counsel, Division of Market 
Regulation, Commission, dated June 23, 1997 (``Amendment No. 1'') 
and Letters from David T. Rusoff, Attorney, Foley & Lardner, to 
Heather Seidel, Attorney, Division of Market Regulation, Commission, 
dated July 16, 1997 (``Amendment No. 2'') and July 21, 1997 
(``Amendment No. 3'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Article XXX, Rule 1, Interpretation 
and Policy .01 of the CHX Rules, to change a policy of the Exchange's 
Committee on Specialist Assignment and Evaluation (``CSAE'') relating 
to the time periods for which a co-specialist must trade a security 
before deregistering as the specialist for the security. This policy 
would be in effect for a one year pilot program.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed 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 IV 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
    The Exchange's CSAE is responsible for, among other things, 
appointing specialists and co-specialists \2\ and conducting 
deregistration proceedings in accordance with Article XXX of the 
Exchange's rules.\3\ As described in existing Interpretation and Policy 
.01 of Rule 1 of Article XXX, seven circumstances may lead to the need 
for assignment or re-assignment of a security. One such circumstance is 
by specialist request.
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    \2\ A specialist is a ``unit'' or organization which has 
registered as such with the Exchange under Article XXX, Rule 1. A 
co-specialist is an individual who has registered as such under 
Article XXX, Rule 1. See CHX Rules Article XXX, Rule 1, 
Interpretation and Policy .01.4(a).
    \3\ See CHX Rules Article IV, Rule 4.
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    Currently, the CSAE ``will initiate a re-assignment proceeding if 
it believes that such action is called for.'' \4\ Using this standard, 
the CSAE's current policy is to require a co-specialist to trade an 
issue awarded in competition \5\ for a two year period, and to trade an 
issue awarded without competition for a six-month period, before 
permitting a co-specialist to deregister in the issue.
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    \4\ See CHX Rules Article XXX, Rule 1, Interpretation and Policy 
.01.2.
    \5\ In this context, ``in competition'' means that more than one 
specialist had applied to be the specialist in the issue.
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    The CHX proposes to amend this policy for a one year pilot program. 
Specifically, the proposal would change the time periods for which a 
co-specialist must trade an issue before the CSAE will, in general, 
approve a co-specialist's request to deregister in an issue.\6\ These 
time periods would vary depending on whether the issue was awarded in 
competition or without competition and whether another specialist will 
assume the responsibility to trade the issue.
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    \6\ The Exchange stated its intention to have the new policy 
apply anytime there will not be another specialist assigned to the 
issue, such as if the security was to be returned to the cabinet, 
put in the cabinet for the first time, or traded by a lead primary 
market maker pursuant to CHX Rules Article XXXIV, Rule 3. See 
Amendment No. 2, supra note 1. Cabinet securities are those 
securities which the Board of Governors designates to be traded in 
the cabinet system because in the judgment of the Board such 
securities do not trade with sufficient frequency to warrant their 
retention in the specialist system. See CHX Rules Article XXVIII, 
Rule 6. For a more detailed explanation of the operation of the 
cabinet system, see CHX Rules Article XX, Rule 11.
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    Under the proposed rule change, for a security that was awarded to 
a co-specialist in competition, such co-specialist will be required to 
trade the security for one year before being able to deregister in the 
security if no other specialist will be assigned to the security after 
posting.\7\ The two year time period currently in place for an intra-
firm transfer of such issues (i.e., transferring the issue to another 
co-specialist in the same specialist unit) will remain. For a security 
that was awarded to a co-specialist without competition, such co-
specialist will be required to trade the security for a three month 
period before being able to deregister in the security if no other 
specialist will be assigned to the security after posting. The six 
month time period currently in place for an intra-firm transfer of such 
issues will remain.
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    \7\ In this context, posting means that all specialists are put 
on notice that the security in question is available for 
reassignment. See CHX rules Article XXX, Rule 1. Telephone 
conversation between David Rusoff, Attorney, Foley & Lardner, and 
Heather Seidel, Attorney, Market Regulation, Commission, on July 24, 
1997.
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    Whether or not the security was awarded in competition, the 
effective date of a specialist's deregistration in an issue for which 
no specialist will be assigned after posting will be the first business 
day of each calendar quarter; provided, however, that the applicable 
time period for which a specialist is required to trade an issue must 
have been satisfied prior to such date.
    Whether or not the security was awarded in competition, in general, 
the CSAE will require that order sending firms be given at least 15 
days advance notice of a co-specialist's intention to de-register in 
the issue.
    The Exchange believes that this new policy will encourage more 
specialists and co-specialists to become the specialist or co-
specialist in additional securities. By reducing the current two year 
requirement to one year and the current six month requirement to three 
months, a specialist or co-specialist will reduce its risk and exposure 
that is attendant with registering as a specialist or co-specialist for 
a particular issue. The Exchange believes that the current two year and 
six month standards are too long--they are too burdensome and onerous 
on a specialist or co-specialist. Circumstances can unexpectedly change 
over a two year period. As a result, under the current policy, a 
specialist or co-specialist may be reluctant to apply to become a 
specialist in an issue. The Exchange believes that the new policy, as 
proposed, will more accurately balance the need for consistency and 
continuity with respect to the trading of an issue by a particular 
specialist against the need by a specialist to have the flexibility to 
de-register as the specialist for an unprofitable issue. As stated 
above, this will encourage specialists to apply to trade more issues. 
This, in turn, will increase the liquidity and depth of the market. For 
example, it might encourage a specialist to trade an issue in which no 
specialist is currently assigned.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \8\ 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

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general, to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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. 552, will be available for inspection and copying at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CHX-97-15 and 
should be submitted by August 25, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-20410 Filed 8-1-97; 8:45 am]
BILLING CODE 8010-01-M