[Federal Register Volume 62, Number 225 (Friday, November 21, 1997)]
[Notices]
[Pages 62384-62385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30626]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39323; File No. SR-CHX-97-24]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc; Order
Granting Accelerated Approval to Proposed Rule Change and Notice of
Filing and Order Granting Accelerated Approval of Amendment No. 1
Thereto Relating to a Ban on the Entry of Certain Stop Orders and Stop
Limit Orders
November 13, 1997.
I. Introduction
On September 22, 1997, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt a new rule to prohibit
the entry of certain stop orders and stop limit orders if the New York
Stock Exchange (``NYSE'') implements a stop order ban pursuant to NYSE
Rule 80A.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on October 20, 1997.\3\ No comments were received on the
proposal. On October 31, 1997, the CHX submitted Amendment No. 1 to the
proposed rule change.\4\ This order approves the proposed rule change
and approves Amendment No. 1 on an accelerated basis.
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\3\ See Securities Exchange Act Release No. 39320 (October 10,
1997) 62 FR 54496.
\4\ See Letter from Charles R. Haywood, Foley & Lardner, to
Debbie Flynn, Division of Market Regulation, SEC, dated October 30,
1997 (``Amendment No. 1''). In Amendment No. 1, the CHX requested
that the rule filing by approved on an accelerated basis due to the
recent volatility in the financial markets and the Exchange's belief
that such volatility may continue.
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II. Description of the Proposal
The Exchange proposes to add Article IX, Rule 10B (Stop Order Ban
Due to Extraordinary Market Volatility) to prohibit the entry of
certain stop orders and stop limit orders if the NYSE implements a stop
order ban pursuant to NYSE Rule 80A. The NYSE's Rule 80A prohibits the
entry of stop orders and stop limit orders if the price of the primary
Standard and Poor's 500 Stock Price Index \5\ futures contract traded
on the Chicago Mercantile Exchange reaches a value 12 points below the
contract's closing value on the previous trading day. Likewise, the
Boston Stock Exchange (``BSE'') prohibits the entry of stop and stop
limit orders on the BSE when the NYSE has a ban in place.\6\ The
Exchange's new rule would exempt from the ban stop orders and stop
limit orders of 2,099 shares or less for the account of an individual
investor pursuant to instructions received directly from the individual
investor.
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\5\ Standard and Poor's 500 Stock Index is a service mark of
Standard and Poor's Corporation.
\6\ See Ch. II, Sec. 35(b) of the BSE's rules.
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The Exchange has previously adopted circuit breaker rules on a
pilot basis \7\ which parallel the circuit breaker rules of the
NYSE.\8\ Such rules are designed to dampen market volatility by
providing a ``time-out'' to permit investors and market professionals
to evaluate the state of the market. However, unlike the NYSE, the
Exchange has not previously prohibited the entry of stop and stop limit
orders during times of market stress.
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\7\ See Securities Exchange Act Release Nos. 26218 (October 26,
1988) 53 FR 44137 (November 1, 1988) (order approving File No. SR-
MSE-88-9); 27370 (October 23, 1989) 54 FR 43881 (October 27, 1989)
(order approving File No. SR-MSE-89-9); 28580 (October 25, 1990) 55
FR 45895 (October 31, 1990) (order approving File No. SR-MSE-90-16);
29868 (October 28, 1991) 56 FR 56535 (November 5, 1991) (order
approving File No. SR-MSE-91-14); 33120 (October 29, 1993) 58 FR
59503 (November 9, 1993) (order approving File No SR-CHX-93-22);
36414 (October 25, 1995) 60 FR 55630 (November 1, 1995) (order
approving File No. SR-CHX-95-23); 37459 (July 19, 1996) 61 FR 39172
(July 26, 1996) (order approving File No. SR-CHX-96-20); and 38221
(January 31, 1997) 62 FR 5871 (February 7, 1997) (order approving
File No. SR-CHX-96-33).
\8\ See CHX Art. IX, Rule 10A.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirement of Section 6 of the Act \9\ and the rules and
regulations thereunder applicable to a national securities
exchange.\10\ The Commission believes that the proposed rule change is
consistent with and furthers the objectives of Section 6(b)(5) of the
Act \11\ in that it is designed to perfect the mechanism of a free and
open market and to protect investors and the public interest.
Specifically, the Commission believes that the prohibition against
accepting stop orders and stop limit orders, except for individual
investor orders of up to 2,099 shares, during periods of market stress
will facilitate the maintenance of an orderly market and reduce market
volatility.
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\9\ 15 U.S.C. 78f.
\10\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
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The Commission recognizes that banning the entry of stop orders and
stop limit orders in a significant market decline may help to reduce
market volatility related to increased selling pressure in the
security. The Commission believes that banning the entry of stop orders
and stop limit orders in dually-traded issues when NYSE Rule 80A is in
effect should prevent the transfer of market volatility from the NYSE
to the CHX. The Commission believes that the CHX proposal represents a
reasonable effort to arrive at a coordinated means to address potential
strain on the market that may develop should the CHX become inundated
with orders that have been banned pursuant to NYSE Rule 80A.
The Commission notes that stop orders and stop limit orders on the
specialist's book at the time the ban is
[[Page 62385]]
instituted will remain eligible for execution. Consequently, the
Commission believes that investors who have submitted orders will be
unduly disadvantaged or effected by any subsequent ban on such orders.
The Commission further believes that allowing individual investors to
enter stop orders or stop limit orders for 2,099 shares or less, while
restricting the professional use of such orders when the NYSE
institutes a ban pursuant to Rule 80A represents a reasonable response
to the problem presented by smaller, individual investors who may be
able to monitor market conditions on a continuous basis and who desire
a measure of downside protection in a rapidly moving market. In
contrast, market professionals are able to monitor the market on a
continuous basis and have less of a need to enter such orders. The
Commission believes that this exception to the proposed rule should
protect investors and the public interest by ensuring that individual
investors' stop orders and stop limit orders will be handled even
during periods of market volatility.\12\
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\12\ The Commission notes that this exception to the proposed
rule is consistent with the rules adopted by the NYSE and BSE. See
NYSE Rule 80A(b) and Ch. II, Sec. 35(b) of the BSE's rules.
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The Commission finds good cause for approving the proposed rule
change, including Amendment No. 1, prior to the thirtieth day after the
date of publication of notice of filing thereof in the Federal
Register. The Commission notes that Amendment No. 1 merely accelerates
the effectiveness of the proposed rule. The Commission further notes
that no comments were received on this proposal.Finally, the Commission
notes that it has previously approved an identical proposal submitted
by the BSE.\13\ Therefore, the Commission believes that this filing
raises no new regulatory issues. Accordingly, the Commission believes
that it is consistent with Section 6(b)(5) of the Act \14\ to approve
the proposed rule change and Amendment No. 1 on an accelerated basis.
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\13\ See Securities Exchange Act Release No. 32697 (July 29,
1993) 58 FR 41538 (August 4, 1993) (order approving File No. SR-BSE-
92-05).
\14\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., 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. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street,
N.W., Washington, DC 20549. Copies of such filing will also be
available for inspection and copying at the principal office of the
CHX. All submissions should refer to File No. SR-CHX-97-24 and should
be submitted by December 12, 1997.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)2() of the
Act,\15\ that the proposed rule change (SR-CHX-97-24), including
Amendment No. 1, is approved.
\15\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30626 Filed 11-20-97; 8:45 am]
BILLING CODE 8010-01-M