[Federal Register Volume 62, Number 239 (Friday, December 12, 1997)]
[Notices]
[Pages 65465-65466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32483]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39403; File No. SR-CHX-97-20]


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change Defining 
the Scope and Application of the Guarantee Available Under the 
Exchange's Guaranteed Execution System

December 4, 1997.

I. Introduction

    On September 12, 1997, the Chicago Stock Exchange, Incorporated 
(``CHX''or ``Exchange'') submitted to the Securities and Exchange 
Commission (``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 clarify the scope and 
application of the guarantee available under the Exchange's Guaranteed 
Execution System (``BEST System'').
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 39249 (Oct. 16, 1997), 62 FR 55443 (Oct. 24, 
1997). No comments were received on the proposal. This order approves 
the proposed rule change.

II. Description of the Proposal

    The provision currently governing the BEST System, Exchange Rule 
37(a) of Article XX, states that, subject to certain exceptions, 
specialists must accept and guarantee execution of all agency orders 
\3\ and fill such orders on the basis of the Intermarket Trading System 
(``ITS'') Best Bid or Best Offer (``BBO'') \4\ for Dual Trading System 
issues and the NBBO \5\ for Nasdaq/NM issues. The proposed rule change 
would amend Exchange Rule 37(a) to eliminate any ambiguity concerning 
the scope and application of the guarantee available under the BEST 
System and would make it clear that the guarantee is limited to both 
the size and price associated with the ITS BBO or NBBO.
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    \3\ For purposes of Exchange Rule 37, ``agency order'' means an 
order for the account of a customer but does not include 
professional orders.
    \4\ The ITS BBO is the best bid/offer quote among the American, 
Boston, Cincinnati, Chicago, New York, Pacific, and Philadelphia 
Stock Exchanges or the Intermarket Trading System/Computer Assisted 
Execution System, as appropriate.
    \5\ The NBBO is the best bid or offer disseminated pursuant to 
SEC Rule 11Ac1-1.
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III. Discussion

    For the reasons discussed below, 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(b).\6\ In particular, the commission believes the proposed 
rule change is consistent with the Section 6(b)(5) requirements that 
the rules of an exchange be 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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    \6\ 15 U.S.C. Sec. 78f(b).
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    Each bid and offer, including the ITS BBO and NBBO, contains two 
components--price and size. Because the Exchange's BEST Rule requires a 
specialist to accept and guarantee the execution of an agency market 
order on the basis of the ITS BBO or NBBO, the Exchange has 
consistently interpreted this guarantee as applying to both the size 
and price associated with that best bid or offer. However, the current 
text of the BEST Rule does not explicitly state that the guarantee is 
qualified in such a manner. To eliminate any uncertainty concerning the 
breadth of the guarantee, the proposed rule change adds the words 
``size and price associated with'' to the BEST Rule to clarify that the 
guarantee available under the BEST System is limited to both the size 
and price associated with the ITS BBO or NBBO.
    The proposed rule change is consistent with the automatic execution 
parameters employed by the Exchange's Midwest Automated Execution 
System (``MAX'').\7\ Automatic execution of a

[[Page 65466]]

market order through the MAX System is qualified by Exchange Rule 
37(b)(11), Article XX, which states that ``notwithstanding anything in 
this Rule to the contrary, no market order or limit order that is 
marketable when entered into the MAX System will be automatically 
executed if the size associated with the ITS BBO or NBBO, as the case 
may be, is of a size less than such market order or limit order.''
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    \7\ The MAX System provides an automated delivery and execution 
facility for orders that are eligible for execution under the 
Exchange's BEST Rule and certain other orders. see Exchange Rule 
37(b).
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    The Commission believes that the proposed rule change will bring 
about certainty in the application of the Exchange's BEST System 
guarantee. Although the Exchange currently interprets the scope of the 
BEST System guarantee as being restricted by the price and size 
parameters, the absence of such criteria in the text of the BEST Rule 
may cause confusion among those entitled to use the BEST System.\8\
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    \8\ Exchange Rule 37(a) states that the BEST System is available 
to exchange member firms and members of participating exchanges.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CHX-97-20) is approved.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-32483 Filed 12-11-97; 8:45 am]
BILLING CODE 8010-01-M