[Federal Register Volume 63, Number 48 (Thursday, March 12, 1998)]
[Notices]
[Pages 12123-12124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6339]



[[Page 12123]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39723; File No. SR-CHX-97-25]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendments Nos. 1 and 2 by the Chicago Stock Exchange, 
Incorporated, Amending the Minor Rule Violation Plan

March 5, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 1, 1997, the 
Chicago Stock Exchange, Incorporated (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change. The Exchange subsequently filed Amendment No. 1 clarifying 
the statutory basis of the rule change.\2\ On February 12, 1998, the 
Exchange filed Amendment No. 2 to the proposed rule change modifying 
the recommended fine schedule. The proposed rule change, as amended, is 
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\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ See Letter from David T. Russof, Foley & Lardner, to 
Katherine A. England, Division of Market Regulation, Commission, 
dated October 31, 1998.
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I. Self-Regulatory Organizations Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Article XII, Rule 9, its Minor Rule 
Violation Plan to include Article XX, Rule 7, interpretation and policy 
.05, which requires limit orders to be reflected in the specialist's 
quotation.\3\ Proposed new language is italicized.

    \3\ See Securities Exchange Act Release No. 39540 (January 12, 
1998), 63 FR 2708.
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Article XII
Rule 9.

(h)(ii)(18)  Failure to display a limit order in the quotation (Article 
XX, Rule 7, interpretation and policy .05)

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CHX 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. CHX 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
    On May 30, 1996 the Commission approved a proposed rule change that 
established a CHX Minor Rule Violation Plan (the ``Plan'').\4\ The 
Exchange is now proposing to add the failure to display a limit order 
in the quotation \5\ to the section of the Plan relating to Floor 
Decorum and Minor Trading Rule Violations. The Exchange believes that 
it is appropriate to add the Limit Order Display Rule to the Plan 
because violations of the rule are either objective and technical in 
nature or are easily verifiable. Moreover, the Exchange believes that 
because the Limit Order Display Rule is built upon a comparable 
Commission Rule,\6\ violations of such rule require sanctions that are 
more severe than a warning or cautionary letter.
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    \4\ Rule 19d-1(c)(2) under the Act authorizes national 
securities exchanges to adopt minor rule violation plans for the 
summary discipline and abbreviated reporting of minor rule 
violations by exchange members and member organizations. See 
Securities Exchange Act Release No. 21013 (June 1, 1984), 49 FR 
23828 (approving amendments to paragraph (c)(2) of Rule 19d-1 under 
the Act). The CHX's Plan was approved by the Commission in 1996. See 
Securities Exchange Act Release No. 37255 (May 30, 1996), 61 FR 
28918 (approving File No. SR-CHX-95-25).
    \5\ CHX Article XX, Rule 7 (``Limit Order Display Rule'').
    \6\ See 17 CFR 240.11Ac1-4 (``Limit Order Display Rule'').
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    The Exchange is also proposing recommended fines for failure to 
display a limit order in the quotation (Article XX, Rule 7, 
interpretation and policy .05) to be $1,000 for the first violation and 
all subsequent violations. Because of the time and effort expended by 
the Commission in adopting the Limit Order Display Rule, together with 
the Commission's and the industry's recent focus on the display of 
limit orders, the Exchange believes that it is appropriate to adopt the 
$1000 recommended fine for violations of this rule (rather than the 
$100 recommended fine for violations of other rules that are part of 
the minor rule violation plan). The Exchange notes that the minor rule 
plan violation schedule is merely a recommended fine schedule and that 
fines of more or less than the recommended fines can be imposed (up to 
a $2500 maximum) in appropriate circumstances. Moreover, the Exchange 
may proceed with formal disciplinary action, rather than procedures 
under the Plan, whenever it finds that a violation of the Limit Order 
Display rules was more than inadvertent.
2. Statutory Basis
    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)(1),\7\ 6(b)(6),\8\ 6(b)(7) \9\ and 19(d) of the Act. The 
proposal is consistent with the Section 6(b)(6) requirement that the 
rules of an exchange provide appropriate discipline for violations of 
Commission and Exchange rules. The proposal provides an efficient 
procedure for appropriate disciplining of the members for rule 
violations that are objective in nature. Moreover, because CHX Article 
XII, Rule 9 provides procedural rights to the person fined and permits 
a disciplined person to request a full hearing on the matter, the 
proposal provides a fair procedure for the disciplining of members and 
persons associated with members, consistent with Sections 6(b)(7) and 
6(d)(1) of the Act. The proposal provides an alternative means by which 
to deter violations of CHX rules included in the Plan, thus furthering 
the purposes of Section 6(b)(1) of the Act.
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    \7\ 15 U.S.C. Sec. 78f(b)(1).
    \8\ 15 U.S.C. Sec. 78f(b)(6).
    \9\ 15 U.S.C. Sec. 78f(b)(7).
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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 a burden on competition.

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

    No written comments were solicited or received.

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

    Within 35 days of the date of 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 reason for so finding or (ii) as to 
which the self-regulatory

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organization consents, the Commission will:
    (A) By order approve such 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, including whether the proposed rule 
change is consistent with the Act. Persons making a written submission 
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 will also be available for 
inspection and copying at the principal office of CHX. All submissions 
should refer to file number SR-CHX-97-25 and should be submitted by 
April 2, 1998.

    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. 98-6339 Filed 3-11-98; 8:45 am]
BILLING CODE 8010-01-M