[Federal Register Volume 63, Number 178 (Tuesday, September 15, 1998)]
[Notices]
[Pages 49375-49377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24638]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40408; File No. SR-CHX-98-20]
Self-Regulatory Organizations; Notice of Filing of and Order
Granting Accelerated Approval to Proposed Rule Change by The Chicago
Stock Exchange, Incorporated Relating to a Policy of the Specialist
Assignment and Evaluation Committee
September 8, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given
that on August 19, 1998, 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 Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval to the proposed rule change.
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\1\ 15 U.S.C. 78s (b)(1).
\2\ 17 CFR 240.19b-4.
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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 to extend for another one-year term, until September 8,
1999, the current pilot program concerning 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.
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.
[[Page 49376]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On September 8, 1997, the Commission approved a rule change on a
one-year pilot basis relating to the time periods for which a co-
specialist must trade a security before deregistering as the specialist
for the security.\3\ The pilot program currently expires on September
8, 1998. In accordance with the Commission's order approving the pilot
program, the Exchange submitted a report to the Commission describing
its experience with the pilot program.\4\ The purpose of the proposed
rule change is to extend the pilot program for another one-year term to
allow the Exchange to further review the operation of the time periods
for which a co-specialist must trade a security before deregistering as
the specialist for the security.
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\3\ See Securities Exchange Act Release No. 39028 (September 8,
1997), 62 FR 48329. On November 21, 1997, the Commission approved a
rule change that amended and clarified certain time periods of the
pilot program. See Securities Exchange Act Release No. 39342
(November 21, 1997), 62 FR 63578.
\4\ See Letter from Daniel J. Liberti, Chicago Stock Exchange,
to Katherine England, SEC, dated July 23, 1998.
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The Exchange's CSAE is responsible for, among other things,
appointing specialists and co-specialists \5\ and conducting
deregistration proceedings in accordance with Article XXX of the
Exchange's rules.\6\ Seven circumstances may lead to the need for
assignment or reassignment of a security.\7\ One such circumstance is
by specialist request.
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\5\ 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).
\6\ CHX Rules, Article IV, Rule 4.
\7\ CHX Rules, Article XXX, Rule 1, Interpretation and Policy
.01.
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Currently, the CSAE ``will initiate a re-assignment proceeding if
it believes that such action is called for.''\8\ Using this standard,
the CSAE's policy under the current one-year pilot program is as
follows.\9\
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\8\ CHX Rules, Article XXX, Rule 1, Interpretation and Policy
.01.2.
\9\ As explained in Securities Exchange Act Release No. 39028,
supra note 3, the Exchange intended 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. 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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For a security that was awarded to a co-specialist in competition,
\10\ such co-specialist is required to trade the security awarded in
competition for one year before being able to deregister in the
security if no other specialist will be assigned to the security after
posting.\11\ Generally, two years must elapse before an intra-firm
transfer of the issue (i.e., a transfer of the issue to another co-
specialist in the same specialist unit) is permitted without posting.
However, the specialist unit has the opportunity to transfer the
security intra-firm after one year if it agrees to have the security
posted after one year has elapsed to permit other specialist units or
co-specialists to apply to trade the issue.
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\10\ In this context, ``in competition'' means that more than
one specialist had applied to be the specialist in the issue.
\11\ 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.
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For a security that was awarded to a co-specialist without
competition, such co-specialist is required to trade the security
awarded without competition 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. No minimum time period is required to
elapse before an intra-firm transfer is normally permitted.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act \12\ in that it is designed to promote
just and equitable principles of trade, to remove impediments to and to
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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\12\ 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 a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No comments were solicited or received.
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, NW., 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 in the
Commission's Public Reference Room. Copies of the filing also will be
available for inspection and copying at the Exchange. All submissions
should refer to file number SR-CHX-98-20 and should be submitted by
October 6, 1998.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Commission has carefully reviewed CHX's proposed rule change
and believes, for the reasons set forth below, the proposal 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) \13\ in that
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and protect the mechanism of a free and open market, and
to protect investors and the public interest.\14\
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\13\ 15 U.S.C. 78f(b).
\14\ 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).
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The Commission believes that approving the proposed rule change to
extend for another one-year term, until September 8, 1999, the pilot
program relating to the time periods for which a co-specialist must
trade a security before deregistering as the specialist for the
security is reasonable under the Act because it will serve to protect
investors and the public interest by allowing the CHX additional time
to collect data on the program's effectiveness and to determine whether
any modifications are necessary.
The Commission believes that the pilot policy, as modified, should
result in a reasonable balance between the interests of consistency and
continuity with respect to the trading of an issue by a particular
specialist and that of a
[[Page 49377]]
specialist in having the flexibility to deregister in an unprofitable
issue. Under the pilot program, for a security that was awarded to a
co-specialist in competition, the co-specialist is required to trade
the security awarded in competition for one year before being able to
deregister in the security if no other specialist will be assigned to
the security after posting. Generally, two years must elapse before an
intra-firm transfer of the issue (i.e., a transfer of the issue to
another co-specialist in the same specialist unit) is permitted without
posting. However, the specialist unit has the opportunity to transfer
the security intra-firm after one year has elapsed if it agrees to have
the security posted to permit other specialist units or co-specialists
to apply to trade the issue.
For a security that was awarded to a co-specialist without
competition, such co-specialist is required to trade the security
awarded without competition 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. No minimum time period is required to
elapse before an intra-firm transfer is normally permitted.
Overall, the Commission believes that the pilot policy may
encourage CHX specialists to register in additional securities that
might otherwise remain in the cabinet. This, in turn, could add to the
depth and liquidity of the market for additionally listed securities.
The pilot program is now scheduled to expire on September 8, 1999.
The Commission requests that the CHX submit a report on the
effectiveness of the pilot program by July 8, 1999. The report should
state the Exchange's views on the effectiveness of the policy change,
including, but not limited to, whether there has been an increase in
the number of specialists or co-specialists who register in additional
securities. The report should also include data on (1) the rate of
deregistration at the specialist's request, and (2) the number of
specialists applying to register in securities that do not have a
specialist already assigned, and compare that data for the second pilot
year to the two prior years. In addition, the Commission requests that
the CHX submit by July 8, 1999, any proposed rule change pursuant to
Rule 19b-4 under the Act \15\ to further extend or seek permanent
approval of the pilot program.
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\15\ 17 CFR 240.19b-4.
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The Commission believes that there is good cause for approving the
proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. This
will permit the pilot program to continue without interruption, thereby
allowing CHX to better assess the effects of the program. In addition,
the rule change that implemented the pilot program was published in the
Federal Register for the full comment period and no comments were
received; and no comments were received with regard to the
modifications made to the pilot program in November, 1997 which were
also published in the Federal Register. Finally, the CHX stated in its
report to the Commission on the pilot program that, in the first year
of operation of the pilot program, it received no complaints or
negative feedback regarding the pilot program policy, and there was no
apparent abuse in the operation of the pilot policy. Accordingly, the
Commission believes that it is consistent with Sections 6 and 19(b) of
the Act \16\ to accelerate approval of the proposed rule change.
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\16\ 15 U.S.C. 78f and 78s(b)(2).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-CHX-9-20) is hereby approved
on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24638 Filed 9-14-98; 8:45 am]
BILLING CODE 8010-01-M