[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56278-56279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28170]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40553; File No. 4-208]


Intermarket Trading System; Order Approving Thirteenth Amendment 
to the ITS Plan Relating to the Elimination of the Requirement That the 
Cincinnati Stock Exchange, Inc. Submit Proposed Rule Changes to its 
Rule 11.9 or the Description of NSTS Processing to Other ITS 
Participants for Review and Comment Prior to Filing Such Changes With 
the Securities and Exchange Commission, and Making Certain Technical 
Changes

October 14, 1998.

I. Introduction

    On August 17, 1998, the Intermarket Trading System (``ITS'') 
submitted to the Securities and Exchange Commission (``Commission'') an 
amendment (``Thirteenth Amendment'') to the Restated ITS Plan 
(``Plan'') \1\ pursuant to Section 11A of the Securities Exchange Act 
of 1934 (``Exchange Act'' or ``Act'') \2\ and Rule 11Aa3-2 thereunder 
\3\ to eliminate the requirement that the Cincinnati Stock Exchange, 
Inc. (``CSE''), submit proposed rule changes to its Rule 11.9 or the 
description of National Securities Trading System (``NSTS'') processing 
to other ITS Participants for review and comment prior to filing such 
changed with the Commission, and to make certain technical changes. The 
proposed plan amendment was published for comment in the Federal 
Register on September 3, 1998.\4\ No comments were received on the 
proposal. For the reasons discussed below, the Commission is approving 
the proposal.
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    \1\ The ITS Plan is a National Market System (``NMS'') plan 
approved by the Commission pursuant to Section 11A of the Act and 
Rule 11Aa3-2. Exchange Act Release No. 19456 (January 27, 1983), 48 
FR 4938.
    \2\ 15 U.S.C. 78k-1.
    \3\ 17 CFR 240.11Aa3-2.
    \4\ Exchange Act Release No. 40373 (August 27, 1998), 63 FR 
47050.
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    The ITS is a communications and order routing network linking eight 
national securities exchanges and the electronic over-the-counter 
(``OTC'') market operated by the National Association of Securities 
Dealers, Inc. (``NASD''). The ITS was designed to facilitate 
intermarket trading in exchange-listed equity securities based on 
current quotation information emanating from the linked markets.
    Participants to the ITS Plan include the American Stock Exchange, 
Inc., (``Amex''), the Boston Stock Exchange, Inc., (``BSE''), the 
Chicago Board Options Exchange, Inc. (``CBOE''), the Chicago Stock 
Exchange, Inc. (``CHX''), the CSE, the NASD, the New York Stock 
Exchange, Inc. (``NYSE''), the Pacific Exchange, Inc. (``PCX''), and 
the Philadelphia Stock Exchange, Inc. (``PHLX'').

II. Description

    The purpose of the amendment is to: (1) eliminate the requirement 
that the CSE submit proposed changes to its Rule 11.9 or the 
description of NSTS processing to other ITS Participants for review and 
comment prior to filing such changes with the Commission; (2) recognize 
the change in corporate name from the Pacific Stock Exchange, Inc. 
(``PSE'') to the Pacific Exchange, Inc. (``PCX''); (3) change the 
corporate address of the CSE; and (4) make a technical correction to 
Section 8(e)(iv)(D).
    The change concerning prior review of CSE rule changes responds to 
the Commission's request in its letter to all Participants, dated may 
27, 1997.\5\
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    \5\ See letter from Jonathan G. Katz, Secretary, Commission, to 
ITS Participants, dated May 27, 1997 (``ITS Letter'').
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III. Discussion

    The Commission finds that the proposed amendments to the Plan are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national market system plan, 
and, in particular, with the requirements of Section 11A.\6\ 
Specifically, the Commission believes the proposal is consistent with 
the requirements of Sections 11A(a)(1)(C)(ii) and (D) \7\ which provide 
for fair competition among the ITS Participants and their members, and 
the linking of all markets for qualified securities through 
communications and data processing facilities which foster efficiency, 
enhance competition, increase the information available to brokers, 
dealers, and investors, facilitate the offsetting of investors' orders, 
and contribute to the best execution of such orders. The Commission 
also finds that the amendment is consistent with Rule 11Aa3-2(c)(2) \8\ 
which requires the Commission to determine that the amendment is 
necessary and appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market system 
or otherwise in furtherance of the purposes of the Act.
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    \6\ U.S.C. 78k-1.
    \7\ U.S.C. 78k-1(a)(1)(C)(ii) and (D).
    \8\ 17 CFR 240.11Aa3-2(c)(2).
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    The ITS Plan currently provides a special right of review to ITS 
Participants for proposed rule changes involving the operating of the 
CSE's NSTS. NSTS, described in CSE Rule 11.9, is an electronic 
securities communications and execution system through which bids and 
offers of public orders and competing dealers are consolidated for 
review and execution. Under ITS Plan Section 8(e)(iii), any rule, 
interpretation, or amendment to CSE Rule 11.9, or the description of 
the NSTS, cannot be submitted by the CSE for Commission approval until 
other ITS Participants have been afforded a reasonable opportunity to 
review and comment on the interpretation or amendment. The Commission 
notes that when the NSTS-ITS link was approved in 1986, the novel 
nature of NSTS provided some support for this approach. The Commission 
believes, however, that eliminating the special right of review is 
appropriate because such review permits other Participants to hinder 
the CSE from improving its market without prior notice to and comment 
from its market competitors. Other markets do not have a similar 
impediment to adjusting their trading systems. The Commission further 
notes that any system changes to NSTS must be filed with the 
Commission, and market participants may present any views they have 
during the comment period.\9\ In addition, the Commission notes that 
the ITS Participants have acted to eliminate this review requirement in 
response to the Commission's request.\10\ Therefore, the Commission 
believes that the proposed

[[Page 56279]]

change to the Plan to eliminate the special right of review of CSE rule 
changes is reasonable and consistent with the Act because it will 
eliminate an unfair and anti-competitive burden on the CSE.
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    \9\ The Commission wishes to point out that this filing 
requirement for systems changes applies equally to all self-
regulatory organizations.
    \10\ See ITS Letter, supra note 5.
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    The Commission also finds that the additional, technical amendments 
to the Plan provided in the proposal are reasonable and consistent with 
the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 11A(a)(3)(B) of the 
Act,\11\ that the amendment be, and hereby is, approved.

    \11\ 15 U.S.C. 78k-1(a)(3)(B).
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    For the Commission, by the Division of Market Regulations, 
pursuant to delegated authority.\12\
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    \12\ CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28170 Filed 10-20-98; 8:45 am]
BILLING CODE 8010-01-M