[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1048-1049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40843; File No. SR-CSE-98-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Cincinnati Stock Exchange, Inc. to 
Reduce the Exchange's Public Agency Guarantee Size

December 28, 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 October 26, 1998, the Cincinnati Stock Exchange, Inc. (``CSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On November 13, 1998, the Exchange submitted Amendment No. 1 
to the proposed rule change.\3\ 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. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Adam W. Gurwitz, Vice President Legal and 
Corporate Secretary, CSE, to David Sieradzki, Staff Attorney, SEC, 
dated November 12, 1998. (``Amendment No. 1''). In Amendment No. 1, 
CSE proposed to change Rule 11.9 (c)(v) to reduce the execution 
guarantee at the opening price of public agency market orders and 
limit orders. Additionally, CSE requested that Section 8 of its rule 
filing be amended to reference the relevant rules regarding the 
public order guarantee levels of the Philadelphia Stock Exhcange, 
Inc., the Boston Stock Exchange, Inc., and the Pacific Exchange, 
Inc.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange hereby proposes to amend the public agency guarantee 
in CSE Rules 11.9(c)(v) and (n) to reflect recent changes in market 
conditions. Below is the text of the proposed rule change. Additions 
are italicized; deletions are in brackets.

Rule 11.9. National Securities Trading System

    (a) through (b) No Change.
    (c)(i) through (c)(iv) No Change.
    (c)(v) Guarantee the execution up to [2099] 1099 shares at the 
opening price of opening public agency market orders and limit orders 
which are priced better than such opening price. If there exist two or 
more Designated Dealers in a Designated Issue, then, unless the 
Securities Committee has approved one member as the primary Designated 
Dealer in that issue, the guarantee obligation shall rotate among such 
Designated Dealers on a daily basis.
    (d) through (m) No Change.
    (n) Public Agency Guarantee
    (1) Public agency opening market orders and limit orders better 
than the opening price which are entered prior to the opening up to 
[2099] 1099 shares shall be executed at the opening price.
    (2) through (3) No Change.
    (4) Subject to the requirements of the short sale rule, orders must 
be filled on the basis of the ITS BBO bid on a sell order or the ITS 
BBO offer on a buy order. Sell orders will be satisfied up to the size 
of the lesser of the ITS BBO bid or [2099] 1099 shares; buy orders up 
to the lesser of the ITS BBO offer or [2099] 1099 shares. No portion of 
an order larger than [2099]  1099 shares is subject to the public 
agency guarantee.
    (5) through (6) No Change.
    (o) through (v) No Change.
 * * * * *

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 CSE 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 defined in Item 
IV below. The CSE 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
    Exchange Rules 11.9(c)(v) and (n) provide an execution guarantee 
for public agency market and marketable limit orders. Because the 
Exchange employs a multiple competing specialist system, this execution 
obligation rotates among the specialists in a particular issue. The 
specialist upon whom the public agency obligation falls is called the 
Designated Dealer of the day.\4\ Currently, the Designated Dealer of 
the day is required to satisfy public agency orders up to the size of 
the lesser of the national best bid (for a sell order) or offer (for a 
buy order) (``NBBO'') or 2099 shares. No portion of an order larger 
than 2099 shares is subject to the guarantee.
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    \4\ See CSE Rules 11.9(a)(3) and 11.9(c)(iv).
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    The Exchange proposes to lower the maximum order size of its public 
agency

[[Page 1049]]

guarantee in light of recent changes in market conditions. The National 
Market System generally began quoting and trading securities in 
increments smaller than \1/8\ of $1.00 starting in the spring of 
1997.\5\ The move to \1/16\ths and record volume levels conceivably 
could be accentuating rapid price changes and market movements. In 
response to this changed environment, the proposed rule change would 
lower the size of the public agency guarantee to the lesser of the NBBO 
or 1099 shares. The public agency guarantee would otherwise remain 
unchanged. The Exchange notes that this new level would bring the CSE's 
public agency guarantee more in line with the guarantees of other 
exchanges \6\ and believes the proposed rule change will restore a 
balance between the exposure its specialists face in a more volatile 
trading environment and the need to provide the best possible execution 
for public investors.
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    \5\ See e.g., Securities Exchange Act Release No. 38678 (May 27, 
1998), 62 FR 30363 (June 3, 1997) (Order granting approval to 
proposed rule change to decrease the minimum quotation increment for 
certain securities listed and traded on the Nasdaq Stock Market to 
\1/16\th of $1.00).
    \6\ The Pacific Exchange (``PCX'') guarantees execution of 
agency market orders up to 1099 shares for automatic execution both 
prior to the opening at the primary market opening price and during 
daily trading at the P/COAST quote (best bid and ask available 
through ITS) or better. Telephone conversation between Robert P. 
Pacileo, Staff Attorney, Regulatory Policy, PCX, and John Roeser, 
Attorney, Division of Market Regulation, SEC on Nov. 10, 1998. See 
also PCX Rules 5.25(a) and 5.25(c). Pursuant to Philadelphia Stock 
Exchange (``Phlx'') Rule 229.06, agency market orders up to 1099 
shares entered prior to the opening will be executed at the New York 
market opening price. Agency market and limit orders up to 1099 
shares (or such greater size as the specialist agrees to accept) 
entered prior to and after the opening will either be executed in 
accordance with the Professional Execution Standards in Rule 
229.10(b) or automatically executed in accordance with the 
procedures set forth in Rule 229.05. See Phlx Rules 229.05, 229.06, 
and 229.10. The Boston Stock Exchange (``BSE'') guarantees execution 
on agency market and marketable limit orders entered prior to and 
after the opening up to 1299 shares. See BSE Rules Chapter II 
Sec. 33(a) and Sec. 33.01.
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act in general, and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to promote just 
and equitable principles of trade and 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. 
Specifically, the proposed rule change will balance the risks incurred 
by the Exchange's specialists in a more volatile trading environment 
with the need to ensure proper execution of public agency orders.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the 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 reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the 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 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
CSE. All submissions should refer to File No. SR-CSE-98-04 and should 
be submitted by January 28, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-301 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M