[Federal Register Volume 64, Number 20 (Monday, February 1, 1999)]
[Notices]
[Pages 4908-4909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2252]
[[Page 4908]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40961; File No. 10-100]
Exempted Exchanges; AZX, Inc.; Amendment to Application for
Exemption From Registration as an Exchange Under Section 5 of the
Securities Exchange Act of 1934; Request for Comments
January 22, 1999.
I. Introduction and Summary
AZX, Inc. operates the Arizona Stock Exchange (``AZX''), a
computerized, single-price auction system that facilitates trading of
registered equity securities by broker-dealers and institutions. AZX
operates three off-hours auctions in Nasdaq National Market (``NNM'')
and exchange listed securities, at 9:15 a.m., 4:20 p.m., and 5:00 p.m.
(ET), each trading day. AZX also operates one auction during regular
trading hours,\1\ at 10:30 a.m. (ET), for NNM securities only. AZX
operates pursuant to the terms and conditions of a Commission order
granting AZX a ``limited volume'' exemption from registration as a
national securities exchange \2\ and a staff no-action letter with
respect to the nonregistration of AZX as a broker-dealer, clearing
agency, transfer agent, and exclusive securities information
processor.\3\ Under the terms of its exemption, AZX trades only NNM
securities during regular trading hours.\4\ Although the statute
provides no guidelines as to what level of volume qualifies as
``limited,'' the Exemption Order stated that the Commission may rescind
the exemption and require AZX to register as a national securities
exchange if AZX's volume exceeds that of any of the registered stock
exchanges.
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\1\ ``Regular trading hours'' refers to the time period in which
the New York Stock Exchange, Inc. permits trading, which is 9:30
a.m. to 4:00 p.m. (ET) each trading day.
\2\ Securities Exchange Act Release No. 28899 (February 20,
1991), 56 FR 8377 (February 28, 1991), amended by Securities
Exchange Act Release No. 37272 (June 3, 1996), 61 FR 29145 (June 7,
1996) (collectively ``Exemption Order'').
\3\ Letter regarding Wunsch Auction Systems, Inc., predecessor
to AZX, Inc., (February 28, 1991). The no-action letter also
provided AZX's original crossing broker, Bankers Trust Brokerage
Corporation (``BTBC'') with relief with respect to non-registration
as an exchange, clearing agency, transfer agent, and exclusive
securities information processor. BTBC was replaced as AZX's
crossing broker by Investment Technology Group, Inc. (``ITG'') in
February 1995. ITG is a registered broker-dealer.
\4\ See Securities Exchange Act Release No. 37272, supra note 2.
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On July 30, 1998, AZX, Inc. filed with the Commission pursuant to
Rule 6a-1 under the Securities Exchange Act of 1934 (``Act''),\5\ an
amendment to its application for exemption from registration as a
national securities exchange. In its amendment, AZX proposes to operate
two additional auctions during regular trading hours, at 12:30 p.m. and
2:30 p.m. (ET) each trading day. AZX also proposes to trade exchange-
listed and NNM securities during all three regular hours auctions. In
addition, AZX proposes to consolidate its two evening after-hours
auctions into one after-hours auction ending at 4:30 p.m. (ET).
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\5\ 17 CFR 240.6a-1
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If the proposal is approved, there will be five AZX auction--two
off-hours and three regular hours. All five auctions will be permitted
to trade both exchange-listed and NNM securities, and will be subject
to real-time transaction reporting under the National Association of
Securities Dealers, Inc. (``NASD'') rules.\6\
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\6\ See NASD Rules 4630, 4631, 4632, 6400, 6410 and 6420.
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The Commission is soliciting public comment on whether it is
appropriate to amend the Exemption Order to reflect AZX's proposal to
add two auction sessions during regular trading hours for exchange-
listed and NNM securities, trade exchange-listed securities at all day
auctions, and consolidate AZX's two off-hours evening auctions.\7\
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\7\ Notwithstanding a statement to the contrary contained in the
application, the Commission has not previously approved any portion
of AZX's proposal.
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II. Additional Trading Sessions
The proposed regular trading hours auctions are to be operated in
the same manner as the morning auction held during regular trading
hours. However, the proposal would allow exchange-listed securities, as
well as NNM securities, to be traded during all three regular trading
hours auctions. Commenters are invited to express their views on
whether trading listed securities during regular trading hours is
consistent with the language of Section 5 of the Act \8\ governing
limited volume exemptions or whether it will affect AZX's ability to
comply with the terms and conditions of its Exemption Order.\9\
Commenters may also wish to express their views on whether (1) the
Commission should impose additional conditions on AZX in light of the
proposed changes, (2) the proposal affects AZX participants'
obligations under the order handling rules,\10\ or (3) the proposal
raises issues regarding surveillance by AZX of trading activity in
listed securities. In this regard, in connection with its current
regular hours auction for NNM Securities, AZX undertook to implement
surveillance procedures to detect possible market manipulation and
insider trading. These procedures require AZX to compare auction prices
and bids and offers entered into AZX with activity in the primary
market, and to monitor the effects of an order cancellation or revision
on the primary market. Commenters may wish to comment on whether these
surveillance procedures are sufficient for monitoring both NNM and
exchange-listed securities.
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\8\ 15 U.S.C. 78(e).
\9\ The most significant terms and conditions include: (1) the
continued registration of AZX's crossing-broker as a broker-dealer
under Section 15(b) of the Act and the continued membership of AZX's
crossing-broker in at least one self-regulatory organization; (2)
the effective registration of any security traded on AZX under
Sections 12(b) or 12(g) of the Act, or the provision of information
with respect to a security pursuant to Section 15(d) of the Act, or
an exemption from registration because the security is a
``government security'' as defined in Section 3(a)(42)(A), (B), or
(C) of the Act; (3) the submission of activity reports to the
Commission; (4) the adoption and implementation of procedures to
conduct surveillance of trading by AZX employees and to detect
possible insider trading or manipulative abuses; (5) continued
compliance with the capacity, security and contingency plan
requirements of the Commission's Automation Review Policy; and (6)
the provision of 30 days prior notice of any material changes in the
operation of the auction.
\10\ The Division of Market Regulation (``Division'') previously
issued a letter confirming that AZX is not an electronic
communications network (``ECN'') as defined in Rule 11Ac1-1 under
the Act (17 CFR 240.11Ac1-1). Letter from Richard R. Lindsey,
Director, Division, SEC, to R. Steven Wunsch, President, AZX, Inc.,
dated January 14, 1997. Because AZX is not an ECN, market maker
participants entering priced orders into AZX will not be required to
update their market maker quotes to reflect their AZX orders under
the amendments to the Quote Rule.
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III. Solicitation of Comments
The Commission is soliciting public comment on whether to amend the
AZX Exemption Order to reflect the trading sessions during regular
trading hours for exchange listed and NNM securities, the trading of
exchange listed securities at its 10:30 (ET) auction, and the
consolidation of its two after hours evening auctions. 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. All comment
letters should refer to File No. 10-100. Copies will be available for
inspection and copying in the Commission's Public Reference Room in
Washington, DC. All submissions should refer to the file number in the
caption above and should be submitted by March 3, 1999.
[[Page 4909]]
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-2252 Filed 1-29-99; 8:45 am]
BILLING CODE 8010-01-M