[Federal Register Volume 64, Number 45 (Tuesday, March 9, 1999)]
[Notices]
[Pages 11527-11528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5720]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41120; File No. SR-CSE-98-04]


Self-Regulatory Organizations; Cincinnati Stock Exchange, Inc.; 
Order Approving Proposed Rule Change to Reduce its Public Agency 
Guarantee Size

February 26, 1999.

I. Introduction

    On October 26, 1998 \1\ the Cincinnati Stock Exchange, Inc. 
(``CSE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to reduce the CSE public agency 
guarantee size. Notice of the proposal appeared in the Federal Register 
on January 7, 1999.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ The Exchange initially filed this proposal on October 26, 
1998. However, on November 12, 1998, the Exchange filed Amendment 
No. 1 the substance of which was incorporated into the notice.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ Securities Exchange Act Release No. 40843 (December 28, 
1998), 64 FR 1048.
---------------------------------------------------------------------------

II. Description of Proposal

    The Exchange proposed to amend the public agency guarantee in CSE 
Rules 11.9(c)(v) and (n). CSE Rules 11.9(c)(v) and (n) provide an 
execution guarantee for public agency market and marketable limit 
orders. Currently, public agency orders up to the size of the lesser of 
the national best bid or offer (``NBBO'') or 2099 shares are 
guaranteed. No portion of an order larger than 2099 shares is subject 
to the guarantee. The Exchange proposed to lower the maximum order size 
of its public agency guarantee. 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 believes that its specialists are exposed to adverse 
risk in a more volatile trading environment due to higher volume levels 
and the National Market System change to quoting and trading securities 
in increments less than 1/8th of a dollar. The Exchange believes that 
lowering the public agency guarantee will lower the risk its 
specialists currently experience to a reasonable level. Additionally, 
the Exchange represents that lowering the public agency guarantee from 
2099 to 1099 shares should not significantly impact customers since the 
majority of customer orders are less than 1000 shares.\5\
---------------------------------------------------------------------------

    \5\ Telephone conversation between David Colker, President, CSE, 
and John Roeser, Attorney, Division of Market Regulation, SEC on 
February 25, 1999.
---------------------------------------------------------------------------

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \6\ 
and, in particular, the requirements of Section 6.\7\ The Commission 
believes that the proposal is consistent with the provisions of Section 
6(b)(5), in that it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system. The Commission 
believes that the proposal should reduce the risk experienced by the 
Exchange's specialists without significantly affecting the proper 
execution of public agency orders. Thus, the Commission concludes that 
the proposal will strike an appropriate balance between the risk 
incurred by the Exchange's specialists during a volatile trading 
environment and the policy to ensure the best possible execution of 
orders for public investors. Therefore, the Commission believes that 
lowering the size of the

[[Page 11528]]

public agency guarantee to the lesser of the NBBO or 1099 shares is 
reasonable and consistent with the Act.
---------------------------------------------------------------------------

    \6\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f.
---------------------------------------------------------------------------

IV. Conclusion

    For the foregoing reasons, the Commission believes that the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Section 6(b)(5).\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CSE-98-04) is approved.

    \9\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-5720 Filed 3-8-99; 8:45 am]
BILLING CODE 8010-01-M