[Federal Register Volume 64, Number 181 (Monday, September 20, 1999)]
[Notices]
[Pages 50848-50850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24355]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41855; File No. SR-CHX-99-10]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Stock Exchange, Inc., To Expand the SuperMax Plus Price Improvement 
Algorithm to Nasdaq/NM Securities

September 10, 1999.
    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 6, 1999, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 expand its SuperMax Plus price improvement 
algorithm, located in CHX Rule 37(d) of Article XX, to cover Nasdaz/
National Market (``Nasdaq/NM'') securities. The text of the proposed 
rule change is available at the Office of the Secretary, CHX and at the 
Commission.

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 Exchange 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 Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 50849]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 22, 1995, the Commission approved a proposed rule change 
allowing CHX specialists to provide order execution guarantees through 
the Exchange's MAX system that are more favorable than those required 
under CHX Rule 37(a), Article XX.\3\ That approval order contemplated 
that the CHX would file with the Commission specific modifications to 
the parameters of MAX that are required to implement various options 
available under the new rule, as approved.
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    \3\ See Securities Exchange Act Release No. 35753 (May 22, 
1995), 60 FR 28007 (May 26, 1995) (File No. SR-CHX-95-08).
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    SuperMax Plus is an existing CHX program within the MAX System that 
uses a computerized algorithm to provide automated price 
improvement.\4\ Currently, the SuperMax Plus program, like all other 
automated price-improvement programs at the CHX, is limited to Dual 
Trading System issues (i.e., issues traded on both the CHX and either 
the New York Stock Exchange or the American Stock Exchange). The CHX 
now proposes to expand the SuperMax Plus program to include Nasdaq/NM 
securities traded on the Exchange. The CHX represents that this change 
will provide orders in Nasdaq/NM securities with the same automated 
price improvement benefits that are available for orders in Dual 
Trading System issues.\5\
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    \4\ See Securities Exchange Act Release Nos. 40017 (May 20, 
1998), 63 FR 29277 (May 28, 1998) and 40235 (July 17, 1998), 63 FR 
40147 (July 27, 1998) (File No. SR-CHX-98-09) (approving revised 
SuperMax and Enhanced SuperMax algorithms).
    \5\ The execution algorithm for SuperMax Plus, as it applies to 
Dual Trading System issues, will differ from the execution algorithm 
for SuperMax Plus, as it is proposed to be applied to Nasdaq/NM 
Securities. The existing SuperMax Plus algorithm uses primary market 
sales and the Intermarket Trading System (``ITS'') best bid or offer 
as factors in determining price improvement. Nasdaq/NM Securities do 
not have a primary market equivalent and do not have an ITS best bid 
or offer. In addition, the existing SuperMax and Enhanced SuperMax 
algorithms will continue to be available only for Dual Trading 
System issues. See Securities Exchange Act Release No. 41480 (June 
4, 1999), 64 FR 32570 (June 17, 1999).
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    The expanded SuperMax Plus program will be part of the existing 
voluntary price improvement programs in which specialists may choose to 
participate. Participation will continue to be on a security-by-
security basis. A specialist will only be able to activate and 
deactivate the program with respect to a given security once a month.
    Under the SuperMax Plus algorithm for Nasdaq/NM securities, if the 
SuperMax Plus program has been engaged for such security, small agency 
market orders (i.e., orders from 100 shares to 199 shares (or a greater 
amount chosen by the specialist and approved by the Exchange)) will 
automatically receive \1/16\th of a point price improvement from the 
National Best Bid or Offer (``NBBO'') if the market for the security is 
quoted with a spread of \1/8\th of a point or greater. If the spread 
between the national best bid and national best offer for such a 
security is less than \1/8\th of a point, the order will automatically 
be immediately executed at such NBBO (i.e., a buy order will be 
executed at the offer and a sell order will be executed at the bid).
    Timing of Effectiveness of System Changes. The addition of SuperMax 
Plus to Nasdaq/NM securities will become operative shortly after 
approval of this proposed rule change on a date to be determined by the 
Exchange. The Exchange will announce this date in a Notice to Members 
issued within 30 days of the date of Commission approval of the 
proposed rule change.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) \6\ of 
the Act in that it is designed to promote just and equitable principles 
of trade, 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. The Exchange believes that 
the proposed rule change accomplishes these ends by increasing the 
number of trades that will receive automated price improvement.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange represents that the proposed rule change will impose 
no burden on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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, N.W., Washington, D.C. 20549-
0609. 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CHX-99-10 and 
should be submitted by October 12, 1999.

IV. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The CHX requests accelerated approval of the proposed rule change. 
The Commission has reviewed the CHX's proposed rule change and finds, 
for the reasons set forth below, that the proposal is consistent with 
the requirements of Section 6 of the Act \7\ and the rules and 
regulations thereunder applicable to a national securities exchange. 
Specifically, the Commission believes the proposal is consistent with 
Section 6(b)(5) of the Act,\8\ which requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, 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.\9\ The Commission believes expanding the SuperMax Plus 
program to Nasdaq/NM securities will provide investors with enhanced 
investment opportunities because price improvement from the NBBO will 
be available if the market for a Nasdaq/NM security is quoted with a 
spread of \1/8\th of a point or greater. The Commission notes that 
while SuperMax Plus is a voluntary program that specialists choose to 
participate in for Dual Trading

[[Page 50850]]

System issues and, now, Nasdaq/NM securities, providing a greater 
number of investors an opportunity to achieve price improvement is 
compatible with the views expressed in the Order Handling Rules 
release.\10\
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this rule, the Commission notes that it has 
also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ SeeSecurities Exchange Act Release No. 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996) (File No. S7-30-95).
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    Because the provision of price improvement for Nasdaq/NM securities 
should enhance small investor participation in the securities market, 
without sacrificing investor protection and the public interest, the 
Commission finds good cause for approving the proposed rule change 
prior to the thirtieth day after the date of publication of notice in 
the Federal Register.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CHX-99-10) is hereby 
approved on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24355 Filed 9-17-99; 8:45 am]
BILLING CODE 8010-01-M