[Federal Register Volume 65, Number 44 (Monday, March 6, 2000)]
[Notices]
[Pages 11817-11818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5382]



[[Page 11817]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42463; File No. SR-CHX-00-02)


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated to Extend the Effective Dates of its Extended Trading 
Hours Session

February 28, 2000.
    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 February 23, 2000, the Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal pursuant to Section 
19(b)(3)(A) of the Act,\3\ and rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission.\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange provided the Commission with written notice of 
its intent to file the proposal on February 15, 2000, pursuant to 
Rule 19b-4(f)(6). 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposal

    On October 13, 1999, the Commission approved, on a pilot basis 
through March 1, 2000, a new Article XXA and amendments to existing CHX 
rules that allowed the CHX to implement a new extended hours trading 
session (the ``E-Session'').\6\ The CHX is submitting this proposal 
solely to ask the Commission to extend the operation of the E-Session 
through October 1, 2000.\7\
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    \6\ See Securities Exchange Act Release No. 42004 (October 13, 
1999), 64 FR 56548 (October 20, 1999) (SR-CHX-99-16).
    \7\ The CHX authorized Commission staff to make minor technical 
changes to the proposal, to clarify that the proposal's sole purpose 
is to extend the operation of the E-Session through October 1, 2000. 
Telephone conversation between Ellen J. Neely, Vice President and 
General Counsel, CHX, and Joseph P. Morra, Attorney, Division of 
Market Regulations, SEC, February 25, 2000.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposal

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The CHX 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
    In SR-CHX-99-16, the Exchange proposed new CHX Article XXA and 
several related rule changes to implement the E-Session. The E-Session 
was designed to meet the needs of market participants and CHX members 
who had demanded that the Exchange begin trading in hours that extent 
beyond the then-current trading day. The Exchange continues to believe 
that investors are best served if registered securities exchanges are 
participants in the burgeoning after-hours trading market, and submits 
this proposal to extend the operation of its E-Session. The Exchange 
does not propose to make any other changes to its E-Session at this 
time; this proposal seeks only to extend the E-Session's operation 
through October 1, 2000.
    The Operation of the E-Session. The E-Session began on October 29, 
1999, and operates from 3:30 p.m. Central Time (immediately following 
the close of the CHX's post primary trading session) to 5:30 p.m. 
Central Time, Monday through Friday.\8\
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    \8\ The amendments to CHX Article IX, Rule 10(b) (Business Days 
and Hours of Trading) and CHX Article XX, Rule 2 (Hours of Floor 
Dealing) confirm the existence of this new trading session.
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    Trading during the E-Session is conducted, in some respects, as it 
is during the CHX's primary trading session; however, new features more 
fully automate the transmission of orders and provide additional 
protections to investors who trade during the session. Only 
unconditional limit orders are eligible for execution in the E-Session, 
and each limit order must be appropriately designated for trading in 
the E-Session. Any orders remaining unexecuted at the end of the 
session are automatically canceled, and do not carry over to any other 
trading session. Specialist firms continue to make two-sided, 
continuous markets in E-Session eligible stocks, generally the more 
active stocks assigned to them during the existing trading sessions, at 
their posts on the floor of the CHX (unless a specialist firm has 
transferred its assignment, for the E-Session only, to another 
specialist firm with the approval of the Committee on Specialist 
Assignment and Evaluation).
    During the E-Session, in most cases (subject to an exception 
described below), limit orders must be electronically and directly 
transmitted, via the Midwest Automated Execution System (``MAX'') 
electronic order routing system, to the specialist's limit order book. 
Floor brokers may route limit orders to the specialist's limit order 
book via MAX or may transmit the orders to another market. In addition, 
a floor broker may route orders to buy and sell equivalent quantities 
of the same security eligible to be executed at the same price through 
MAX to the specialist's limit order book or may execute those orders as 
a crossing transaction at the specialist's post in accordance with 
existing Exchange rules.
    Except as described in Article XXA or in other E-Session rule 
amendments, execution, reporting, clearance and settlement of 
transactions that occur during the E-Session follow the procedures 
currently in place for those activities in the Exchange's primary 
trading session.\9\ Among other things, this general principle means 
that the National Securities Clearing Corporation clears the 
transactions that take place during this session and the Securities 
Industry Automation Corporation and Nasdaq, Inc. disseminate CHX 
quotations and trade data. Three exceptions to this general rule arise 
from either the Exchange's desire to more fully automate the E-Session 
or from the fact that no primary market of the kind that characterizes 
trading during normal hours is available during the E-Session.\10\
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    \9\ The amendments to CHX Article XX, Rule 1 (Application [of 
Article]) and CHX Article XXI, Rule 1 (Reporting of Transaction) 
confirm that these rules encompass transactions that occur during 
the E-Session.
    \10\ The amendments to CHX Article XX, Rule 37 (conforming that 
the Best System and the automatic execution features of MAX do not 
operate during the E-Session), CHX Article XXXI, Rules 6 and 9 
(confirming that odd-lot order execution occurs differently than 
during the primary trading session) and CHX Article XXXIV 
(confirming that market makers do not participate in the E-Session) 
reflect these exceptions.
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    Securities Eligible for Trading During the E-Session. The CHX's 
Committee on Floor Procedure identifies, from time to time, the 
securities eligible for trading during the e-Session. In general, the 
securities listed on the Standard & Poor's 100 Stock Index (OEX) and on 
the Nadsaq-100 Index (NDX), as well as other securities that rank among 
the 100 most active listed and 100 most active

[[Page 11818]]

Nasdaq/NM securities at the end of each quarter trade during the e-
Session. Currently, 311 securities are eligible for trading during the 
E-Session.
    Members Eligible to Participate in the E-Session. All CHX members 
have access to the E-Session, in accordance with applicable CHX rules.
    Mandatory Disclosures To Non-Members. Because the E-Session 
operates in a manner, and at a time, that is different from the CHX's 
primary trading session, members must provide specific disclosures to 
non-members before accepting orders for execution in the E-Session. 
These disclosures are designed to ensure that participants in the 
after-hours market understand the potential risks of that 
participation.
    Surveillance and Oversight. The Exchange surveils E-Session trading 
using many of the same surveillance programs it uses to monitor trading 
during the primary trading session. E-Session order delivery, quoting 
and matching is almost entirely controlled by the CHX's electronic 
systems. These systems reduce the possibility for intentional or 
inadvertent mishandling of orders and enhance the effectiveness of the 
surveillance programs. According to the CHX, E-Session surveillance has 
operated effectively during the first six months of after-hours 
trading.
    Procedures for Reviewing Capacity, Security and Contingency 
Planning. The CHX uses many of the same review procedures for systems 
security, capacity management, and recovery and contingency planning 
that is employs for the systems that support the primary trading 
session.
2. Statutory Basis
    The proposed extension of the operation of the E-Session is 
consistent with Section 6(b)(5) of the Act \11\ in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments to, and to perfect the mechanism of, a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
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    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange believes that no burden will be placed on competition 
as a result of the proposed extension of the effective dates of the E-
Session. Indeed, the Exchange believes this new session has fostered 
competition in the after-hours trading arena by permitting investors to 
trade on a registered securities exchange, rather than through an 
electronic communications network or alternative trading system.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A)\12\ and Rule 19b-
4(f)(6) thereunder.\13\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if its appears to the Commission that such action is necessary 
or appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission accelerate the 
operative date. The Commission finds that it is appropriate to 
designate the proposal to become operative today because such 
designation is consistent with the protection of investors and the 
public interest. Acceleration of the operative date will allow the CHX 
to operate its E-Session without interruption through October 1, 2000, 
and to continue providing investors who wish to trade after-hours with 
the option of trading on a registered securities exchange. For these 
reasons, the Commission good cause to designate that the proposal 
become operative today.\14\
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    \14\ In reviewing this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 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 
CHX. All submissions should refer to file number SR-CHX-00-02 and 
should be submitted by March 27, 2000.

    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30b-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-5382 Filed 3-3-00; 8:45 am]
BILLING CODE 8010-01-M