[Federal Register Volume 65, Number 61 (Wednesday, March 29, 2000)]
[Notices]
[Pages 16677-16679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7729]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42566; File No. SR-CHX-99-31]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Inc. Relating to the Definition 
of Pre-Opening Orders in Dual Trading System Issues

March 22, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given 
that on January 3, 2000, 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, II and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange Proposes to amend Exchange Article XX, Rule 37(a)(4) 
governing the handling of pre-opening orders to define what constitutes 
a pre-opening order for purposes of that rule. The text of the proposed 
rule change follows, additions are italicized.

[[Page 16678]]

Chicago Stock Exchange Rules

Article XX

Rule 37. Guaranteed Execution System and Midwest Automated Execution 
System
(a) Guaranteed Executions.
4. Preopenings. Preopening orders in Dual trading System issues must 
be accepted and filled at the primary market opening trade price. In 
trading halt situations occurring in the primary market, orders will 
be executed based upon the reopening price. Preopening orders in 
Nasdaq/NM securities must be accepted and filled at the Exchange 
opening trade price. In trading halt situations, orders will be 
executed based on the Exchange reopening price. For purposes of this 
rule, a pre-opening order in a Dual trading System issue is an order 
received prior to a primary market trade and prior to a primary 
market quote in the subject security.

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 regarding the proposed rule change. 
The text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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
    The purpose of the proposed rule change is to explicitly define 
pre-opening orders in Dual Trading System Issues.\3\ Specifically, the 
proposed rule change will define pre-opening orders in Dual Trading 
System Issues as orders that are received before a primary market opens 
a subject security based on a print \4\ or based on a quote.
---------------------------------------------------------------------------

    \3\ Dual Trading System Issues are issues that are traded on the 
CHX, either through listing on the CHX or pursuant to unlisted 
trading privileges, and are also listed on either the New York Stock 
Exchange or American Stock Exchange.
    \4\ A print is defined as an executed trade. Telephone call 
between Dan Liberti, Vice President, Market Regulation, CHX and 
Kelly Riley, Attorney, Division of Market Regulation, SEC, on 
February 24, 2000.
---------------------------------------------------------------------------

    The reason for the rule change stems from the wording of Exchange 
Article XX, Rule 37(a)(4); specifically, the requirement that pre-
opening orders in Dual trading System Issues be accepted and filled at 
the primary market opening. Under this rule, orders received at the CHX 
before the first primary market print in a subject security are 
customarily filled at that first print price. The rule has always been 
applied in that manner because prints are the most common way of 
effecting the opening in a security. As such, it has been the practice 
at the CHX to treat orders received before the first primary market 
print as pre-opening orders. Nevertheless, on occasion a primary market 
will open a security by disseminating a quote without a corresponding 
print. When a security is opened in this fashion, subsequently received 
orders are, in fact, not pre-opening order.
    However, because Rule 37(a)(4) does not explicitly define what 
constitutes a pre-opening order, the customary practice of treating all 
orders received before the first primary market print, including those 
received before the first primary market print but after the primary 
market opening quote, as recently been the cause of some confusion and 
unintended execution guarantees. Therefore, while the Exchange remains 
committed to ensuring that pre-opening orders sent to the CHX receive 
the same opening price execution on the CHX that they would have 
received had they been sent to a primary market, it believes it 
necessary to make clear what constitutes a pre-opening order. In doing 
so, the Exchange believes that both the CHX specialist community and 
their customers will benefit by eliminating any confusion that may 
exist regarding the execution responsibilities of specialists and 
expectations of customers.
    As such, the proposed rule change will clarify that orders received 
after a primary market opens a security on a quote are not pre-opening 
orders for purposes of Rule 37(a)(4). Specifically, the proposed rule 
change provides that a pre-opening order in a Dual trading System Issue 
is an order received prior to a primary market trade and prior to a 
primary market quote in a subject security. Thus, under the proposed 
rule, an order received at the CHX after a primary market opens a 
security on a quote will not be entitled to be filled based on a 
subsequent primary market print.
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) \5\ of the Act because 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.
---------------------------------------------------------------------------

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

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.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such other 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 20549-0609. 
Copies of the submissions, 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 filings will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CHX-99-31 and 
should be submitted by April 19, 2000.


[[Page 16679]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7729 Filed 3-28-00; 8:45 am]
BILLING CODE 8010-01-M