[Federal Register Volume 65, Number 74 (Monday, April 17, 2000)]
[Notices]
[Pages 20498-20499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9489]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42657; File No. SR-CSE-99-05]


Self-Regulatory Organizations; Order Approving the Proposed Rule 
Change and Amendment No. 1 to the Proposed Rule Change by the 
Cincinnati Stock Exchange Enabling Members To Trade Nasdaq/NM 
Securities

April 10, 2000.

I. Introduction

    On December 10, 1999, the Cincinnati Stock Exchange (``CSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to enable its members to trade 
Nasdaq/NM securities.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on January 27, 2000.\3\ No comments were received on the 
proposal. On April 7, 2000, the Exchange submitted Amendment No. 1, 
making several technical changes to the proposed rule text.\4\ This 
order approves the proposed rule change, as amended.
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    \3\ Securities Exchange Act Release No. 42352 (January 20, 
2000), 65 FR 4455.
    \4\ See letter from Jeffrey T. Brown, Vice President Regulation 
and General Counsel, CSE, to Heather Traeger, Attorney, Division of 
Market Regulation, SEC, dated April 4, 2000 (``Amendment No. 1''). 
Because of the technical nature of this amendment, the Commission is 
not required to solicit comment on it.
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II. Description of the Proposal

    The proposed rule change would amend the CSE Rules to permit 
members to trade Nasdaq/NM \5\ securities traded on The Nasdaq Stock

[[Page 20499]]

Market (``Nasdaq''), a wholly-owned subsidiary of the National 
Association of Securities Dealers (``NASD'') \6\ on an UTP basis.\7\ 
The majority of the proposed rule change to Chapter XI, ``Trading 
Rules,'' of the CSE rules relates to amendments to accommodate the 
trading of Nasdaq securities, however, certain changes are housekeeping 
in nature.
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    \5\ The Exchange amended the text of the proposed rule change to 
replace ``NASDAQ'' with ``Nasdaq.'' id.
    \6\ In Amendment No. 1, the Exchange clarified that the proposed 
rule change permits Exchange members to trade securities traded on 
Nasdaq, not securities traded on a ``national securities 
association.'' Id.
    \7\ This filing is made in conjunction with the Exchange joining 
the Unlisted Trading Privileges Plan (``UTP Plan'') governing the 
collection, consolidation and dissemination of quotation and 
transaction information for Nasdaq/NM securities. See Securities 
Exchange Act Release No. 42269 (December 23, 1999), 65 FR 799 
(January 6, 2000).
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    The proposed rule change would amend CSE Rule 11.1, ``Hours of 
Trading'' by converting the hours of trading on the Exchange from 
Cincinnati local time to Chicago local time and providing in 
subparagraphs (b) and (c) for the inclusion of Nasdaq securities in the 
determination of trading hours for dually or multiple-traded 
securities. The changes to CSE Rule 11.2, ``Unit of Trading,'' would 
reflect the inclusion of Nasdaq securities in determining the 
appropriate unit of trading. Similarly, the proposed rule change would 
amend CSE Rule 11.4, ``Trading Ex-Dividend, Etc.'', and CSE Rule 11.5, 
``Orders to be Reduced and Increased on Ex-Date,'' to include Nasdaq 
securities in the exception language of the rules.
    In CSE Rule 11.3, ``Price Variations,'' the proposed rule change 
would amend the stated minimum variation to reflect the current primary 
market practice, i.e. \1/16\ of $1.00 per share in stocks trading at or 
above $.50 per share and \1/32\ of $1.00 per share in stocks trading 
below $.50 per share.\8\ The changes would also include securities 
traded on Nasdaq in determining the appropriate variation. CSE Rule 
11.7, ``Cabinet Trading,'' would be amended to reflect that the CSE 
facilities are now located in Chicago, Illinois.
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    \8\ The Exchange represents that these variations will be 
revisited in any proposed rule changes to accommodate decimal 
pricing.
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    The proposed rule change would make a number of amendments to CSE 
Rule 11.9, ``National Securities Trading System'' (``System''). The 
amendments to subparagraph (a) would define the terms ``Nasdaq/NM 
Security,'' ``Nasdaq System,'' ``Nasdaq System BBO'' and include the 
term ``national securities association'' in the definition of 
``Approved Dealer.'' The changes to subparagraph (c) would add the term 
``Nasdaq System BBO'' to the definition of marketable limit order, 
except Nasdaq/NM securities from the opening guarantee of 1099 shares, 
and implement a Nasdaq/NM opening guarantee up to 1099 shares at an 
opening price that is on or between the first unlocked/uncrossed Nasdaq 
System BBO. The changes to subparagraph (e) would add specialists or 
market makers who are members of other national securities associations 
to the entities that may submit bids or offers to the System. The 
changes to subparagraph (h) would ensure that the System displays the 
Nasdaq System BBO generated by Nasdaq System market makers \9\ and 
permits Nasdaq System market makers telephonic, or other such access to 
the System as may be established between the Exchange and the Nasdaq 
System, and conversely, permit Designated Dealers to send orders from 
the Exchange via telephone, or by other such access as may be 
established between the Exchange and the Nasdaq System, to Nasdaq 
market makers.
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    \9\ In Amendment No. 1, the Exchange clarified that the System 
does not generate but merely displays the Nasdaq System best bid or 
offer quotations generated and disseminated by the Nasdaq System. 
See Amendment No. 1, supra note 4.
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    Subparagraph (j) of CSE Rule 11.9 would be amended to include the 
Nasdaq System and the Nasdaq System BBO in the prohibition of executing 
a limit order only after a regular way transaction occurs in another 
market at a price equal or inferior to the limit price of the order. 
The amendments to subparagraph (n) would clarify that the public agency 
guarantee for 1099 shares at the opening price applies to securities 
other than Nasdaq/NM securities. However, the public agency guarantee 
applies to those market and marketable limit orders prices better than 
the first unlocked/uncrossed Nasdaq System BBO. In addition, the 
amendments would add the Nasdaq System BBO to the obligations to 
execute on the basis of the ITS BBO. Finally, the amendments to this 
subparagraph clarify that the execution guarantees and requirements of 
CSE Rule 12.6, Customer Priority, apply during the hours of trading on 
the Exchange (8:30 a.m. to 3:05 p.m. local Chicago time).
    The proper rule change would also amend the ``Interpretations and 
Policies'' section of CSE Rule 11.9 Interpretation and Policies Section 
.01. ``Market Order Requirement,'' and .02, ``Limit Order Protection 
Requirement,'' would be amended to reflect that the obligations of the 
interpretation apply to securities other than Nasdaq/NM securities.

III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, with the requirements of Section 6(b).\10\ 
Specifically, the Commission believes the proposal is consistent with 
the Section 6(b)(5) \11\ requirements in that the proposed standards to 
permit CSE members to trade NASDAQ/NM securities should promote just 
and equitable principles of trade and facilitate transactions in 
securities, thereby removing impediments to and prefecting the 
mechanism of a free and open market in a manner consistent with the 
protection of investors and the public interest.\12\
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 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).
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    Furthermore, the proposed rule change is consistent with Section 
12(f)(2) of the Act. Section 12(f)(2) granted the Commission explicit 
authority to approve UTP in OTC securities. Section 12(f)(2) requires 
the Commission, prior to approving UTP, to determine that the granting 
of UTP is consistent with the maintenance of fair and orderly markets 
and the protection of investors. The Commission believes that the 
proposed rule change is consistent with these goals and thus, the 
Commission is approving the proposed rule change, subject to the CSE 
complying with the requirements of the UTP Plan.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-CSE-99-05), as amended, is 
approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9489 Filed 4-14-00; 8:45 am]
BILLING CODE 8010-01-M