[Federal Register Volume 65, Number 131 (Friday, July 7, 2000)]
[Notices]
[Pages 42048-42049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17146]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42985; File No. SR-CHX-00-19]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to 
Execution of Odd-Lot Limit Orders for Nasdaq/NM Securities

June 27, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given that 
on June 9, 2000, the Chicago Stock Exchange, Incorporated (``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.
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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 amend Article XXXI, Rule 9 of the 
Exchange's rules relating to execution of odd-lot limit orders for 
Nasdaq/NM Securities. The text of the proposed rule change is as 
follows. New text is italicized.

Article XXXI

* * * * *

Rule 9. Execution of Odd-Lot Orders

    (a)-(b) No change in text.
    (c)(i-iii) No change in text.
    (c)(iv) Buy Limit Orders. Buy limit orders in Dual Trading 
System issues shall be executed at the limit price only after there 
has been a full lot transaction in the primary market at a price at 
or below the limit price. A buy limit order in Nasdaq/NM Securities 
shall be executed at the limit price, on a share-for-share basis, 
based on the first to occur of (A) a reported full round lot 
transaction in any marketplace at a price at or below the limit 
price, or (B) odd lot transactions on the Exchange at a price at or 
below the limit price, provided however, that (1) if an odd lot or 
round lot transaction on the Exchange would cause an execution of a 
portion of the next odd-lot limit order in the specialist's limit 
order book, the entire next odd-lot limit order shall be executed; 
(2) an incoming round lot limit order will only cause execution of a 
``resting'' round lot order (i.e., a round lot order in the 
specialist's limit order book) if the size of the incoming limit 
order is greater than or equal to the size of the resting round lot 
order plus the aggregate size of any odd lot orders that were 
executed at the limit price; and (3) if the auto-execution threshold 
is set at 0, odd lot orders shall continue to execute automatically 
in accordance with the foregoing but round lot orders shall be 
treated manually in accordance with Article XX, Rule 43(d).
    (c)(v) Sell Limit Orders, Marked ``Long.'' Sell limit orders in 
Dual Trading System issues marked ``long'' shall be executed at the 
limit price, only after there has been a full lot transaction in the 
primary market at a price at or above the limit price. A sell limit 
order in Nasdaq/NM Securities marked ``long'' shall be executed at 
the limit price, on a share-for-share basis, based on the first to 
occur of (A) a reported full round lot transaction in any 
marketplace at a price at or above the limit price, or (B) odd lot 
transactions on the Exchange at a price at or above the limit price, 
provided, however, that (1) if an odd lot or round lot transaction 
on the Exchange would cause an execution of a portion of the next 
odd-lot limit order in the specialist's book, the entire next odd-
lot limit order shall be executed; (2) an incoming round lot limit 
order will only cause execution of a ``resting'' round lot order 
(i.e., a round lot order in the specialist's limit order book) if 
the size of the incoming limit order is greater than or equal to the 
size of the resting round lot order plus the aggregate size of any 
odd lot orders that were executed at the limit price; and (3) if the 
auto-execution threshold is set at 0, odd lot orders shall continue 
to execute automatically in accordance with the foregoing but round 
lot orders shall be treated manually in accordance with Article XX, 
Rule 43(d),

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 self-regulatory organization 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 Exchange proposes to amend Article XXXI, Rule 9 of the 
Exchange's rules relating to execution of odd-lot limit orders for 
Nasdaq/NM Securities. The proposed rule change is intended to place the 
Exchange's rules in line with existing market pattern and practice 
relating to the trading of Nasdaq/NM Securities, by reflecting certain 
distinctions between transactions in Nasdaq/NM Securities and 
transactions in Dual Trading system securities, i.e., listed issues.
    Under the Exchange's current version of Article XXXI, Rule 9, which 
governs execution of odd-lot limit orders, execution of an odd-lot 
limit order is conditioned on a full round-lot execution in the primary 
market. Because a primary market trigger is only available in the case 
of Dual Trading System securities (for which the New York Stock 
Exchange generally serves as the primary market), the Exchange proposes 
a rule change providing that in the case of Nasdaq/NM Securities, 
automatic execution of odd-lot limit orders would be triggered by the 
first to occur of a reported full round-lot transaction in any 
marketplace or an odd-lot transaction on the Exchange. The proposed 
rule change also contemplates that a round-lot limit order in a 
specialist's book would only be triggered if an incoming order is of 
sufficient size to ``take out'' the entire resting round lot.
    The Exchange believes that the net effect of this rule change will 
be to dramatically increase the number of odd-lot limit orders for 
Nasdaq/NM securities that are executed on the Exchange. The Exchange 
contends that this enhancement will be to the benefit of the Exchange's 
order-sending firms and their investors.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \3\ of the Act in general and furthers the objectives 
of Section 6(b)(5) of the Act in particular,\4\ in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments and to perfect the mechanism of a free and open market and 
a national market system, and, in

[[Page 42049]]

general, to protect investors and the public interest.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received written comments 
with respect to the proposed rule change.

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 longer 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, 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 the filing will also be 
available for inspection and copying at the principal office of the 
CHX. All submissions should refer to file No. SR-CHX-00-19 and should 
be submitted by July 28, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-17146 Filed 7-6-00; 8:45 am]
BILLING CODE 8010-01-M