[Federal Register Volume 65, Number 134 (Wednesday, July 12, 2000)]
[Notices]
[Pages 43066-43067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17596]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43010; File No. SR-CHX-00-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Stock Exchange, Inc., To 
Establish a Board Review Process for Decisions of the Exchange's 
Committee on Specialist Assignment and Evaluation Regarding Specialist 
Firm Consolidations

July 5, 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 March 17, 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. On April 3, 2000, the Exchange amended the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See March 31, 2000 letter from Ellen J. Neely, Vice 
President and General Counsel, CHX, to Katherine A. England, 
Assistant Director, Division of Market Regulation, SEC (``Amendment 
No. 1''). In Amendment No. 1, the Exchange made minor, technical 
changes to the proposal.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend CHX Article XXX, Rule 1, 
Interpretation .01 to establish a board review process for certain 
decisions of the Exchange's Committee on Specialist Assignment and 
Evaluation (``Committee''). The text of the proposed rule change is 
below. Proposed additions are in italics. Proposed deletions are in 
brackets.

ARTICLE XXX

Specialists

Registration and Appointment

    RULE 1. No change to text.
    * * * Interpretations and Policies
    .01 Committee on Specialist Assignment & Evaluation

ASSIGNMENT FUNCTION

I. Events Leading to Assignment Proceedings

    Pursuant to Article XXX, Rules 1 and 8, the Committee may, when 
circumstances require, assign or reassign a security. Eight [Seven] 
circumstances may lead to the need for assignment of a security. 
They are:
    1. New listing or obtaining unlisted trading privilege;
    2. Specialist request;
    3. Corporation request;
    4. Split-up and/or merger of specialist units;
    5. Fundamental change of specialist unit;
    6. Consolidations creating Concentration;
    [6.]7. Unsatisfactory performance action; or
    [7.]8. Disciplinary action.
    The following guidelines have been adopted by the Exchange 
[Committee] for [its] use in the assignment or reassignment of 
stocks among co-specialists. These guidelines set forth the general 
policy [of the Committee] concerning the posting and allocation of 
stocks. They are not, however, rigid rules to be strictly followed 
regardless of unique circumstances. These guidelines form only the 
starting point of [the Committee's] deliberations; they will be 
applied in light of the facts in each individual case. An assignment 
may be made subject to such conditions as are appropriate. If any 
such condition is not met, the stock shall be immediately posted for 
reassignment.
    1.-5. No change to text.
    6. Consolidations creating Concentration.
    (a) Whenever a specialist unit acquires, merges, creates a joint 
trading account or other profit-sharing arrangement with one or more 
other specialist units or otherwise comes under common control with 
one or more other specialist units (a ``Consolidation'') the 
assignments of the affected stocks shall be subject to Committee 
review and approval.
    (b) When a Consolidation creates or increases a specialist 
unit's financial interest in trades constituting 10% or more of the 
total Exchange trade volume in the three preceding calendar months 
(``Concentration''), the Committee will consider:
    (i) the effect of the consolidation on the specialist units'
    A. Capital supporting specialist activities;
    B. Experience and quality of management;
    C. Experience and performance of co-specialists;
    D. Risk controls and procedures;
    E. Operational efficiencies; and
    (ii) the effect of the consolidation on the Exchange's ability 
to:
    A. Enhance its competitive position;
    B. Minimize risk to the financial integrity of the marketplace; 
and
    C. Continue operating in the public interest.
    [6]7. No change to text.
    [7]8. No change to text.

II. Assignment Procedures

* * * * *
    4. Board Review. The full Board of Governors, excluding those 
Governors that are co-specialists or affiliates of co-specialists (a 
``Board Panel''), may on its own initiative review any decision of 
the Committee involving a change in control or consolidation of a 
specialist unit. The Board Panel shall give any interested member an 
opportunity to present its views on the matter. A Committee decision 
will be final if any member of a Board Panel, within ten days of a 
Committee decision, does not request that the Board Panel initiate a 
review. Notwithstanding the foregoing, a Board Panel will review all 
decisions made with respect to Consolidations creating 
Concentration. The decision of the Board Panel is final.
    [4]5. No change to text.
* * * * *

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 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 Exchange proposes to amend its rules to establish a board 
review process for certain Committee decisions. Specifically, the 
Exchange proposes an amendment to CHX Article XXX, Rule 1, 
Interpretation .01.
     The Committee currently is charged with approving the assignment 
of stocks to specialist firms and their co-specialists, as well as 
evaluating the performance of such specialists and co-specialists. The 
Committee also reviews and must approve the transfers of assigned 
issues that typically occur in connection with the acquisitions of 
specialist firms by other specialist firms.
    The Exchange is experiencing significant consolidation of its 
specialist firms. The Exchange's Board of Governors (``Board'') 
believes that specialist firm consolidations, and the concentration of 
business that can result from these consolidations, can raise issues 
that are significant in the context of the Exchange's long-term 
business plan and operational forecasts. These issues are beyond those 
typically addressed by the Committee in the ordinary stock allocation 
process. The Board thus has determined that it is

[[Page 43067]]

both appropriate and necessary for the Board to review Committee 
decisions that raise the broader issues referenced above. Accordingly, 
the Board has approved a procedure for discretionary, and in certain 
cases mandatory, Board review and approval of stock assignment 
transfers in the case of specialist firm consolidations, and for 
discretionary authority to review and approve transfers of assigned 
stocks in circumstances where there is a change in control of a 
specialist firm.
    Under the proposal, the Committee will continue to review transfers 
of assigned stocks in connection with specialist firm consolidations or 
changes in control of specialist firms, subject to the following new 
review procedures. A Board panel, composed of all Board members that 
are not affiliated with specialist firms may review (on a discretionary 
basis) any Committee decision regarding the transfer of assigned stocks 
in connection with consolidation \4\ of specialist firms or a change in 
control of a specialist firm, if a member of the Board panel requests 
discretionary review within 10 days of a Committee decision. If no 
discretionary review is requested within this period, the Committee 
decision with respect to the proposed transfer or assigned stocks will 
become final. If the specialist firm consolidation will create or 
increase concentration \5\ in specialist firms, however, review by the 
Board panel will be mandatory and no panelist need request the review.
---------------------------------------------------------------------------

    \4\ ``Consolidation'' of two or more specialist firms includes 
acquisitions, mergers, creation of joint trading accounts and other 
profit sharing arrangements, as well as the combining of specialist 
firms under common control.
    \5\ ``Concentration'' means a financial interest in trades 
constituting 10% or more of total Exchange trade volume.
---------------------------------------------------------------------------

    The Exchange believes that the proposed procedures will enable the 
Exchange to better monitor and regulate the long-term business and 
operational effects of business combinations among specialist firms.

2. Statutory Basis

    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and 
with the requirements of Section 6(b).\6\ In particular, the Exchange 
believes the proposed rule is consistent with Section 6(b)(5) of the 
Act \7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 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 inappropriate 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 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 CHX consents, the Commission will:
    A. By order approve such 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 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 No. SR-CHX-00-08 and should 
be submitted by August 2, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-17596 Filed 7-11-00; 8:45 am]
BILLING CODE 8010-01-M