[Federal Register Volume 65, Number 179 (Thursday, September 14, 2000)]
[Notices]
[Pages 55659-55661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23614]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43256; File No. SR-CHX-00-25]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment Nos. 1, 2, and 3 
by The Chicago Stock Exchange, Incorporated Relating to the Securities 
Industry's Transition to Decimal Pricing

September 6, 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 July 28, 2000, the Chicago Stock Exchange, Incorporated (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change, as described in Items I, II, 
and III below, which Items have been prepared by the CHX. The CHX 
amended the proposal on August

[[Page 55660]]

7, 2000,\3\ August 9, 2000,\4\ and August 31, 2000,\5\ respectively. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter dated August 4, 2000, from Ellen J. Neely, Vice 
President and General Counsel, CHX, to Alton S. Harvey, Office Head, 
Division of Market Regulation (``Division''), Commission 
(``Amendment No. 1''). Amendment No. 1 makes certain technical 
corrections to the proposed rule change, converts the filing to a 
non-controversial filing under Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(6 thereunder, and requests the Commission to waive the 
5 day pre-filing notice requirement and the 30-day operative period. 
Amendment No. 1 also conforms CHX Rule 39 to recent amendments to 
the Intermarket Trading System Plan (``ITS Plan'') relating to 
decimal pricing.
    \4\ See Letter dated August 22, 2000, from Paul B. O'Kelly, 
Executive Vice President, CHX, to Alton S. Harvey, Office Head, 
Division, Commission (``Amendment No. 2''). Amendment No. 2 
withdraws the portion of Amendment No. 1 that extends CHX Rule 23 to 
Nasdaq National Market securities.
    \5\ See Letter dated August 30, 2000, from Ellen J. Neely, Vice 
President and General Counsel, CHX, to Sonia Patton, Attorney, 
Division, Commission (``Amendment No. 3''). Amendment No. 3 makes 
certain technical corrections to the proposed rule change.
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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 certain CHX rules to implement the 
securities industry's Decimals Implementation Plan submitted to the 
Commission on July 24, 2000. The text of the proposed rule change is 
available at the Commission and the CHX.

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 CHX 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 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
    On June 8, 2000, the Commission issued an order (``Order'')\7\ 
requiring the national securities exchanges and the National 
Association of Securities Dealers, Inc. (``Participants'') to act 
jointly in planning, discussing, developing, and submitting to the 
Commission a plan that will begin phasing in the implementation of 
decimal pricing in equity securities and options on or before September 
5, 2000 (``Plan''). The Commission directed the Participants to submit 
the Plan to the Commission by July 24, 2000, and further directed each 
Participant to file the rule changes necessary to implement the phase-
in plan.
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    \7\ See Securities Exchange Act Release No. 42914 (June 8, 
2000), 65 FR 38010 (June 19, 2000).
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    The Exchange proposes to amend certain CHX rules to implement the 
Plan. The proposed rule change: (i) Establishes a minimum price 
variation (``MPV'') of $.01 for issues pricing in decimals; (ii) 
establishes the procedures that will be used during the conversion from 
pricing in fractions to pricing in decimals; (iii) conforms CHX Rule 39 
to recent amendments to the ITS Plan relating to decimals; and (iv) 
provides a decimals reference to accompany and, ultimately, replace the 
fractional references set forth in the current version of certain CHX 
rules.
    Minimum Variation. The Exchange's existing rules set forth the 
minimum variations for quoting various issues on the Exchange.\6\ 
Proposed Rule 22 establishes a $.01 MPV for all issues quoted in 
decimals. Proposed Interpretation and Policy .06 to Rule 22 provides 
that the Exchange may not establish an MPV that is inconsistent with 
the Plan while the Plan is in effect.\7\
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    \6\ See Article XX, Rule 22 of the CHX rules.
    \7\ The Plan provides for minimum price variations for equities 
and options of no less than one cent. The Order requires the 
Participants to submit joint or individual studies two months after 
Full Implementation (as defined in the Plan) regarding the impact of 
decimal pricing on systems capacity, liquidity, and trading 
behavior, including an analysis of whether there should be a uniform 
minimum quoting increment. If a Participant wishes to move to 
quoting in an increment of less than one cent, the Participant 
should include in its study a full analysis of the potential impact 
of such trading on the Participant's market and the markets as a 
whole. Within thirty days after submitting the study, and absent 
Commission action, the Participants individually must submit for 
notice, comment, and Commission action, proposed rule changes under 
Section 19(b) of the Exchange Act to establish their individual 
choice of minimum increments by which equities or options are quoted 
on their respective markets.
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    Conversion from Fractional to Decimal Pricing. Proposed Article XXB 
contains rules relating to the transition from pricing in fractions to 
pricing in decimals. Specifically, proposed Rule 1 implements the 
process that will be used to convert open orders from fractions to 
decimals. Proposed Rule 2 provides that member firms may allow open 
orders to be converted as provided in Rule 1, or may cancel and re-
enter those orders. Proposed Rule 3 describes the conversion-related 
handling of securities quoted ``ex-dividend,'' ``ex-distribution,'' 
``ex-rights'' or ``ex-interest.'' Proposed Rule 4 notes that these 
conversion rules will automatically expire one month after all issues 
have been successfully converted to decimals. Finally, proposed Rule 5 
provides that securities trading on the Exchange in fractions will be 
governed by CHX rules relating to fractions and securities trading on 
the Exchange in decimals will be governed by CHX rules relating to 
decimals.
    ITS Plan. The proposed rule change amends CHX Rule 39 to conform to 
recent proposed amendments to the ITS Plan relating to decimals.\8\
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    \8\ See Amendment No. 1, supra n.3.
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    Decimals References. The remaining proposed changes simply add a 
decimal reference in applicable CHX rules to supplement the existing 
fractional references. These proposed changes do not effect any 
substantive change in the CHX rules or the operations on the Exchange.
2. Statutory Basis
    The CHX 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, in 
particular, with the requirements of Section 6(b) of the Act.\9\ In 
particular, the CHX believes that the proposed rule change is 
consistent with Section 6(b)(5) \10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CHX does not believe that the proposed rule change will impose 
any burden on competition 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect

[[Page 55661]]

the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative on 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate,\11\ it has become effective pursuant to 
Section 19(b0(3)(A) of the Act \12\ and Rule 19b-4(f)(6) \13\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate such rule change if 
it 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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    \11\ The Exchange requested the Commission to waive 5 day pre-
filing notice requirement and 30-day operative period. See Amendment 
No. 1, supra n.3.
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19-4(f)(6).
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    The CHX has requested that the Commission accelerate the operative 
date. The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause to 
designate the proposal to become immediately operative upon filing. 
Acceleration of the operative date will ensure that the CHX is able to 
operate in accordance with the terms and conditions of the Plan. For 
these reasons, the Commission finds good cause to designate that the 
proposal become operative immediately upon filing.\14\
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    \14\ For purposes only of accelerating the operative date of 
this proposal, 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 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 persons, 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 CHX. 
All submissions should refer to the File No. SR-CHX-00-25 and should be 
submitted by October 5, 2000.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23614 Filed 9-13-00; 8:45 am]
BILLING CODE 8010-01-M