[Federal Register Volume 65, Number 198 (Thursday, October 12, 2000)]
[Notices]
[Pages 60708-60710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26112]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43408; File No. SR-CSE-00-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendments Nos. 1 and 2 by 
the Cincinnati Stock Exchange, Incorporated, Amending Its Rules To 
Accommodate the Implementation of Decimal Pricing

October 3, 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 February 2, 2000, The Cincinnati Stock Exchange, Incorporated 
(``CSE'' OR ``Exchange''), filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change to amend its rules 
to permit quotations made in decimal increments in conjunction with the 
securities industry's phased implementation of decimal pricing 
conventions. On August 7, 2000, the CSE amended the proposed rule 
change\3\ by requesting that the Commission grant immediate 
effectiveness to the proposal pursuant to Section 19(b)(3)(A) of the 
Act.\4\ On October 2, 2000, the Exchange again amended the proposed 
rule change\5\ by making minor technical corrections to the proposed 
rule text amendments. The proposal, as amended, is described in Items 
I, II, and III below, which Items have been prepared by the CSE. 
Because the CSE filed the amended proposal pursuant to Section 
19(b)(3)(A) of the Act,\6\ and Rule 19b-4(f)(6) thereunder,\7\ it has 
become effective upon filing with the Commission.\8\ 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 from Jeffrey T. Brown, Vice President, 
Regulation, and General Counsel, Exchange, to Joseph P. Morra, 
Senior Counsel, Division of Market Regulation, Commission, dated 
August 7, 2000 (``Amendment No. 1'').
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ See letter form Jeffrey T. Brown, Vice President, 
Regulation, and General Counsel, Exchange, to Joseph P. Morra, 
Senior Counsel, Division of Market Regulation, Commission, dated 
September 22, 2000 (``Amendment No. 2'').
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ In filing its Amendment No. 1, the Exchange requested that 
the Commission waive the requirement that the Exchange provide the 
Commission with written notice of its intent to make such filing, as 
well as a description of the proposal, at least five business days 
prior to the filing of the proposed rule change with the Commission. 
See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). The 
Commission agrees to waive such requirement of prior notice.
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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 its rules to provide for the 
implementation of decimal pricing. The CSE believes the proposed rule 
change conforms to the uniform industry approach to implementing 
decimal pricing contained in the joint submission to the Commission by 
the CSE and other interested parties dated July 24, 2000, and entitled 
``Decimals Implementation Plan for the Equities and Options Markets'' 
(``Decimals Plan''). The text of the proposed rule change is set forth 
below. Proposed new language appears in italic; proposed deletions 
appear in brackets.
* * * * *
Chapter XI  Trading Rules
Rule 11.3  Price Variations
    (a) Bids or offers in stocks traded on the Exchange at or above 
$1.00 per share shall not be made at a smaller variation than \1/8\ of 
$1.00 per share; in stocks below $1.00 but at or above \1/2\ of $1.00 
per share, at a smaller variation than \1/16\ of $1.00; in stocks below 
\1/2\ of $1.00 per share, at a smaller variation than \1/32\ of $1.00 
per share; and in bonds at a smaller variation than \1/8\ of 1% of the 
principal amount, except in the case of a dually or multiply-traded 
security where the principal exchange shall have a different rule or 
when the Board of Trustees of the Exchange shall provide otherwise. 
(Rule 11.3(a) will be eliminated upon completion of decimal 
conversion.)
    (b) Bids or offers in stocks traded on the Exchange shall not be 
made at a smaller variation than $.01 per share; and in bonds at a 
smaller variation than \1/8\ of 1% of the principal amount.
    (c) Notwithstanding (b) above, bids and offers in stocks not 
participating in the decimal pilot program and not converted to decimal 
pricing at or above $1.00 per share must be made in fractions at a 
minimum variation of \1/16\ per share. The minimum variation of .01 
described in (b) above is applicable to stocks that have been converted 
to decimal pricing. (Rule 11.3(c) will be eliminated upon completion of 
decimal conversion.)
* * * * *
Chapter XIV  Intermarket Trading System Plan
Rule 14.3  Pre-Opening Application
    (b) * * * The ``applicable price changes'' are:

------------------------------------------------------------------------
                                               Applicable price change
       Previous day's closing price                  (more than)
------------------------------------------------------------------------
Network A:
  Under $15...............................  \1/8\ point or for stocks
                                             trading in decimals .10
  $15 or over1 [*]........................  \1/4\ point or for stocks
                                             trading in decimals .25
Network B:
  Under $5................................  \1/8\ point or for stocks
                                             trading in decimals .10
  $5 or over2.............................  \1/4\ point or for stocks
                                             trading in decimals .25
------------------------------------------------------------------------
1 [*] If the previous day's consolidated closing price of [an] a Network
  A Eligible Security exceeded $100 and the Security does not underlie
  an individual stock option contract listed and currently trading on a
  national securities exchange, the ``applicable price change'' is [one
  point] one dollar.
2 If the previous day's consolidated closing price of a Network B
  Eligible Security exceeded $75 and the Security is not a Portfolio
  Deposit Receipt, Index Fund Share, or Trust Issued Receipt, or does
  not underlie an individual stock option contract listed and currently
  trading on a national securities exchange, the ``applicable price
  change'' is one dollar.

    (c) A pre-opening notification shall--
    (1) Be designated as a pre-opening notification (``IND'')
    (2) Identify the Exchange (``C''), the inquiring specialist and the 
security (``XYZ'')
    (3) Indicate the ``applicable price range'' by being formatted as a 
standardized pre-opening administrative message as follows:

IND C/XYZ [RANGE]

    The price range shall not exceed the ``applicable price range'' 
shown below:

------------------------------------------------------------------------
        Consolidated closing price             Applicable price range $
------------------------------------------------------------------------
Network A:
  Under $50                                 \1/2\ point or for stocks
                                             trading in decimals .50
  $50 or over3 [**]                         1 point or for stocks
                                             trading in decimals 1.00
Network B:
  Under $10                                 \1/2\ point or, for stocks
                                             trading in decimals, .50

[[Page 60709]]

 
  $10 or over4............................  1 point or, for stocks
                                             trading in decimals, 1.00
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3[**] If the previous day's closing price of [an] a Network A Eligible
  Security exceeded $100 and the Security does not underlie an
  individual stock option contract listed and currently trading on a
  national securities exchange, the ``applicable price change'' is [two
  points] two dollars.
4 If the previous day's consolidated closing price of a Network B
  Eligible Security exceeded $75 and the Security is not a Portfolio
  Deposit Receipt, Index Fund Share, or Trust Issued Receipt, or does
  not underlie and individual stock option contract listed and currently
  trading on a national securities exchange, the ``applicable price
  change'' is two dollars.

    The price range also shall not straddle the previous day's closing 
price, although it may include it as an endpoint (e.g., a \1/8\-\5/8\ 
or for stocks trading in decimals 40.15-40.65 price range would be 
permissible if the previous day's consolidated closing price were \1/8\ 
or \5/8\ or for stocks trading in decimals 40.15 or 40.65, but not if 
the closing price were \1/4\, \3/8\, or \1/2\ or, for stocks trading in 
decimals, within the price range of 40.16-40.64).
* * * * *
    (g) If after sending a pre-opening notification, * * *
    (1) Increase or Decrease in Applicable Price Range * * *
    (2) Shift to within Applicable Price Change Parameter
    (a) The inquiring specialist * * *
    (b) Notwithstanding the preceding sentence, in situations where the 
price range in an initial or additional notification includes price 
variations equal to or less than the applicable price change 
parameters, the ``cancellation'' notification signifies that the 
anticipated opening price: (1) may or may not be outside of the price 
range specified in the pre-opening notification and (2) does not 
represent a change from the previous day's consolidated closing price 
of more than the applicable price change.5[*]

    5[*] Example: CTA close at 30. Pre-Opening 
Notification sent with any one of the following price ranges: 30-
30\1/2\; 30\1/8\-30\5/8\; or 30\3/4\ or for stocks trading in 
decimals a price range of 30.10-30.60, etc. It is then determined 
that the stock will open at 30, 30\1/8\, or 30\1/4\ or, for stocks 
trading in decimals, a price within the range of 30 to 30.25, the 
specialist need not re-indicate the stock pursuant to paragraph 
(2)(b).
* * * * *
    (m) Subject to paragraph (n), * * *
    (1) Be designated as a pre-opening response (``RES'')
    (2) Identify the Exchange (``C''), the specialist, and the security 
(``XYZ''), and
    (3) Show the specialist's interest (if any), both as principal for 
his own account (``P'') and as agent on orders left with him (``A''), 
at each price level within the price-range indicated in the pre-opening 
notification (e.g., 40\3/8\ or, for stocks trading in decimals, 40.40), 
reflected on a netted share basis by being formatted as a standardized 
pre-opening administrative message as follows:

RES C/XYZ BUY {SELL} A-P 40\3/8\ (or, for stocks trading in decimals, 
40.40)
    The response may also show market orders separately.
* * * * *

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 CSE 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 CSE 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 Commission has ordered the securities exchanges and other 
interested parties to implement decimal pricing in their markets.\9\ 
Pursuant to the Order, the Commission required the exchanges to submit 
proposed rule changes implementing a uniform decimals phase-in 
schedule. As described above, the Exchange is proposing to amend the 
following rules in conjunction with the securities industry's 
conversion of its markets to decimal pricing which will allow for 
minimum price variations of $.01 per share in quotations for stocks 
that trade on the Exchange: Chapter XI, Trading Rules, Rule 11.3, Price 
Variations; and Chapter XIV, Intermarket Trading System Plan, Rule 
14.3, Pre-Opening Application.
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    \9\ See Securities Exchange Act Release No. 42914 (June 8, 
2000), 65 FR 38010 (June 19, 2000).
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2. Statutory Basis
    The CSE believes that the proposal is consistent with the 
provisions of Section 6(b)(5) \10\ of the Act which requires that an 
exchange have rules that are designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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.
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    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CSE 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

    Written comments were neither solicited nor received in connection 
with 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:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ the 
Rule 19b-4(f)(6) thereunder.\12\ 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ The Commission will measure this sixty-day period from 
August 7, 2000, the date of Amendment No. 1, since Amendment No. 2, 
filed on October 2, 2000, made only minor corrections to the 
proposal as previously amended.
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    The CSE 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.\14\ 
Acceleration of

[[Page 60710]]

the operative date will ensure that the CSE is able to operate in 
accordance with the terms and conditions of the Decimals Plan. For 
these reasons, the Commission finds good cause to designate that the 
proposal become operative immediately upon filing.\15\
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    \14\ The Decimals Plan provides for minimum price variations for 
equities and options of no less than one cent. The Commission's June 
8th Order requires the Participants to submit joint or individuals 
studies two months after Full Implementation (as defined in the 
Plan) regarding the impact of decimal pricing on system 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.
    \15\ 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, 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 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 
CSE. All submissions should refer to file number SR-CSE-00-01 and 
should be submitted by November 2, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26112 Filed 10-11-00; 8:45 am]
BILLING CODE 8010-01-M