[Federal Register Volume 65, Number 222 (Thursday, November 16, 2000)]
[Notices]
[Pages 69355-69356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29353]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43530; File No. SR-CHX-00-28]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Inc., to Amend its Rule Relating 
to Automatic Execution of Agency Limit Orders for Dual Trading System 
Issues

November 7, 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 September 14, 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. 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 its rule relating to automatic 
execution of agency limit orders for Dual Trading System issues in the 
event of a trade-through. Specifically, the Exchange proposes to amend 
Article XX, Rule 37(b)(6). The text of the proposed rule change is 
below. Proposed additions are in italics. Proposed deletions are in 
brackets.

Guaranteed Execution System And Midwest Automated Execution System

Rule 37.

* * * * *
    (b) Automated Executions. The Exchange's Midwest Automated 
Execution System (the MAX System) may be used to provide an automated 
delivery and execution facility for orders that are eligible for 
execution under the Exchange's BEST Rule (Article XX, Rule 37(a)) and 
certain other orders. In the event that an order that is subject to the 
BEST Rule is sent through MAX, it shall be executed in accordance with 
the parameters of the BEST Rule and the following. In the event that an 
order that is not subject to the BEST Rule is sent through MAX, it 
shall be executed in accordance with the parameters of the following:
* * * * *
    (6) Execution of Dual Trading System Issues. In Dual Trading 
Systems issues there shall be a fifteen (15) second delay between the 
time a market order is entered into MAX and the time it is 
automatically executed. In the event that the spread between the ITS 
BEST Bid and ITS Best Offer in a stock eligible for automatic execution 
in MAX, is equal to the minimum variation at the time an order is 
entered into MAX, that order shall be executed immediately (i.e., in 0 
seconds without the 15 second delay). All agency market orders and all 
limit orders that are marketable when entered into the MAX System, that 
are of a size less than or equal to the auto-execution threshold and 
are eligible for execution under the BEST Rule will automatically be 
filled at the ITS Best Bid (for a sell order) or ITS Best Offer (for a 
buy order) or better. All other agency limit orders will be 
[automatically] filled at the limit price when there is a price 
penetration of the limit price in the primary market. A specialist may 
elect automatic execution of such agency limit orders on an issue-by-
issue basis. [However, if the price differential between the trade-
through price and the last sale is more than \1/4\ point or 1% of the 
value of the trade-through price, whichever is less, a second print at 
a trade-through price which is less than \1/4\ point (or 1%) away from 
the previous trade-through price is necessary before the MAX system 
will automatically execute the agency limit order.] For purposes of 
this Rule, ``agency order'' shall mean an order for the account for a 
customer but shall not include professional orders as defined in 
Article XXX, Rule 2, interpretation and policy .04.
* * * * *

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

[[Page 69356]]

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 XX, Rule 37(b)(6) to allow a 
specialist to elect, on an issue by issue basis, to either manually or 
automatically execute limit orders when a trade-through occurs in the 
primary market. The current rule provides that agency limit orders 
(that are not marketable when entered into the Exchange's MAX automatic 
execution system) will automatically be filled at the limit price when 
there is a price penetration of the limit price in the primary market 
for the subject security. Under the proposed amended rule, automatic 
execution of such limit orders will no longer be mandated. A CHX 
specialist may elect to provide for automatic execution of agency limit 
orders at the limit price when there is a price penetration of the 
limit price in the primary market for the subject securit(ies). The 
obligation to fill the order at the limit price remains the same under 
either election. The Exchange believes that this proposed amendment 
reasonably anticipates the impact that the decimal pricing environment 
will have on the national market system, where the number of small 
orders executed at multiple price levels may increase the number of 
inadvertent trade throughs that could otherwise lead to unwarranted 
automated executions of large orders in a CHX specialist's limit order 
book, exposing the specialist to substantially increased liability in 
the decimal pricing environment.
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. In 
particular, the Exchange believes the proposed rule is consistent with 
Section 6(b)(5) of the Act \3\ 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 general, to protect investors and the public interest.
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    \3\ 15 U.S.C. 78f(b)(5).
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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-00-28 and should 
be submitted by December 7, 2000.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29353 Filed 11-15-00; 8:45 am]
BILLING CODE 8010-01-M