[Federal Register Volume 65, Number 230 (Wednesday, November 29, 2000)]
[Notices]
[Pages 71164-71166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30379]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43577; File No. SR-CHX-00-37]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Stock Exchange, Incorporated, 
Relating to the Exchange's SuperMAX 2000 Price Improvement Program

November 16, 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 November

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6, 2000, the Chicago Stock Exchange, Incorporated (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On November 16, 2000, the CHX amended the proposal.\3\ 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 November 15, 2000 letter from Kathleen M. Boege, 
Associate General Counsel, CHX, to Joseph Morra, Special Counsel, 
Division of Market Regulation, SEC (``Amendment No. 1''). In 
Amendment No. 1, the CHX made a minor, technical correction to the 
language of proposed Rule 37(h).
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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 the CHX rules governing its 
voluntary price improvement programs. Specifically, the Exchange 
proposes to amend Article XX, Rule 37 to add a new price improvement 
algorithm entitled SuperMAX 2000, applicable to all issues trading in 
decimal price increments. The CHX anticipates that SuperMAX 2000 will 
supplant all of the Exchange's existing price improvement algorithms 
upon completion of the securities industry transition to decimal 
pricing. The text of the proposed rule change is below. Additions are 
in italics.

ARTICLE XX

Regular Trading Sessions

* * * * *
Guaranteed Execution System and Midwest Automated Execution System
Rule 37.
* * * * *
(h) SuperMAX 2000
    SuperMAX 2000 shall be a voluntary automatic execution program 
within the MAX System. SuperMAX 2000 shall be available for any 
security trading on the Exchange in decimal price increments. A 
specialist may choose to enable this voluntary program within the MAX 
System on a security-by-security basis.
    (1) Pricing
    (i) In the event that an order to buy or sell at least 100 shares 
is received in a security in which SuperMAX 2000 has been enabled, such 
order shall be executed at the ITS Best Offer or NBO (for a buy order) 
or the ITS Best Bid or NBB (for a sell order) if (A) the spread between 
the ITS Best Bid and the ITS Best Offer (or NBB or NBO, for Nasdaq/NM 
issues) in such security at the time the order is received is less than 
$.03.
    (ii) In the event that an order to buy or sell 100 shares is 
received in a security in which SuperMAX 2000 has been enabled, and (a) 
the spread between the ITS Best Bid and the ITS Best Offer (or NBB and 
NBO, for Nasdaq/NM issues) in such security at the time the order is 
received is $.03 or greater, such order shall be executed (subject to 
the short sale rule) at a price at least $.01 lower than the ITS Best 
Offer or NBO (for a buy order) or at least $.01 higher than the ITS 
Best Bid or NBB (for a sell order).
    (iii) In the event that an order to buy or sell more than 100 
shares is received in a security in which SuperMAX 2000 has been 
enabled, such order shall be executed at the ITS Best Offer or NBO, or 
better (for a buy order) or the ITS Best Bid or NBB, or better (for a 
sell order) as the specialist may designate and as is approved by the 
Exchange.
    (2) Operating Time. SuperMAX 2000 will operate each day that the 
Exchange is open for trading from the commencement of the Primary 
Trading Session until the close of the Primary Trading Session; 
provided, however, that preopening orders shall not be eligible for 
SuperMAX 2000 price improvement. A specialist may enable or remove 
SuperMAX 2000 for a particular security only on one given day each 
month, as determined by the Exchange from time to time. Notwithstanding 
the previous sentence, during unusual market conditions, individual 
securities or all securities may be removed from SuperMAX 2000 with 
approval of two members of the Committee on Floor Procedure.
    (3) Timing. Orders entered into SuperMAX 2000 shall be immediately 
executed upon completion of the foregoing price improvement algorithm 
without any delay (i.e., in 0 seconds).
    (4) Applicability to Odd Lots. Although an order generated by the 
Odd-Lot Execution Service (``OLES'') is a professional order (because 
it is deemed to be for the account of a broker-dealer), it is 
nonetheless eligible for SuperMAX 2000 execution if (i) the order is 
for 100 to 199 shares and (ii) the order is an OLES passively-driven 
system-generated market order (and not an actively managed order).
    (5) Out of Range. Notwithstanding anything herein to the contrary, 
SuperMAX 2000 will not automatically execute an order if such execution 
would result in an out of range execution.
    (6) Other. Any eligible order in a security for which SuperMAX 2000 
has been enabled which is manually presented at the post by a floor 
broker must also be guaranteed an execution by the specialist pursuant 
to the pricing criteria set forth in paragraph (1) above. If the contra 
side order which would better a SuperMAX 2000 execution is presented at 
the post, the incoming order which is executed pursuant to the SuperMAX 
2000 criteria must be adjusted to the better price.
* * * * *

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
    According to the CHX, the primary purpose of the proposed rule 
change is to increase the number of orders that are eligible for price 
improvement and to afford CHX specialists the opportunity to provide 
price improvement alternatives equal to or more favorable than existing 
alternatives.

Background

    On May 22, 1995, the Commission approved a proposed CHX rule change 
that allows specialists on the Exchange, through the Exchange's MAX 
system, to provide order execution guarantees that are more favorable 
than those required under CHX Rule 37(a), Article XX.\4\ That approval 
order contemplated that the CHX would file with the Commission specific 
modifications to the parameters of MAX that are required to implement 
various options under this new rule.
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    \4\ See Securities Exchange Act Release No. 35753 (May 22, 
1995), 60 FR 28007 (May 26, 1995)(SR-CHX-95-08).
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    SuperMAX, Enhanced SuperMAX, SuperMAX Plus and Derivative SuperMAX 
are four existing CHX programs within the MAX system that use 
computerized algorithms to provide automated price improvement. The 
Commission has approved each of these

[[Page 71166]]

price improvement programs on a permanent basis.\5\
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    \5\ See Securities Exchange Act Release Nos. 40017 (May 20, 
1998), 63 FR 29277 (May 28, 1998)(SR-CHX-98-9) and 40235 (July 17, 
1998), 63 FR 40147 (July 27, 1998), (SR-CHX-98-09)(orders approving 
revised SuperMAX and Enhanced SuperMAX algorithms); 41480 (June 4, 
1999), 64 FR 32570 (June 17, 1999)(SR-CHX-99-04)(order approving 
revised SuperMAX Plus algorithm); and 42565 (March 22, 2000), 65 FR 
16442 (March 28, 2000)(SR-CHX-99-24)(order approving Derivative 
SuperMAX algorithm).
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    The Exchange believes that, for it to remain competitive, its 
specialists must be able to swiftly and meaningfully respond to the 
price improvement considerations articulated by the Exchange's order 
sending firms and their customers. To this end, the Exchange proposes 
the following change to its existing price improvement program.

Proposal

    At present, Exchange specialists may voluntarily participate, on an 
issue-by-issue basis, in one of the four price improvement programs 
referenced above. Each of the existing price improvement programs 
provides for a fixed amount of price improvement) when the national BBO 
spread meets certain spread parameters (e.g., in SuperMAX Plus, $.01 on 
a BBO spread of $.03 on orders from 100 to 199 shares).
    Under the proposed SuperMAX 2000, customers would be guaranteed the 
same minimum amount of price improvement they would receive under 
SuperMAX Plus (i.e., $.01 on a spread of $.03 on orders of 100 shares) 
if a specialist has enabled SuperMAX 2000; in addition, specialists 
would be permitted to provide additional automated price improvement on 
an issue-by-issue basis. This opportunity for additional price 
improvement would exist for all orders of 100 shares or greater.
    The Exchange believes that SuperMAX 2000 will provide CHX 
specialists with the requisite flexibility to respond to customer price 
improvement requirements in a decimal pricing environment. 
Significantly, the proposal contemplates equality among order-sending 
firms (and their customers) by mandating that CHX specialists provide 
additional price improvement on an issue-by-issue basis; specialists 
would not be permitted to distinguish among order-sending firms when 
designating price improvement levels.
    The Exchange also believes that SuperMAX 2000 would simplify the 
Exchange's existing price improvement framework by eliminating multiple 
price improvement programs with different names, requirements and 
results.\6\ By replacing four existing price improvement programs with 
one comprehensive program that will incorporate (as a minimum 
threshold) the level of price improvement currently available, the 
Exchange will afford its specialists the flexibility to provide a wide 
variety of price improvement alternatives, all of which will be equal 
to or more favorable than existing alternatives.
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    \6\ The Exchange anticipates that its existing price improvement 
programs, which have been amended on a pilot basis to include 
decimal price increments, would become obsolete once the pilot 
expires on February 28, 2001. In accordance with an Exchange rule 
approved by the Commission, the four existing price improvement 
programs would be deemed deleted from the Exchange's rules upon the 
completion of the securities industry transition to a decimal 
pricing environment. See Article XXB, Rule 4, which provides, in 
pertinent part, that all rule references to fractional price 
increments shall be deemed deleted.
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2. Statutory Basis
    The CHX believes the proposed rule change 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 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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    \7\ 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 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 Exchange 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.
    The CHX has requested accelerated approval of the proposed rule 
change. While the Commission is not prepared to grant accelerated 
approval at this time, the Commission will consider granting 
accelerated approval of the proposal at the close of an abbreviated 
comment period of 15 days from the date of publication of the proposal 
in the Federal Register.

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, 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 filings will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to file number SR-CHX-00-37 and 
should be submitted by December 14, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30379 Filed 11-28-00; 8:45 am]
BILLING CODE 8010-01-M