[Federal Register Volume 65, Number 251 (Friday, December 29, 2000)]
[Notices]
[Pages 83119-83120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33265]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43742; File No. SR-CHX-00-37]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change and Amendment Nos. 1 and 2 by the 
Chicago Stock Exchange, Incorporated, Relating to the Exchange's 
SuperMAX 2000 Price Improvement Program

December 19, 2000.

I. Introduction

    On November 6, 2000, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange''), filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change that would amend CHX Article XX, 
Rule 37 to add a new price improvement algorithm entitled SuperMAX 
2000, applicable to all issues trading in decimal price increments. On 
November 16, 2000, the CHX filed an amendment to the proposal.\3\ 
Notice of the proposed rule change, including Amendment No. 1, was 
published for comment in the Federal Register on November 29, 2000.\4\ 
The Commission received no comments on the proposal. On December 19, 
after the close of the 15-day comment period, the CHX again amended the 
proposed rule change.\5\ This order approves the proposed rule change 
and Amendment Nos. 1 and 2, on an accelerated basis.
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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).
    \4\ Securities Exchange Act Release No. 43577 (November 16, 
2000), 65 FR 71164.
    \5\ See December 18, 2000 letter from Kathleen M. Boege, 
Associate General Counsel, CHX, to Joseph Morra, Special Counsel, 
Division, SEC (``Amendment No. 2''). In Amendment No. 2, the CHX 
made further minor, technical corrections to the language of 
proposed Rule 37(h). The Commission notes that neither amendment 
made substantive changes to the proposal.
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II. Description of the Proposal

    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.
    By way of 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.\6\ That 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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    \6\ 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 price improvement programs on a 
permanent basis.\7\
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    \7\ See Securities Exchange Act Release Nos. 40017 (May 20, 
1998), (63 FR 29277 (May 28, 1998) (SR-CHX-98-09) 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 
to change its existing price improvement program.
    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 program, 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 further 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 flexibility to better respond to customer price 
improvement requirements in a decimal pricing environment. 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

[[Page 83120]]

results.\8\ 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 can 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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    \8\ 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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III. Discussion

    The Commission has reviewed carefully the proposed rule change, as 
amended, and finds that it is consistent with the Act and the rules and 
regulations promulgated thereunder applicable to a national securities 
exchange and, in particular, with the requirements of section 6(b).\9\ 
Specifically, the Commission finds that approval of 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 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. The Commission believes that SuperMAX 2000 should 
provide CHX specialists with greater flexibility to respond to customer 
price improvement requirements than the four CHX programs within the 
MAX system currently in use. The Commission also believes that SuperMAX 
2000 will simplify the Exchange's existing price improvement framework 
by eliminating the four existing price improvement programs and 
replacing them with one comprehensive program that incorporates as a 
minimum threshold the level of price improvement that was available 
under the four previous price improvement programs. Finally, the 
Commission believes that implementation of SuperMAX 2000 should afford 
CHX specialists greater flexibility to provide a wide variety of price 
improvement alternatives, all of which will be equal to or better than 
the price improvement alternatives currently available.
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    \9\ 15 U.S.C. 78f(b). In approving this proposal, the Commission 
has considered the proposed rule's impact on efficiency, competition 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. In the 
notice, the Commission indicated that it would consider granting 
accelerated approval of the proposal after a 15-day comment period. The 
Commission received no comments on the proposal during the 15-day 
comment period. Amendment Nos. 1 and 2 made only minor, technical 
changes to the proposed rule language, and did not alter the substance 
of the proposal.\11\ Furthermore, because SuperMax 2000 is designed to 
provide price improvement alternatives that incorporate as a minimum 
threshold the level of price improvement currently available under the 
price improvement programs previously in use, the Commission believes 
it is reasonable to implement SuperMAX 2000 on an accelerated basis to 
allow specialists and investors to reap the anticipated benefits of 
this program as soon as possible. For these reasons, the Commission 
finds good cause for accelerating approval of the proposal rule change, 
as amended.
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    \11\ Amendment No. 1 was published for comment. See footnote 4, 
supra. Because Amendment No. 2 made only technical, non-substantive 
changes to the proposal, there is no need to solicit comments on 
Amendment No.2
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IV. Conclusion

    For the above reasons, the Commission finds that the proposed rule 
change is consistent with the provisions of the Act, in general, and 
with section 6(b)(5) \12\ in particular.
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    \12\ 15 U.S.C. 78f(b)(5).
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-CHX-00-37), as amended, be 
and hereby is approved.
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    \13\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-33265 Filed 12-28-00; 8:45 am]
BILLING CODE 8010-01-M