[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Notices]
[Pages 1708-1709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43787; File No. SR-CHX-00-28]


Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Automatic 
Execution of Agency Limit Orders for Dual Trading System Issues

January 2, 2001.

I. Introduction

    On September 14, 2000, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), 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 relating to automatic execution of agency limit 
orders for dual trading system issues. The proposed rule change was 
published for comment in the Federal Register on November 16, 2000.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 43530 (November 7, 
2000), 65 FR 69355.
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II. Description of the Proposal

    The Exchange proposes to amend CHX Rule 37(b)(6) under Article XX 
relating to the automatic execution of agency limit orders for dual 
trading system issues in the event of a trade-through. Under the 
proposal, a specialist would be allowed 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 or securities. Under the 
proposal, automatic execution of such limit orders will no longer be 
required. 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 
security or securities. The obligation to fill the order at the limit 
price remains the same, whether executed manually or automatically. The 
Exchange believes that the 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 automatic executions 
of large orders in a CHX specialist's limit order book, exposing the 
specialist to increased liability in a decimal pricing environment.

III. Discussion

    The Commission has reviewed carefully the CHX's proposed rule 
change and finds, for the reasons set forth below, that the proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange,\4\ 
and with the requirements of Section 6(b).\5\ In particular, the 
Commission finds the proposal is consistent with Section 6(b)(5) \6\ 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 the proposal 
is reasonably designed to guard against the possible situation where 
the number of small orders executed on the Exchange at multiple price 
levels increases the number of inadvertent trade-throughs that could 
otherwise lead to unwarranted automatic executions of large orders in a 
specialist's limit order book, resulting in increased liability to CHX 
specialists. The Commission believes the proposal is designed to 
provide a safeguard as the national market system converts to a decimal 
pricing environment, and should result in grater stability during the 
transition. Furthermore, the Commission finds that the proposal is 
consistent with the section 6(b)(5) requirement that the Exchange's 
rules be designed to promote just and equitable principles of trade, 
because the obligation to fill orders at the limit price remains 
constant, regardless of whether executions are manual or automatic.
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    \4\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the

[[Page 1709]]

proposed rule change (SR-CHX-00-28), is approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    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. 01-537 Filed 1-8-01; 8:45 am]
BILLING CODE 8010-01-M