[Federal Register Volume 66, Number 60 (Wednesday, March 28, 2001)]
[Notices]
[Pages 16962-16963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44090; File No. SR-CHX-01-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated, To Amend the 
Exchange's SuperMAX 2000 Price Improvement Program To Include Odd Lot 
Orders

March 21, 2001.
    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 March 19, 2001, the Chicago Stock Exchange, Incorporated (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 the CHX rules governing its 
voluntary price improvement program. Specifically, the Exchange 
proposes to amend Article XX, Rule 37(h) to permit application of the 
Exchange's SuperMAX 2000 price improvement algorithm to odd lot orders, 
thereby increasing the opportunities for price improvement. 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 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 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 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 is approved by the 
Exchange.
    (iv) Odd Lot Market Orders. In the event that a market order to buy 
or sell less than 100 shares (or a market order otherwise deemed an odd 
lot by the Exchange) is received in a security in which SuperMAX 2000 
has been enabled, and 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 (A) less than $.05, 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); or (B) $.05 or greater, such order 
shall be executed 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).
    (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 delay (i.e., in 0 seconds).
    (4) Applicability to Odd Lots Generated by OLES. 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

[[Page 16963]]

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 
automated price improvement. To this end, the CHX proposes to amend the 
CHX rules governing its voluntary automated price improvement program, 
known as SuperMAX 2000, for issues quoting in decimal price increments. 
Specifically, the Exchange proposes to amend Article XX, Rule 37(h) to 
permit application of the SuperMAX 2000 algorithm to odd lot orders, 
thereby increasing the opportunities for price improvement.
    On December 19, 2000, the Commission approved (SR-CHX-00-37),\3\ 
implementing SuperMAX 2000, the CHX's new price improvement program, 
which will govern price improvement of all orders for issues quoting in 
decimal price increments. SuperMAX 2000 was designed to afford 
specialists the flexibility to provide a wide variety of price 
improvement alternatives, all of which will be equal to or more 
favorable than alternatives that existed previously. SuperMAX 2000 
originally did not by its terms permit price improvement of odd lot 
orders.
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    \3\ Securities Exchange Act Release No. 43742 (December 19, 
2000), 65 FR 83119 (December 29, 2000).
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    In assessing price improvement offered by other members of the 
securities industry, the Exchange believes that, in order to be 
competitive, its odd lot dealers must be permitted (but not obligated) 
to offer price improvement of odd lot orders. The proposal would permit 
odd lot dealers to provide price improvement of $.01 or better, in the 
case of odd lot orders received when the national best bid and offer 
spread is $.05 or larger.
    The Exchange believes that the proposal will ensure that SuperMAX 
2000 provides CHX odd lot dealers with the requisite flexibility to 
respond to customer price improvement requirements in a decimal 
environment. The proposal contemplates equality among order-sending 
firms (and their customers) by mandating that price improvement be 
provided by CHX odd lot dealers on an issue-by-issue basis; odd lot 
dealers would not be permitted to distinguish among order-sending firms 
when designating price improvement levels. Moreover, SuperMAX 2000 
remains a strictly voluntary price improvement program; odd lot dealers 
who do not wish to participate are not obligated to enable SuperMAX 
2000 for any or all issues they trade.
2. Statutory Basis
    The CHX believes the proposed rule change is consistent with 
Section 6(b)(5) of the Act \4\ 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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    \4\ 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 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 will not 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, 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 coping at the principal office of the 
Exchange. All submissions should refer to file number SR-CHX-01-06 and 
should be submitted by April 12, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-7597 Filed 3-27-01; 8:45 am]
BILLING CODE 8010-01-M