[Federal Register Volume 66, Number 180 (Monday, September 17, 2001)]
[Notices]
[Pages 48074-48075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23155]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44778; File No. SR-CHX-2001-11]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by The Chicago 
Stock Exchange, Incorporated Relating to Automatic Execution of Partial 
Orders for Dual Trading System Securities and Segmented Price 
Improvement of Orders

September 7, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given 
that on May 24, 2001, the Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and to 
grant accelerated approval of the proposed rule change.
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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 relating to: (a) The 
Exchange's SuperMAX 2000 price improvement algorithm, to permit price 
improvement of partial orders; and (b) automatic execution sequences 
and algorithms relating to the trading of Dual Trading System issues on 
the Exchange, to permit automatic execution of partial orders at the 
order sending firm's election. Specifically, the Exchange proposes to 
amend portions of Article XX, Rule 37(a) and (b) and to add an 
Interpretation and Policy relating to Article XX, Rule 37(h). The text 
of the proposed rule change is available from the Office of the 
Secretary of the CHX or the Commission.

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 regarding the proposed rule change. 
The text of these statements may be examined at the places specified in 
Item III 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
    The Exchange proposes to amend the CHX rule provisions relating to: 
(a) The Exchange's SuperMAX 2000 price improvement algorithm, to permit 
price improvement of partial orders; and (b) automatic execution 
sequences and algorithms relating to the trading of Dual Trading System 
issues on the Exchange, to permit automatic execution of partial orders 
at the order sending firm's election. Both changes are intended to make 
the Exchange and its specialists better able to accommodate the rapidly 
changing demands of the marketplace relating to price improvement and 
automatic execution of orders.
    a. Price Improvement of Partial Orders. The proposed change to 
Article XX, Rule 37(h), which governs the Exchange's SuperMAX 2000 
price improvement algorithm, would permit a specialist who enables 
SuperMAX 2000 for an issue to price improve an entire order, or to 
provide differing levels of price improvement for different portions of 
the order. For example, in the case of a 1500 share order for issue 
XYZ, the proposed change to the price improvement algorithm would 
enable the specialist to provide price improvement of $.02 per share 
for the first 500 shares, $.01 per share for the next 500 shares, and 
no price improvement (i.e., execution at the BBO) for the last 500 
shares. The differing levels of price improvement would be designated 
by the specialist and would be effected by a systems change, which the 
Exchange expects to implement October 1, 2001.
    The purpose of the proposed rule change relating to the Exchange's 
SuperMAX 2000 price improvement algorithm is to increase the number of 
opportunities for customers to receive price improvement by permitting 
specialists to participate in SuperMAX 2000 without requiring them to 
price improve an entire order. Currently, the Exchange believes that 
there are specialists who might not desire to offer price improvement 
to large orders but may be willing to offer price improvement to 
portions of such orders; the amended rule would allow the specialist to 
provide the opportunity for more orders to receive price improvement 
(although in some cases to less than the entire order), while providing 
customers with more certainty that orders would receive price 
improvement up to the designated level(s).
    b. Automatic Execution of Partial Orders for Dual Trading System 
Issues. The other proposed changes to Article XX, Rule 37 are designed 
to achieve consistency between Dual Trading System issues and Nasdaq/NM 
securities with respect to the automatic execution of orders.\3\ The 
Exchange anticipates that these changes will provide customers with 
greater certainty and speed of execution, and will eliminate any 
current confusion caused by differing automatic execution parameters.
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    \3\ On October 13, 2000, the Commission approved the Exchange's 
proposed rule change relating to automatic execution of orders for 
Nasdaq/NM securities. See Securities Exchange Act Release No. 43443 
(October 13, 2000), 65 FR 63660 (October 24, 2000). The approved 
rule change included provisions relating to automatic execution of 
partial orders for Nasdaq/NM securities and the automatic execution 
threshold established by the CHX specialist.
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    Specifically, the Exchange proposes to amend Article XX, Rule 
37(b)(6), which governs the automatic execution rules relating to Dual 
Trading System issues. Under the current rule, if an order's size 
exceeds the automatic execution threshold, the entire order is placed 
in the specialist's book for manual execution. However, under the 
proposed amendment, customers could elect automatic execution of 
partial orders in instances where the size of the order is greater than 
the automatic execution threshold designated by the specialist. If the 
customer elects partial automatic execution, the order would be 
automatically executed up to the size of the automatic execution 
threshold, with the balance of the order placed in the specialist's 
book for manual execution.

[[Page 48075]]

This feature has been available for Nasdaq/NM securities for several 
months and has been utilized by a number of customers; those customers 
who do not view partial executions as an advantage remain free to 
proceed under the current framework.
    The Exchange also proposes to amend Article XX, Rule 37(a) and 
(b)(1) to make the automatic execution and auto acceptance thresholds 
designated by specialists for both Dual Trading System issues and 
Nasdaq/NM securities the same. Under the amended rule, the minimum 
automatic execution threshold for listed securities would be decreased 
to the current Nasdaq/NM level of 300 shares. Orders at or below the 
automatic execution threshold would be automatically executed 
regardless of the NBBO size. Specialists may also choose to 
automatically execute orders of a size greater than their automatic 
execution thresholds if the order size is less than or equal to the 
NBBO size. The automatic acceptance threshold for Nasdaq/NM securities 
would be increased to the current listed level of 5099 shares.
2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
section 6(b) \4\ of the Act in general and in particular with section 
6(b)(5) \5\ in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and 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\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of 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 Regarding the 
Proposed Rule Change Received from Members, Participants or Others

    No written comments were either solicited or received.

III. 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 at the 
Commission's Public Reference Room in Washington, DC. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to File 
No. SR-CHX-2001-11 and should be submitted by October 9, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed carefully the Exchange's proposed rule 
change and believes for the reasons set forth below, that the proposal 
is consistent with the requirements of section 6(b) of the Act,\6\ and 
the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Commission finds that the 
proposed rule change is consistent with section 6(b)(5) of the Act \7\ 
in that it will facilitate transactions in securities, promote just and 
equitable principles of trade, remove impediments to, and perfect the 
mechanism of a free and open market. The Commission believes that the 
proposed rule change will enable specialists to provide price 
improvement to customer orders using the CHX's automated system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Further, the Commission notes that it approved a proposed rule 
change on October 13, 2000 implementing the same changes with respect 
to trading in Nasdaq/NM securities.\8\ That proposed rule change was 
published for comment, and the Commission received no comments. 
Therefore, the Commission finds good cause to approve the proposed rule 
change before the thirtieth day after the date of publication of notice 
of the filing as it will enable customers to receive price improvement 
sooner, and because the substance of the proposed rule change, as it 
applies to Nasdaq/NM securities, has already been subject to public 
comment.
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    \8\ See note 3, supra.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change is hereby approved on an 
accelerated basis.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-23155 Filed 9-14-01; 8:45 am]
BILLING CODE 8010-01-M