[Federal Register Volume 66, Number 238 (Tuesday, December 11, 2001)]
[Notices]
[Pages 64066-64068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30503]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45122; File No. SR-CHX-99-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Stock Exchange, Inc., 
Relating to the Exchange's Limit Order Display Requirements

December 4, 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 September 24, 1999, the Chicago Stock Exchange, Inc. (``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. On 
November 20, 2001, 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 October 15, 2001 letter from Daniel J. Liberti, Vice 
President and Chief Enforcement Counsel, CHX, to Joseph Morra, 
Special Counsel, Division of Market Regulation, Commission 
(``Amendment No. 1''). The CHX mailed Amendment No. 1 to the 
Commission on October 15, 2001, but the Commission never received 
the Amendment. The CHX provided the Commission with a telefaxed copy 
of the Amendment on November 20, 2001. The Commission agreed to 
accept the Amendment as of November 20, 2001, while awaiting 
delivery of the original, signed Amendment. In Amendment No. 1, the 
CHX (i) confirmed that the proposed change to exempt block-sized 
orders from the CHX's limit order display requirement will not apply 
when a customer has requested that the order be displayed; (ii) 
corrects a typographical error relating to CHX Article XX, 
Interpretation and Policy .01 relating the mark sense terminal; and 
(iii) adds new identifiers for subparagraphs (a) and (b) in CHX 
Article XX, Interpretation and Policy .05. The CHX made other minor, 
non-substantive changes to the proposal. See December 3, 2001 
telephone conversation between Daniel J. Liberti, Vice President and 
Chief Enforcement Counsel, CHX, and Joseph Morra, Special Counsel, 
Division of Market Regulation, Commission.
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1. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its limit order display requirements 
under CHX Article XX, Rule 7 to conform to Rule 11Ac1-4 under the 
Act.\4\ The text of the proposed rule change is below. Additions are in 
italics; deletions are in brackets.
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    \4\ 17 CFR 240.11Ac1-4.

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[[Page 64067]]

Chicago Stock Exchange Rules
Article XX, Rule 7. Recognized Quotations
    Recognized quotations shall be public bids and offers in lots of 
one or more trading units or multiples thereof. Bids and offers in 
other market centers which may be displayed on the Floor for the 
purpose of ITS, or in accordance with Rule 39 or Rule 40 of this 
Article or other purposes shall have no standing in the trading crowds 
on the Floor. Bids or offers for less than one unit of trading shall 
specify the number of shares of stock or the principal amount of the 
bonds covered by the bid or offer. All bids made and all offers made 
shall be in accordance with the provisions of Rule 11Ac1-1 under the 
Securities Exchange Act of 1934, governing the dissemination of 
quotations for reported securities.
    The following interpretations and policies pertain to all 
specialist system issues for which last sale information is reported 
pursuant to SEC Rule 11Aa3-1.
    Interpretations and Policies:
    .01 [Specialists shall input their current markets and sizes to the 
quotation system through the key terminal or the mark sense terminal at 
the post. These q]Quotations shall be firm as to both price and size 
unless exempted under one of the conditions specified in paragraphs 
.06-.09 of this Rule.
    .02 In respect to Dual Trading System issues specialists utilizing 
the Auto Quote mode are prohibited from disseminating a bid and/or 
offer more than \1/8\ point away from the best ITS market.
    .03 Market Makers, while at the post, shall input to the quotation 
system their bids and/or offers which better the current Exchange 
market. Such quotations shall remain in force until the market maker 
leaves the post. Market maker quotations and accompanying sizes shall 
be firm unless exempted under one of the conditions specified in 
paragraphs .06-.09 of this Rule.
    .04 Floor Broker, while at the post, shall input to the quotation 
system those bids or offers which better the current Exchange market 
unless the bid or offer is cancelled or withdrawn if not executed 
immediately. If a floor broker transfers possession of an order to a 
specialist, the requirement for input to the quotation system becomes 
the obligation of the specialist. When a floor broker who retains 
possession of an order leaves the post he must withdraw his bid or 
offer from the quotation system. Quotations and accompanying sizes 
shall be firm until withdrawn unless exempted under one of the 
conditions specified in paragraphs .06-.09 of this Rule.
    .05 (a) Quotation sizes, unless otherwise specified, shall be 
assumed to be for 100 shares. [Where bids or offers are made at the 
same price the aggregate quotation size of such equal bids or offers 
shall be inputted into the quotation system. Such aggregate sizes shall 
remain firm until withdrawn unless exempted under one of the conditions 
specified in paragraphs .06-.09 of this Rule.] With respect to agency 
limit orders received by specialists, each specialist shall publish 
immediately (i.e., as soon as practicable, which under normal market 
conditions means no later than 30 seconds from time of receipt) a bid 
or offer that reflects:
    (i) The price and full size of each agency limit order that is at a 
price that would improve the specialist's bid or offer in such 
security; and
    (ii) The full size of each agency limit order that is priced equal 
to the specialist's bid or offer and the national best bid or offer for 
such security and represents more than a de minimis change in relation 
to the size associated with the specialist's bid or offer;
    (b) The requirements with respect to specialists' display of limit 
orders shall not apply to any limit order that is:
    (i) Executed upon receipt of the order;
    (ii) Placed by a person or entity who expressly requests, either at 
the time the order is placed or prior thereto pursuant to an 
individually negotiated agreement with respect to such person's orders, 
that the order not be displayed;
    (iii) An odd-lot order;
    (iv) Delivered immediately upon receipt to an exchange or 
association-sponsored system or an electronic communications network 
that complies with the requirements of Securities and Exchange 
Commission Rule 11Ac1-1(c)(5) under the Securities Exchange Act with 
respect to that order;
    (v) Delivered immediately upon receipt to another exchange member 
or over-the-counter market maker that complies with the requirements of 
Securities and Exchange Commission Rule 11Ac1-4 under the Securities 
Exchange Act with respect to that order; [or]
    (vi) An ``all or none'' order; or[.]
    (vii) A block size order, unless the customer order is received 
with a request that the order be displayed.
    .06-.09 (no change)
* * * * *

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 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
    On January 12, 1998, the Commission granted accelerated approval to 
a proposed rule change amending CHX Article XX, Rule 7 \5\ that 
expressly provided for the display of customer limit orders as 
contained in Rule 11Ac1-4 under the Act.\6\ However, that change did 
not make CHX, Article XX, Rule 7 totally consistent with Rule 11Ac1-4 
in that the Exchange did not adopt certain exceptions allowed under 
Rule 11Ac1-4, nor did the Exchange limit the application of CHX Article 
XX, Rule 7 solely to customer limit orders.
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    \5\ See Securities Exchange Act Release No. 39540 (January 12, 
1998), 63 FR 2708 (January 16, 1998) (SR-CHX-97-26).
    \6\ 17 CFR 240.11Ac1-4.
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    The Exchange now proposes to amend CHX Article XX, Rule 7 to be 
more consistent with Rule 11Ac1-4. More specifically, the proposed rule 
change would exempt block size limit orders,\7\ orders that represent 
only a de minimis change in relation to the size associated with a 
specialist's quote, and orders for the account of a broker or dealer 
from the requirements of CHX Article XX, Rule 7, Interpretation and 
Policy .05. THe proposed rule change would also eliminate the Exchange 
requirement that a CHX specialist immediately publish the full size of 
a customer limit order that is at a price that would not improve the 
specialist's bid or offer when such specialist's bid or offer is not 
equal to the national best bid or offer.
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    \7\ As defined in Rule 11Ac1-4, a block size order is an order 
of at least 10,000 shares or for a quantity of stock having a market 
value of at least $200,000.
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    Under Rule 11Ac1-4(c)(5),\8\ a specialist is not required to 
display an order that is delivered immediately

[[Page 64068]]

upon receipt to an exchange or association-sponsored system that 
complies with the requirements of the rule with respect to that order. 
Because other market centers do not require the publication of certain 
orders that a CHX specialist must currently display under CHX Article 
XX, Rule 7 (e.g. block size orders), a CHX specialist may not deliver 
such orders to those other market centers for automatic relief from the 
requirements of CHX Article XX, Rule 7, despite the fact that such 
practice is permissible under Rule 11Ac1-4. The proposed modifications 
would, among other things, allow a CHX specialist to safely transfer 
such orders to other market centers that are subject to the 
requirements of Rule 11Ac1-4. As such, the proposed rule change would 
make CHX Article XX, Rule 7 more consistent with the requirements of 
Rule 11Ac1-4.
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    \8\ 17 CFR 240.11Ac1-4(c)(5).
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    The proposal would also eliminate in CHX Article XX, Rule 7, 
Interpretation and Policy .01, a reference to the mark sense terminal, 
an Exchange facility that is no longer operational.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \9\ 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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    \9\ 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 CHX 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.

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 copying at the principal office of the 
CHX. All submissions should refer to File No. SR-CHX-99-18 and should 
be submitted by January 2, 2002.

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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Jonathan G. Katz,
Secretary.
[FR Doc. 01-30503 Filed 12-10-01; 8:45 am]
BILLING CODE 8010-01-M