Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36857

3Securities Exchange Act Release No. 42661

(April 10, 2000), 65 FR 20497.

4Securities Exchange Act Release No. 42660

(April 10, 2000, 65 FR 21052 (April 19, 2000) (File

No. SR–PCX–00–11).

5Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42459 (February 25, 2000, 65 FR

11619 (March 3, 2000) (File No. SR–CHX–99–28);

Securities Exchange Act Release No. 42458

(February 25, 2000), 65 FR 11628 (March 3, 2000)

(File No. SR–Phlx–00–12).

6The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release No. 34–42758 (May 5, 2000), 65 FR 30175

(May 10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for public comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78k–1.

9 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

10Section 11A(a)(1)(C)(v) of the Act.

11NYSE Approval Order at 30179.

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

proposed rule change to rescind Chapter

II, Section 23, the Exchange’s off-board

trading rule. The proposed rule change

was published for comment in the

Federal Register on April 17, 2000.3

Shortly thereafter, a proposed rule

change filed by the Pacific Exchange

rescinding its off-board trading rule was

published for public comment.4 Similar

proposed rule changes filed by the

American Stock Exchange, Chicago

Stock Exchange, and the Philadelphia

Stock Exchange had already been

published for public comment.5 The

Commission received no comments on

any of these proposals. Today, in

separate orders, the Commission is

approving the proposed rule changes to

rescind off-board trading rules filed by

the exchange noted above.6

II. Description of the Proposal

Chapter II, Section 23 restricts a

member’s ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release, the Exchange noted that

‘‘[a]dvances in the application of

technology have resulted in the creation

of new competitors to the regional

exchanges, such as Alternative Trading

Systems. As such, the Exchange

recognizes the need for exchanges and

their members to take part in the greater

level of free market trading.’’ The

Exchange also noted that the NYSE had

proposed to rescind its off-board trading

rule, and that the Commission had

requested that the Exchange review its

restrictions on off-board trading.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 7 which requires, among other

things, that the rules of an exchange be

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, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 8

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading

restrictions will help further the

national market system objective in

Section 11A(a)(1)(C)(i) to assure the

economically efficient execution of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.9

As discussed more fully in the NYSE

Approval Order, the existence of offboard trading restrictions can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Chapter II, Section 23 directly restrict a

certain type of market center

competition—competition between

exchange markets and markets other

than exchange markets. Their rescission

today eliminates an inappropriate

regulatory burden on competition that

runs contrary to the objectives set forth

in the Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.10 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Chapter II, Section 23 may have in

enhancing the interaction of investor

orders can no longer justify their

anticompetitive nature. To the extent

off-board trading rules enhance order

interaction, they do so in an undesirable

way—by attempting a direct restriction

on competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market centers should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task removing

unwarranted regulatory barriers to

competition between market centers. As

stated in the NYSE Approval Order, the

rescission of off-board trading rules is

‘‘intended solely to free the forces of

competition and allow investor interests

to control the success or failure of

individual market centers.’’ 11 The same

rationale and motivation support the

Commission’s action today.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–BSE–00–02)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14726 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42891; File No. SR–CHX–

00–07]

Self Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc. to

Eliminate the Series 7B Qualification

Examination for Floor Clerks Who May

Accept Orders From Professional

Customers for Execution on the

Exchange’s Trading Floor

June 1, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

36858 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3The Series 7B Qualification Examination

(‘‘Series 7B Examination’’) was originally

implemented by the NYSE in 1994, to serve as an

alternative qualification examination to the General

Securities Registered Representative Examination

(‘‘Series 7 Examination’’). See Securities Exchange

Act Release No. 34334 (July 8, 1994), 59 FR 35964

(July 14, 1994).

4The Exchange’s proposed rule change defines

the term ‘‘professional customer’’ to include a bank;

trust company; insurance company; investment

trust; a state or political subdivision thereof; a

charitable or nonprofit education institution

regulated under the laws of the United States, or

any state; a pension or profit sharing plan subject

to ERISA, or of an agency of the United States or

of a state or political subdivision thereof; or any

person (other than a natural person) who has, or

who has under management, net tangible assets of

at least sixteen million dollars.

5The Series 7A Qualification Examination

(‘‘Series 7A Examination’’) was originally

implemented by the NYSE in 1993, to serve as an

alternative qualification exam to the Series 7

Examination. See Securities Exchange Act Release

No. 32698 (July 29, 1993), 58 FR 41539 (August 4,

1993).

6See Securities Exchange Act Release No. 37690

(September 17, 1996), 61 FR 49803 (September 23,

1996).

7The Exchange adopted the Floor Membership

Exam in 1996. See Securities Exchange Act Release

No. 37690 (September 17, 1996), 61 FR 49803

(September 23, 1996).

8Telephone conversation between Michael

Cardin, Market Regulation Department, CHX, and

Susie Cho, Attorney, Division of Market Regulation,

Commission, on April 5, 2000.

9See Securities Exchange Act Release No. 40943

(January 13, 1999), 64 FR 3330 (January 21, 1999)

(order approving the Series 25 Examination).

10See Securities Exchange Act Release No. 42092

(November 2, 1999), 64 FR 61375 (November 10,

1999) (order approving the elimination of the Series

7B Examination and establishing the Series 7A

Examination as the appropriate qualification

examination for NYSE floor clerks).

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 17,

2000, the Chicago Stock Exchange, Inc.

(‘‘CHX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘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.

1. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend its

Interpretation .01(d) of CHX Article VI,

Rule 3 by eliminating the Series 7B

Qualification Examination 3 for

Exchange floor clerks who may, among

other functions, accept orders from

professional customers 4 for execution

on the Exchange’s complete the

Exchange’s Floor Membership

Examination and either the Series 7

Examination or the Series 7A

Qualification Examination.5 Proposed

new language is in italics; proposed

deletions are in brackets.

* * * * *

ARTICLE VI

RESTRICTIONS AND REQUIREMENTS

* * * * *

Training and Examination of

Registrants

Rule 3. The Exchange may require the

successful completion of a training

course or an examination, or both, in

connection with registration of members

and persons associated with a member

or member organization, and may

charge fees for such registration and

examination. This provision shall apply

to all members[,] and member

organizations, including members and

member organizations which are to be

solely on the Floor of the Exchange.

Interpretations and Policies:

.01 (a) No change.

(b) No change.

(c) No change.

(d) Public Business Exam

Floor members who successfully

complete the Series 7 Examination may

conduct a public business which is

limited to accepting orders while on the

floor directly from non-broker-dealer

customers. In lieu of the Series 7

Examination, Floor members who

successfully complete the Series 7A

examination may conduct a public

business which is limited to accepting

orders directly from professional

customers for execution on trading

floor. Floor clerks of floor members that

have successfully completed the

Series 7 or Series 7A examination

may accept orders from professional

customers for execution on the trading

floor so long as such clerks successfully

complete both the Floor Membership

Exam and either the Series 7

Examination or the Series

7A[7B]E[e]xamination. For purposes of

this interpretation and policy, a

‘‘professional customer’’ includes a

bank; trust company; insurance

company; investment trust; a state or

political subdivision thereof; a

charitable or nonprofit educational

institution regulated under the laws of

the United States, or any state;[,] a [or]

pension or profit sharing plan subject to

ERISA, or of any agency of the Untied

States or [as] of a state or political

subdivision thereof; or any person

(other than a natural person) who has,

or who has under management, net

tangible assets of at least sixteen million

dollars.

.02 No change.

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In this filing with the Commission,

the CHX 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 Section 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 its

Interpretation .01(d) of CHX Article VI,

Rule 3 to eliminate the Series 7B

Examination for Exchange floor clerks.

Under existing Exchange rules, a floor

clerk of a qualified floor member may

accept orders from professional

customers for execution on the

Exchange’s trading floor, so long as the

floor clerk has successfully completed

either the Series 7 Examination or the

Series 7B Examination.6 The Exchange’s

proposed rule change would require

that Exchange floor clerks who will

accept professional orders pass (i) the

Floor Membership Examination 7

already administered by the Exchange to

prospective floor members and (ii)

either the Series 7 or the Series 7A

Examination. The CHX’s Floor

Membership Examination addresses the

rules and practices of the Exchange’s

trading floor but has broader coverage

than the Series 7B Examination.8

The Exchange notes that the New

York Stock Exchange, Inc. (‘‘NYSE’’)

recently eliminated the Series 7B

Examination and now requires its floor

clerks to pass both a new Trading

Assistant Examination (‘‘Series 25

Examination‘‘) 9 and either the Series 7

Examination or the Series 7A

Examination before becoming eligible to

accept professional orders.10 Like the

CHX’s Floor Membership Examination,

the NYSE’s new Trading Assistant

Examination contains questions relating

to its floor rules and policies but has

broader coverage that the questions

formerly included in the Series 7B

Examination. The CHX therefore

proposes to change its examination

requirements to correspond to the recent

NYSE changes that have been approved

by the Commission. The CHX represents

Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36859

11 15 U.S.C. 78f(b).

12 15 U.S.C. 78f(b)(5).

13 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42459

(February 25, 2000), 65 FR 11619.

4Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42458 (February 25, 2000), 65 FR

11628 (March 3, 2000) (File No. SR–Phlx–00–12).

5Securities Exchange Act Release No. 42461

(April 10, 2000), 65 FR 20497 (April 17, 2000) (File

No. SR–BSE–00–02); Securities Exchange Act

Release No. 42660 (April 10, 2000), 65 FR 21052

(April 19, 2000) (File No. SR–PCX–00–11).

6Referring to Securities Exchange Act Release No.

42450 (February 23, 2000), 65 FR 10577 (February

28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

rescinding its off-board trading rule, Rule 390.

Securities Exchange Act Release No. 34–42758

(May 5, 2000), 65 FR 30175 (May 10, 2000) (‘‘NYSE

Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for public comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

that successful completion of the

Exchange’s Floor Membership

Examination would ensure that clerks

wishing to perform certain functions on

the floor, such as accepting professional

orders, are sufficiently familiar with the

rules and practices of the Exchange’s

trading floor.

2. Statutory Basis

The CHX believes that the proposed

rule change is consistent with Section

6(b) of the Act 11 in general and furthers

the objectives of Section 6(b)(5) 12 in

particular 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.

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 that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange did not solicit or

receive written comments on the

proposed rule change.

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.

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, N.W.,

Washington, D.C. 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. 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–00–07 and should be

submitted by July 3, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14723 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42886; File No. SR–CHX–

99–28]

Self-Regulatory Organizations;

Chicago Stock Exchange, Inc.; Order

Approving Proposed Rule Change To

Delete Certain Provisions of Article

VIII, Exchange Rule 9, Prohibiting OffFloor Transactions by Exchange

Members

June 1, 2000.

I. Introduction

On December 27, 1999, the Chicago

Stock Exchange, Inc. (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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 to

rescind certain provisions of Article

VIII, Exchange Rule 9, the Exchange’s

off-board trading rules. The proposed

rule change was published for comment

in the Federal Register on March 3,

2000.3 Proposed rule changes filed by

the American Stock Exchange and the

Philadelphia Stock Exchange to rescind

their off-board trading rules were

published on the same date as the CHX

proposing release.4 Shortly thereafter,

the Boston Stock Exchange and the

Pacific Exchange filed similar proposed

rule changes.5 The Commission

received no comments on any of these

proposals. Today, in separate orders, the

Commission is approving the proposed

rule changes to rescind off-board trading

rules filed by the exchanges noted

above.

II. Description of the Proposal

Certain provision of Article VIII,

Exchange Rule 9 restricts a member’s

ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release, the Exchange noted that the

New York Stock Exchange, along with

other exchanges, had submitted similar

proposals to rescind their off-board

trading rules,6 and that the Commission

had recently adopted amendments to

the Intermarket Trading System Plan

(‘‘ITS’’) to expand the ITS linkage with

the National Association of Securities

Dealers’ Computer Assisted Execution

System. Thus, ‘‘to confirm the

Exchange’s commitment to the

competitive ideals on which those

actions are based,’’ the Exchange

proposed to rescind certain provisions

of its off-board trading rule, Article VIII,

Exchange Rule 9.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the