[Federal Register Volume 65, Number 118 (Monday, June 19, 2000)]
[Notices]
[Pages 38015-38017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42916; File No. SR-CHX-00-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated Relating to Entry and Execution of ``Immediate or Cancel'' 
Limit Orders During the E-Session

June 9, 2000.
    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 June 1, 2000, the Chicago Stock Exchange, Incorporated (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal pursuant to Section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested person.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange provided the Commission with written notice of 
its intent to file the proposal on May 24, 2000, pursuant to Rule 
19b-4(f)(6). 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposal

    The Exchange proposes to amend Article XXA, Rules 8 and 12 of the 
Exchange's rules, to permit entry and execution of ``immediate or 
cancel'' (``IOC'') limit orders during the Exchange's extended trading 
hours session (``E-Session''). The text of the proposed rule is below. 
Additions are in italics.

Chicago Stock Exchange Rules

Article XXA

Trading Rules and Procedures Applicable to Equity Trading During 
the Extended Trading Session

* * * * *
Manner of Making Bids and Offers
    Rule 8. The only orders eligible to be entered during the E-Session 
are unconditional limit orders or immediate or cancel limit orders for 
E-Session Eligible Securities. These orders shall be electronically and 
directly transmitted, via MAX, to the specialist's limit order book; 
except that Floor Brokers (1) may route limit orders via MAX to the 
specialist's limit order book or, where permissible, transmit them to 
another market; or (2) may, after receiving a limit order to buy and a 
limit order to sell an equivalent amount of the same security (a) 
execute the orders at the specialist's post pursuant to Article XX, 
Rule 23 or (b) route the orders via MAX to the specialist's limit order 
book. NASDAQ System market makers, acting in their capacities as market 
makers, shall have direct telephone access to the specialist post in 
each NASDAQ/NM Security in which that market maker is registered as 
market maker to transmit orders for execution on the Exchange.
    Rule 9. No change in text.
    Rule 10. No change in text.
    Rule 11. No change in text.
    Rule 12. No member or member organization may accept an order from 
a non-member for execution in the E-Session without first disclosing to 
that non-member that: (1) Orders for E-Session Eligible Securities are 
eligible only for a single E-Session and, if not executed during that 
E-Session, shall automatically be canceled; (2) unconditional limit 
orders and immediate or cancel limit orders are the only orders that 
are eligible for execution in the E-Session; (3) there is likely to be 
less liquidity during trading that occurs once normal trading hours 
have ended and, as a consequence, there may be greater fluctuations in 
securities prices; and (4) distinct systems and facilities trade 
securities after normal trading hours have ended and, as a consequence, 
at any particular time, quotations and transaction prices for a 
security may vary among those systems.

* * * Interpretations and Policies

    .01   For purposes of this article ``immediate or cancel'' orders 
are limit orders requiring the broker or specialist to purchase or sell 
as much of the order as can be executed as soon as the order is 
received, with the unexecuted balance of the order to be canceled 
immediately,

[[Page 38016]]

II. Self-Regualtory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The CHX 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 Article XXA, Rules 8 and 12 of the 
Exchange's rules to permit entry and execution of IOC limit orders 
during the E-Session. The Exchange proposes that this change take 
effect on or after June 15, 2000.
    On October 13, 1999, the Commission approved rules allowing the 
Exchange to implement the E-Session.\6\ During the E-Session, which 
operate between 3:30 p.m. and 5:30 p.m., Central Time, Exchange 
specialists and floor brokers currently may only accept and execute 
unconditional limit orders in selected eligible securities. The 
Exchange proposes to amend its rules to permit CHX specialists and 
floor brokers to execute both unconditional limit orders and IOC limit 
orders. IOC limit orders are limit orders that require the executing 
broker or specialist to purchase or sell as much of the order as can be 
executed as soon as the order is received, with the unexecuted balance 
of the order to be canceled immediately. For example, if a specialist 
is quoting a market of 50/ 50\1/4\ 3000 shares up, and the specialist 
receives an IOC limit order to buy 500 shares at 50\1/4\, the 
specialist would fill the order up to 300 shares and cancel the 
remainder of the order. Similarly, if a specialist with the same quote 
receives an immediate or cancel limit order to buy 500 shares at 50\1/
8\, a price away from the market, the specialist would not fill any 
portion of the order and it would be canceled immediately.
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    \6\ See Securities Exchange Act Release No. 42004 (October 13, 
1999), 64 FR 56548 (October 20, 1999).
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    The Exchange seeks to add IOC limit orders to the E-Sesson to 
facilitate an anticipated linkage with other participants in the after-
hours trading environment. Beginning June 15, 2000, the Exchange hopes 
to have in place a linkage with a group of electronic communications 
networks (``ECNs'' that would allow CHX quotes to be displayed and 
accessible to participating markets.\7\ In this new environment, an 
order handling system maintained by one of the ECNs would seek out the 
best bid or offer among participating ECNs and the Exchange, and would 
route an order to that market. Because many ECNs accept IOC limit 
orders during their after-hours trading sessions, the Exchange can 
participate in this linkage only if it has the ability to accept and 
execute IOC limit orders.
    Given the anticipated benefits of this linkage, and the relative 
lack of risk to investors if IOC limit orders are rendered eligible for 
the E-Session, the Exchange believes that the proposed rule change is 
warranted.
Statutory Basis
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    \7\ CHX quotes would continue to be publicly displayed as 
required by the CTA and CQ plans.
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    The CHX believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\8\ The Exchange 
believes 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 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission accelerate the 
operative date. The Commission finds that it is appropriate to 
designate the proposal to become operative as of June 15, 2000 because 
such designation is consistent with the protection of investors and the 
public interest. Acceleration of the operative date will allow the CHX 
to participate in a linkage with other participants in the after-hours 
trading environment, thereby improving transparency in the after-hours 
environment, and allowing investors greater choices with regard to the 
types of orders they may place after-hours. For these reasons, the 
Commission finds good cause to designate that the proposal become 
operative as of June 15, 2000.\12\
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    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 provision 
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

[[Page 38017]]

submissions should refer to file number SR-CHX-00-17 and should be 
submitted by July 10, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-15346 Filed 6-16-00; 8:45 am]
BILLING CODE 8010-01-M