[Federal Register Volume 62, Number 169 (Tuesday, September 2, 1997)]
[Notices]
[Pages 46392-46393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38965; File No. SR-CHX-97-13]


Self-Regulatory Organizations Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 1 to Proposed Rule Change Relating to Trading Variations

August 22, 1997.

I. Introduction

    On June 2, 1997, the Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') submitted to 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 decrease the minimum variation 
for certain securities from an eighth to a sixteenth of a dollar and to 
make conforming changes to its rule regarding when a security is quoted 
``ex-dividend,'' ``ex-distribution,'' ``ex-rights,'' or ``ex-
interest.''
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on June 12, 1997.\3\ No comments were received concerning the 
proposal. On July 1, 1997, the Exchange submitted Amendment No. 1 to 
the proposed rule change.\4\ This order approves the proposal, 
including

[[Page 46393]]

Amendment No. 1 on an accelerated basis.
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    \3\ Securities Exchange Act Release No. 38718 (June 5, 1997), 62 
FR 32132 (June 12, 1997).
    \4\ Letter from David T. Rusoff, Esq., Foley & Lardner, to 
Ivette Lopez, Division of Market Regulation, SEC, dated June 20, 
1997 (``Amendment No. 1''). Amendment No. 1 conformed the CHX's 
proposal to similar rules of the New York Stock Exchange and the 
American Stock Exchange by slightly modifying the level at which 
trading securities in increments of \1/32\ of a dollar may occur.
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III. Description of the Proposal

    Recently, there has been a movement within the industry to reduce 
the minimum trading and quotation increments imposed by the various 
self-regulatory organizations (``SROs''). For example, the New York 
Stock Exchange (``NYSE''), The Nasdaq Stock Market (``Nasdaq''), and 
the American Stock Exchange (``Amex'') have recently reduced their 
minimum increments.\5\ In addition, several third market makers have 
begun quoting securities in increments smaller than the primary 
markets. The CHX responded by submitting rule filings that matched the 
primary markets' changes.\6\ In order to permit a quick response to 
rapidly changing market conditions, however, some of those proposals 
were granted only temporary accelerated approval.\7\ The current 
proposal. The current proposal seeks permanent approval of those rule 
changes.\8\
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    \5\ Securities Exchange Act Release Nos. 38571 (May 5, 1997), 62 
FR 25682 (May 9, 1997) (approving File No. SR-Amex-97-14); 38678 
(May 27, 1997), 62 FR 30363 (June 6, 1997) (approving File No. SR-
NASD-97-27); 38897 (Aug. 1, 1997), 62 FR 42847 (Aug. 8, 1997) 
(approving SR-NYSE-97-21).
    \6\ Securities Exchange Act Release Nos. 38590 (May 9, 1997), 62 
FR 26832 (May 15, 1997) (approving File No. SR-CHX-97-08; reducing 
the trading increment from eighths to sixteenths for securities that 
are traded on the Exchange and on the Amex); 38704 (May 30, 1997), 
62 FR 31467 (June 9, 1997) (approving File No. SR-CHX-97-11 on a 
temporary basis; a similar reduction in the trading increment for 
securities that are traded on the Exchange and on Nasdaq); 38717 
(June 5, 1997), 62 FR 32134 (June 12, 1997) (approving File No. SR-
CHX-97-12 on a temporary basis; a similar reduction in the trading 
increment for securities that are traded on the CHX and on the 
NYSE); and 38719 (June 5, 1997) (approving File No. SR-CHX-97-14 on 
a temporary basis; a similar reduction in the trading increment for 
securities that are traded only on the Exchange).
    \7\ See File Nos. SR-CHX-97-11, SR-CHX-97-12, and SR-CHX-97-14.
    \8\ The proposal also makes conforming changes to CHX Rule 35; 
the Exchange's rule regarding when a security is quoted ``ex-
dividend,'' ``ex-distribution,'' ``ex-rights,'' or ``ex-interest.''
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III. Commission's Findings

    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 believes the proposal comports with the requirements of 
Section 6 and Section 11A of the Act.\9\
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    \9\ 15 U.S.C. Secs. 78f(b) and 78k-1. In approving this rule 
change, the Commission notes that it has considered the proposal's 
impact on efficiency, competition, and capital formation, consistent 
with Section 3(f) of the Act. Id. Sec. 78c(f).
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    The proposed rule change will likely enhance the quality of the 
market for the affected securities. Allowing the CHX to permanently 
quote and trade equity securities in finer increments will facilitate 
quote competition.\10\ This should help produce more accurate pricing 
of such securities and can result in tighter quotations.\11\ In 
addition, if the quoted markets are improved by reducing the minimum 
increment, the change could result in added benefits to the market such 
as reduced transaction costs.
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    \10\ The rule change is consistent with the recommendation of 
the Division of Market Regulation (``Division'') in its Market 2000 
Study, in which the Division noted that the \1/8\ minimum variation 
can cause artificially wide spreads and hinder quote competition by 
preventing offers to buy or sell at prices inside the prevailing 
quote. See SEC, Division of Market Regulation, Market 2000: An 
Examination of Current Equity Market Developments 18-19 (Jan. 1994).
    \11\ A study that analyzed the reduction in the minimum tick 
size from \1/8\ to \1/16\ for securities listed on the Amex priced 
between $1.00 and $5.00 found that, in general, the spreads for 
those securities decreased significantly while trading activity and 
market depth were relatively unaffected. See Hee-Joon Ahn, Charles 
Q. Chao, and Hyuk Choe, Tick Size, Spread, and Volume, 5 J. Fin. 
Intermediation 2 (1996).
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    The proposed rule change also will allow the CHX the flexibility it 
needs to address the recent transition to smaller increments and to 
remain competitive with competing market centers. Nevertheless, the 
Commission notes that any further change in the minimum increment 
constitutes (1) a change in a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the CHX, or (2) a change in an 
existing order-entry or trading system of the CHX, or (3) both. 
Therefore, the Exchange is obligated to file such proposed changes with 
the Commission.\12\
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    \12\ These changes, however, may become effective upon filing if 
they meet certain statutory requirements. See 15 U.S.C. 
Sec. 78s(b)(3)(A)(i) and 17 CFR 240.19b-4(e).
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    The Commission finds good cause for approving Amendment No. 1 prior 
to the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. This amendment does not raise any new, 
significant regulatory concerns. It simply conforms the CHX's proposal 
to similar rules of the NYSE and the Amex by slightly modifying the 
level at which trading securities in increments of \1/32\ of a dollar 
may occur. Therefore, the Commission believes that granting accelerated 
approval to Amendment No. 1 is appropriate and consistent with Section 
19(b)(2) of the Act.\13\
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    \13\ 15 U.S.C. Sec. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1. 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. 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. Sec. 552, will be available for inspection and 
copying at the Commission's Public Reference Room, 450 Fifth Street, 
N.W., Washington, D.C. 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
CHX. All submissions should refer to File No. SR-CHX-97-13 and should 
be submitted by September 23, 1997.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-CHX-97-13) is approved, 
including Amendment No. 1 on an accelerated basis.

    \14\ 15 U.S.C. Sec. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23135 Filed 8-29-97; 8:45 am]
BILLING CODE 8010-01-M