[Federal Register Volume 62, Number 206 (Friday, October 24, 1997)]
[Notices]
[Pages 55444-55445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28179]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39252; File No. SR-CHX-97-19]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to the 
Adoption of Rules Governing Market-at-the-Close Orders

October 17, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 12, 1997, 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 Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Article XX, Rule 44 to the Exchange's 
Rules relating to market-at-the-close orders.
    The text of the proposed rule change is available at the Office of 
the Secretary, the Exchange, and at 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 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 
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
    Currently, the Exchange has no rules regarding market-at-the-close 
(``MOC'') orders. The Exchange therefore wishes to add specific rules 
governing MOC orders to formalize the procedures for such orders and to 
delineate the rights and obligations of Exchange members and customers 
with regard to such orders.
    The Exchange proposes to adopt procedures that are essentially 
identical to those used by the New York Stock Exchange (``NYSE''). The 
proposed r4ule is intended to ensure that orders sent to the Exchange 
will receive treatment similar to orders sent to the NYSE.
    The proposed rule change provides definitions for all relevant 
terms. ``Market-at-the-Close Order'' or ``MOC order'' means a market 
order which is to be executed in its entirety at the closing price on 
the primary market of the stock named in the order, and if not so 
executed, is to be treated as canceled. ``Expiration Day'' means the 
last trading day before the one day a month that standardized contracts 
in derivative products (such as stock index futures, stock index 
options, and options on stock index futures) expire. ``Quarterly Index 
Expiration Day'' means the last trading day of each calendar quarter 
when quarterly index expiration (``QIX'') options expire. ``Pilot 
Stocks'' means those stocks contained on the list published from time 
to time by the primary market for such stocks.
    Certain limitations will apply to MOC orders on Expiration Fridays 
and Quarterly Index Expiration Days. In general, no such MOC order may 
be entered after 2:40 p.m., Central Time, in any stock. Floor brokers 
representing such orders must indicate their MOC interest to the 
specialist by 2:40 p.m. After 2:40 p.m., MOC orders may generally be 
entered to offset published imbalances. However, the liquidation of 
positions relating to a strategy involving any stock index options, 
using MOC orders entered after 2:40 p.m., is not permitted, even if 
such orders might offset published imbalances. No MOC order in any 
stock may be canceled or reduced in size after 2:40 p.m. Cancellations 
to correct a legitimate error, however, will continue to be permitted 
after 2:40 p.m.
    For MOC orders on Expiration Fridays and Quarterly Index Expiration 
Days, as soon as practicable after 2:40 p.m., notice will be published 
by the Exchange of any MOC order imbalance of 50,000 shares or more in 
the Pilot Stocks,\2\ stocks being added to or dropped from an index, 
and, upon the

[[Page 55445]]

request of a specialist, any other stock with the approval of a floor 
official.
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    \2\ The Exchange will publish notice only of those MOC order 
imbalances that occur on the facilities of the Exchange. Telephone 
conversation between David T. Rusoff, Attorney, Foley and Lardner, 
and Michael L. Loftus, Attorney, Division of Market Regulation, SEC 
(October 16, 1997).
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    Other proposed rules apply to MOC orders on Non-Expiration Days. No 
such MOC order may be entered after 2:50 p.m., Central Time, in any 
stock, except to offset a published order imbalance. Floor brokers 
representing such orders must indicate their MOC interest to the 
specialist by 2:50 p.m. No MOC order in any stock may be canceled or 
reduced in size after 2:50 p.m. Cancellations to correct a legitimate 
error, however, will continue to be permitted after 2:50 p.m.
    For MOC orders on Non-Expiration Days, as soon as practicable after 
2:50 p.m., notice will be published by the Exchange of any MOC order 
imbalance of 50,000 shares or more in the Pilot Stocks,\3\ stocks being 
added to or dropped from an index, and, upon the request of a 
specialist, any other stock with the approval of a floor official.
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    \3\ Id.
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    A specialist will only be obligated to accept and guarantee 
execution of those MOC orders that are of a size and type that a 
specialist would otherwise be required to accept and guarantee 
execution of, if the orders did not have a market-at-the-close 
designation.
    The proposed rule change provides that a specialist shall execute 
MOC orders in a stock in a specified manner. Where there is an 
imbalance between the buy and sell MOC orders, the specialist shall, at 
the close of the Primary Trading Session on that day, execute the 
imbalance for its own account at the closing price on the primary 
market of the stock. The specialist shall then stop the remaining buy 
and sell orders against each other and pair them off at the closing 
price on the primary market of the stock. The ``pair off'' transaction 
shall be reported to the consolidated last sale reporting system as 
``stopped stock.'' Where the aggregate size of the buy MOC orders 
equals the aggregate size of the sell MOC orders, the buy orders and 
sell orders shall be stopped against each other and paired off at the 
closing price on the primary market of the stock. The transaction shall 
be reported to the consolidated last sale reporting system as ``stopped 
stock.''
    Proprietary orders represented pursuant to Section 11(a)(1)(G) \4\ 
of the Act (i.e., ``G'' orders) must be announced as such and yield 
priority, parity and precedence to any order which is for the account 
of a person who is not a member, member organization or associated 
person thereof. Market orders to sell short at-the-close represented as 
``G'' orders must yield priority, parity and precedence to limit orders 
not represented pursuant to Section 11(a)(1)(G) of the Act. For 
example, in executing paired-off MOC orders, a ``G'' order to sell 
short at-the-market would yield to sell orders limited at the closing 
price that are not represented as ``G'' orders. This will be the policy 
even if the ``G'' order to sell short at-the-market theoretically could 
have been executed at a better price (and still satisfy the ``short 
sale'' rule in terms of a ``plus'' or ``zero plus'' tick) had there not 
been a pair-off on the transaction. This would not be applicable if the 
order was a market order to sell ``long'' or a market order to buy.
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    \4\ 15 U.S.C. Sec. 78k(a)(1)(G).
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) \5\ of the Act in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating transactions in 
securities, 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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    \5\ 15 U.S.C. Sec. 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 inappropriate burden on competition.

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 with 
respect to 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 the 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. 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 submissions, all subsequent amendments, all 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 persons, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. Sec. 522, will be available for inspection and copying at 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. 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-97-19 and should be 
submitted by November 14, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-28179 Filed 10-23-97; 8:45 am]
BILLING CODE 8010-01-M