[Federal Register Volume 62, Number 206 (Friday, October 24, 1997)]
[Notices]
[Pages 55447-55448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28238]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39259; File No. SR-CHX-22]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Stock Exchange, Incorporated Relating to the Exchange's Automated 
Execution System

October 20, 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 and II 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 proposed to amend Rule 37(b)(6) of Article XX of the 
Exchange's Rules, relating to the Exchange's automated execution 
system, the ``MAX System.'' The modification provides for a fifteen 
second delay before a MAX execution except where the spread between the 
ITS Best Bid and ITS Best Offer is equal to the minimum price variation 
in the relevant issue.
    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 III 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
    Article XX, Rule 37(b)(6) currently provides that, when using the 
Exchange's MAX System in the execution of Dual Trading System issues, 
there will generally be a fifteen second delay between the time a 
market order is entered into MAX and the time it is automatically 
executed. This delay allows opportunity for price improvement. However, 
Rule 37(b)(6) also currently provides that where the spread between the 
ITS Best Bid and ITS Best Offer is \1/8\ point, on order will 
immediately be executed (because of the lack of opportunity for price 
improvement).
    Certain Dual Trading System issues have recently begun trading in 
minimum variations less than \1/8\ point (e.g., \1/16\ point). In 
recognition of this change, the proposed rule change provides for a 
fifteen second delay before a MAX execution except where the spread 
between the ITS Best Bid and ITS Best Offer is equal to the minimum 
variation in the relevant issue. The Exchange believes this 
modification will allow customers the maximum opportunity for price 
improvement.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) \2\ of the Act 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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    \2\ 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. 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-97-22 and should be 
submitted by November 21, 1997.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed carefully the Exchange's proposed rule 
change and believes, for the reasons set forth below, the proposal is 
consistent with the requirements of Section 6 of the Act \3\ and the 
rules and regulations thereunder applicable to a national securities 
exchange. Specifically, the Commission believes the proposal is 
consistent with Section 6(b)(5) \4\ of the Act because it will 
facilitate transactions in securities by providing investors with the 
opportunity for price improvement, promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of a free and open market.
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    \3\ 15 U.S.C. Sec. 78f.
    \4\ 15 U.S.C. Sec. 78f(b)(5).
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    The proposed rule change modifies the Exchange's rule relating to 
its MAX System so that automatic execution is delayed to provide the 
opportunity for price improvement in stocks trading in minimum 
increments of less than \1/8\. This modification comports with the 
movement towards smaller trading and quotation increments for equity 
securities traded on securities exchanges.\5\ Furthermore, it 
establishes

[[Page 55448]]

equal price improvement opportunities for all investors and removes the 
mechanism that currently deprives those investors who trade securities 
priced in less than \1/8\ increments from potentially obtaining a 
better price. In addition, the language of the modification obviates 
the need for similar technical rule adjustments in the future as the 
minimum trading and quoting increments are further reduced.
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    \5\ Securities Exchange Act Release Nos. 38571 (May 5, 1997), 62 
FR 25682 (May 9, 1997) (approving an AMEX proposal to reduce the 
minimum trading variation from \1/8\ to \1/16\); 38744 (June 18, 
1997), 62 FR 34334 (June 25, 1997) (approving a NYSE proposal to 
reduce the minimum trading variation from \1/8\ to \1/16\).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. The Commission notes that the 
AMEX and NYSE recently reduced the minimum trading and quotation 
variations for securities traded through their facilities. As a result, 
equity securities that previously traded in minimum variations of \1/8\ 
now trade in minimum variations of \1/16\. It is important, therefore, 
that the Rules of the MAX system be conformed to allow customers the 
maximum opportunity for price improvement in the MAX System as soon as 
possible.
    It is therefore ordered, pursuant to Section 19(b)(2) \6\ of the 
Act, that the proposed rule change, SR-CHX-97-22, is hereby approved on 
an accelerated basis.

    \6\ 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.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-28238 Filed 10-23-97; 8:45 am]
BILLING CODE 8010-01-M