[Federal Register Volume 62, Number 26 (Friday, February 7, 1997)]
[Notices]
[Pages 5871-5875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3032]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38221; File No. SR-NYSE-96-38, SR-Amex-96-49, SR-CBOE-
96-78, SR-CHX-96-33, SR-BSE-96-12, and SR-Phlx-97-03]


Self-Regulatory Organizations; Order Granting Approval To 
Proposed Rule Changes by the New York Stock Exchange, Inc., American 
Stock Exchange, Inc., and Chicago Board Options Exchange, Incorporated; 
and Order Granting Accelerated Approval To Proposed Rule Change by the 
Chicago Stock Exchange, Incorporated, and Boston Stock Exchange, Inc., 
and Notice of Filing and Order Granting Accelerated Approval To 
Proposed Rule Change by the Philadelphia Stock Exchange Inc., and 
Amendment No. 1 to the Proposed Rule Change by the Chicago Board 
Options Exchange, Incorporated, Relating to Amendments to Their 
Respective Market-Wide Circuit Breaker Provisions

January 31, 1997.

I. Introduction

    On December 11, 1996, the New York Stock Exchange, Inc. (``NYSE''); 
on December 16, 1996, the American Stock Exchange, Inc., (``Amex''), on 
December 18, 1996, the Chicago Board Options Exchange, Incorporated 
(``CBOE''), and the Chicago Stock Exchange, Incorporated (``CHX''); on 
December 31, 1996, the Boston Stock Exchange, Inc. (``BSE''); and on 
January 6, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'') 
respectively (each individually referred to herein as an ``Exchange'' 
and

[[Page 5872]]

two or more collectively referred to as ``Exchanges''), 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\ proposed rule changes 
relating to certain market-wide circuit breaker provisions.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule changes were published for comment in Securities 
Exchange Act Release Nos. 38047 (December 13, 1996), 61 FR 67087 
(December 19, 1996) (NYSE); 38071 (December 20, 1996), 61 FR 68805 
(December 30, 1996) (Amex); 38080 (December 23, 1996), 61 FR 69126 
(December 31, 1996) (CBOE); 38130 (January 6, 1997), 62 FR 1938 
(January 14, 1997) (CHX); and 38138 (January 8, 1997), 62 FR 2202 
(January 15, 1997) (BSE). The BSE submitted to the Commission Amendment 
No. 1 on January 7, 1997,\3\ and Amendment No. 2 on January 15, 
1997.\4\ The CBOE submitted to Commission Amendment No. 1 on January 
17, 1997.\5\ The Commission received one comment letter on the 
proposals.\6\
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    \3\ See Letter from Karen A. Aluise, Assistant Vice President, 
BSE, to Holly Smith, Associate Director, Office of Market 
Supervision (``OMS''), Division of Market Regulation (``Market 
Regulation''), Commission, dated January 7, 1997 (``BSE Amendment 
No. 1''), correcting a typographical error regarding the adjustment 
of its second circuit breaker trigger level. See Securities Exchange 
Act Release No. 38138 (January 8, 1997), 62 FR 2202.
    \4\ See Letter from Thomas J. Frain, Staff Attorney, BSE, to 
Chester A. McPherson, Staff Attorney, OMS, Market Regulation, 
Commission, dated January 15, 1997 (``BSE Amendment No. 2''), making 
clear that approval of its proposal superseded its existing circuit 
breaker provisions.
    \5\ See Letter from Arthur B. Reinstein, Senior Attorney, CBOE, 
to Chester A. McPherson, Staff Attorney, OMS, Market Regulation, 
Commission, dated January 17 1997 (``CBOE Amendment No. 1''), 
revising its Rule 6.3B to delete references to specific moves in the 
DJIA, and adopting a more general rule stating that circuit breakers 
will be triggered on the CBOE whenever circuit breakers are 
triggered on the NYSE.
    \6\ See Letter from the Honorable Edward J. Markey, Member of 
Congress, the United States House of Representatives, to Arthur 
Levitt, Chairman, SEC, dated December 16, 1996 (``Markey Letter''). 
For a description of the Markey Letter, see infra part III.
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    This order approves the proposed rule changes. The proposals by 
CHX, BSE, Phlx, and CBOE's Amendment No. 1 are being approved on an 
accelerated basis.

II. Description of the Proposal

    The Exchanges propose to amend their rules relating to ``Trading 
Halts Due to Extraordinary Market Volatility--circuit breakers'' to 
increase the trigger levels for circuit breakers that impose temporary 
market-wide trading halts. The current circuit breakers are triggered 
if the Dow Jones Industrial Average (``DJIA'') declines by 250 and 400 
points, respectively, from its previous day's close. A decline by 250 
or more points would result in a one-half hour trading halt, while a 
decline of 400 or more points would cause trading to halt for an 
additional hour. Now, the Exchanges propose establishing new thresholds 
of 350 and 550 points in the DJIA before the respective one-half hour 
and one hour circuit breakers are triggered.\7\ The Exchanges seek to 
effect these changes on a one-year pilot basis. The futures exchanges 
trading stock index futures have proposed analogous circuit breaker 
proposals with the Commodity Futures Trading Commission (``CFTC'') to 
halt trading in such contracts.\8\
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    \7\ The National Association of Securities Dealers, Inc. 
(``NASD''), Cincinnati Stock Exchange (``CSE''), and the Pacific 
Stock Exchange, Incorporated (``PSE'') have general rules that 
require them to halt trading during the intermarket circuit 
breakers. See infra note 15. Consequently, they do not need to file 
conforming rule changes because their circuit breaker halts will 
automatically conform to the halt periods adopted by the other 
exchanges. See Letters to Howard L. Kramer, Associate Director, OMS, 
Market Regulation, Commission, from Adam W. Gurwitz, Director of 
Legal Affairs, CSE, dated January 3, 1997; from David P. Semak, Vice 
President, Regulation, PSE, dated January 14, 1997; and from Richard 
Ketchum, Chief Operating Officer and Executive Vice President, NASD, 
dated January 15, 1997.
    \8\ See Letter to Howard L. Kramer, Associate Director, OMS, 
Market Regulation, Commission, from Stephen A. Sherrod, Chief, 
Financial Instruments Unit, CFTC, dated December 20, 1996. See also 
Letters to Jean A. Webb, Secretary, CFTC, from Norman E. Mains, 
Senior Vice President, Chief Economist and Director of Research, 
Chicago Mercantile Exchange (``CME''), dated December 17, 1996; from 
Richard T. Pombonyo, Managing Director, New York Futures Exchange, 
Inc. (``NYFE''), dated December 16, 1996; and from Jeff C. 
Borchardt, Senior Vice President, Kansas City Board of Trade 
(``KCBT''), dated December 18, 1996. For example, the most actively 
traded stock index futures contract is the Standard & Poor's 500 
(``S&P 500'') stock index futures contract traded on the CME. 
Currently, if the S&P 500 futures are limit offered at the 30-point 
price limit and the securities markets have instituted the half-hour 
trading halt, the S&P 500 futures also will halt trading. The same 
procedure applies at the 50-point price limit for the S&P 500 
futures for the one-hour trading halt. The CME is raising the 
applicable price limits in the S&P 500 futures to 45 and 70 points 
to correspond to the new 350/550 DJIA point triggers in the 
securities markets. See infra note 27 for an additional explanation 
of how the futures price limits relates to circuit breaker trading 
halts.
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III. Summary of Comments

    The Commission received one comment letter--the Markey Letter--on 
the Exchanges' proposals.\9\ The Markey Letter, while acknowledging 
``the need for the Commission and its staff to continually reexamine 
the circuit breakers to determine their efficacy in light of changing 
market conditions,'' also expressed concern that ``the sheer size of 
the market movement which would occur before (the proposed) trading 
halt(s) (were) activated could be extremely disturbing to investors and 
could possibly disrupt the fair and orderly functioning of the 
markets.'' \10\
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    \9\ See supra note 6.
    \10\ Id.
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    The Markey Letter continued by stating ``that any changes to the 
circuit breakers could contribute to a much higher level of market 
volatility that might impair investor confidence or result in other 
unforeseen consequences.'' Finally, the Markey Letter recommended that, 
if the proposals are adopted, the Commission should consider 
establishing ``speed bumps'' at the intervening levels in order to 
reduce volatility before the actual trading halts are triggered.\11\
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    \11\ Id. The Commission notes that the NYSE has indicated that 
it does not intend to propose any changes at this time to its market 
volatility procedures that would become effective before a 350 point 
circuit breaker trigger could be reached. One of these sets of 
procedures, provided in NYSE Rule 80A (known as the ``Collar 
Rule''), places limits on index arbitrage program trading if the 
DJIA rises or falls 50 points from the previous day's closing value. 
The other set of procedures, known as NYSE's ``sidecar'' system, 
routes program orders into separate electronic files for a brief 
period if the futures contract on the S&P 500 stock index declines 
to 12 points below its previous settlement value, a move that is 
roughly equivalent to 100 points on the DJIA. With these ``speed 
bump'' procedures in place on the NYSE, as well as other circuit 
breakers at the derivative exchanges, the Commission does not 
believe it is necessary at this time to develop additional 
procedures to restrict trading prior to triggering of a circuit 
breaker trading halt.
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IV. Discussion

    After careful review of the Exchanges' proposed amendments to their 
circuit breaker rules and the comment thereto, and for the reasons 
discussed below, the Commission believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to national securities exchanges, 
and, in particular, with the requirements of Section 6(b).\12\ 
Specifically, the Commission believes the proposals are consistent with 
the Section 6(b)(5) requirements 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, to prevent fraudulent and manipulative acts, 
and, in general, to protect investors and the public interest.\13\
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    \12\ 15 U.S.C. 78f(b).
    \13\ In approving these rules, the Commission has considered the 
proposed rules' impact on efficiency, competition, and capital 
formation. 15 U.S.C. Sec. 78c(f).
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    In 1988, the Commission approved circuit breaker rule proposals by 
the

[[Page 5873]]

Exchanges.\14\ The original circuit breaker rules provided that trading 
would halt in all securities markets for one hour if the DJIA declined 
by 250 points from its previous day's closing level and, thereafter, 
trading would halt for an additional two hours if on that same day the 
DJIA declined 400 points from its previous day's close. In July, 1996, 
these periods were reduced to one-half hour for a 250 point move and 
one hour for a 400 point move.\15\ The original circuit breaker 
proposals were approved on a pilot basis, and have been extended on 
that basis since then.\16\
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    \14\ See Securities Exchange Act Release Nos. 26198 (October 19, 
1988), 53 FR 41637 (Amex, CBOE, NASD, and NYSE); 26218 (October 26, 
1988), 53 FR 44137 (CHX); 26357 (December 14, 1988), 53 FR 51182 
(BSE); 26368 (December 16, 1988), 53 FR 51942 (PSE); 26386 (December 
22, 1988), 53 FR 52904 (Phlx); and 26440 (January 10, 1989), 54 FR 
1830 (CSE).
    \15\ See Securities Exchange Act Release Nos. 37457 (July 19, 
1996) 61 FR 39176 (NYSE); 37458 (July 19, 1996), 61 FR 39167 (Amex); 
and 37459 (July 19, 1996), 61 FR 39172 (BSE, CBOE, CHX, and Phlx).
    \16\ See supra note 14. The most recent extensions expire on 
April 30, 1997 for the Amex, NYSE and Phlx, see Securities Exchange 
Act Release No. 37890 (October 29, 1996) 61 FR 56983; and on October 
31, 1997 for the BSE and CHX. See Securities Exchange Act Release 
No. 36414 (October 25, 1995) 60 FR 55630. The NASD's policy 
statement expires on December 31, 1997. See Securities Exchange Act 
Release No. 36563 (December 7, 1995), 60 FR 64084. The Commission 
approved on a permanent basis the proposals by the CBOE, PSE, and 
CSE. See Securities Exchange Act Release Nos. 26198 (October 19, 
1988), 53 FR 41637 (CBOE); 26368 (December 16, 1988), 53 FR 51942 
(PSE); and 26440 (January 10, 1989) 54 FR 1830 (CSE).
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    These market-wide circuit breakers were intended to provide market 
participants with an opportunity to reestablish an equilibrium between 
buying and selling interest by offering a temporary ``time-out'' period 
to become aware of and respond to a sudden, potentially destabilizing 
market decline. In approving the initial proposals, the Commission 
noted that an Interim Report of the Working Group on Financial Markets 
(``Working Group'') had recommended that in periods of rapid market 
decline that threaten to create panic conditions, trading halts and 
reopening procedures should be coordinated within the financial 
marketplace.\17\
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    \17\ The Working Group on Financial Markets was established by 
the President in March 1988 in response to the 1987 market break. It 
consisted of the Under Secretary for Finance of the Department of 
the Treasury and the Chairmen of the Commission, the Commodity 
Futures Trading Commission, and the Board of Governors of the 
Federal Reserve System. Its mandate was to determine the extent to 
which coordinated regulatory action was necessary to strengthen the 
nation's financial markets.
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    Specifically, the Working Group recommended that all U.S. markets 
for equity and equity-related products--stocks, individual stock 
options, stock index options, and stock index futures--halt trading 
during such periods of market volatility.\18\ These recommendations, in 
part, were in response to the events of October 19, 1987, when the DJIA 
declined over 22.6%. The futures exchanges also adopted analogous 
trading halts to provide coordinated means to address potentially 
destabilizing market volatility.\19\
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    \18\ Id.
    \19\ See Letter from Todd E. Petzel, Vice President, Financial 
Research, CME, to Jean A. Webb, Secretary, CFTC, dated September 1, 
1988. See also Letters to Jean A. Webb, Secretary, CFTC, from Paul 
J. Draths, Vice President and Secretary, Chicago Board of Trade 
(``CBT''), dated July 29, 1988; Michael Braude, President, KCBT, 
dated August 10, 1988; and Milton M. Stein, Vice President, 
Regulation and Surveillance, NYFE, dated September 2, 1988.
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    As noted above, in July of 1996, the Commission approved proposals 
by the Exchanges to amend their circuit breaker rules to shorten the 
amount of time that trading is halted on the Exchanges when the DJIA 
has declined by 250 or 400 points.\20\ Also, at that time, the 
Commission approved the elimination of references in the Exchanges' 
rules to the use of abbreviated reopening procedures following the 
implementation of circuit breakers.\21\ In granting its approval of the 
shortened period for trading halts pursuant to circuit breakers, the 
Commission noted that advances in technology and increases in the 
operational capacity of the markets and heightened participants' 
ability to become aware of and respond to significant price movements 
within a much shortened period of time.
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    \20\ See supra note 15.
    \21\ Id.
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    The Commission's approval of the July 1996 proposals constituted 
the first significant modification to the circuit breaker provisions 
since their adoption. In response to the July 1996 proposals, the 
Commission received four comment letters expressing general concern 
about the circuit breakers trigger levels, and raising a number of 
associated issues, including the belief that the trigger levels should 
be raised to reflect the growth in the market values since circuit 
breakers were initially adopted.\22\ In approving the July 1996 
proposals, the Commission recognized the commentators' issue regarding 
the appropriateness of the 250/400 trigger levels in a rising market 
and encouraged the Exchanges and members of the industry to continue 
evaluating the trigger levels for trading halts in light of the 
changing circumstances of the market since 1988.
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    \22\ See Letter from William R. Rothe, Chairman, and John L. 
Watson III, President, Security Traders Association, to Jonathan G. 
Katz, Secretary, SEC, dated May 10, 1996 (``STA Letter''); Letter 
from Peter W. Jenkins, Chairman, and Holly A. Stark, Vice Chairman, 
Securities Traders Association's Institutional Committee, to 
Jonathan G. Katz, Secretary, SEC, dated May 7, 1996 (``STA 
Institutional Committee Letter''); Letter from Joseph R. Hardiman, 
President, NASD, to Jonathan G. Katz, Secretary, SEC, dated May 23, 
1996 (``NASD Letter''); Letter from Paul Schott Stevens, Senior Vice 
President and General Counsel, Investment Company Institute, to 
Jonathan G. Katz, Secretary, SEC, dated May 23, 1996 (``ICI 
Letter'').
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    Likewise, when the circuit breakers pilot programs were extended in 
October 1996, the Commission again, while reaffirming the utility of 
circuit breakers and the purposes they serve during periods of large, 
rapid market declines, expressed concern about whether the existing 
circuit breakers levels of 250 and 400 points in the DJIA (then 
reflecting a decline of approximately 4.1% and 6.6%) warranted market-
wide halts.\23\ Accordingly, the Commission recommended that the 
industry study these levels with a view of reaching a consensus on the 
size of increases in current trigger levels required to ensure that 
cross-market trading halts are imposed only during market declines of 
historic proportions. Further, the Commission indicated that the 
markets should submit their proposals for new trigger levels by 
February 3, 1997.
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    \23\ These percentages are based on the DJIA close of 6094.23 on 
October 18, 1996.
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    The current proposals by the Exchanges to expand the circuit 
breaker trigger levels to 350 and 550 points in the DJIA reflect the 
Exchanges' response to the Commission's recommendations. In their 
respective filings, the Exchanges noted that the proposed new levels of 
350 and 550 points would represent approximately a 5.4% and 8.5% 
decline in the DJIA, respectively, reflecting significant market 
declines that they believe serve as appropriate levels to trigger a 
brief trading halt.\24\
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    \24\ In arriving at these percentages (5.4% and 8.5%), the 
Exchanges estimated the DJIA to be approximately 6500.
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    The Exchanges' proposals are contingent on other markets adopting 
similar proposals.\25\ In this regard, the Commission notes that all of 
the existing U.S. stock and options exchanges, as well as the NASD, 
have either submitted revised circuit breaker pilot programs or have 
agreed to comply with the provisions of such programs.\26\

[[Page 5874]]

The futures exchanges are also adopting analogous trading halts to 
maintain the existing coordinated means to address potentially 
destabilizing market volatility.\27\ Thus, the Commission believes the 
contingency is satisfied.
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    \25\ The Commission notes that the BSE and Phlx did not 
explicitly include this contingency in their filings.
    \26\ See supra part II. The NASD, CSE, and PSE have reaffirmed 
their policy statements to halt trading whenever circuit breakers 
are triggered.
    \27\ If the ratio of 8-to-1 is used (8 DJIA points to 1 S&P 500 
index point), then the CME's proposed price limits of 45 and 70 
points correspond approximately to the 350 and 550 points circuit 
breaker trigger levels proposed by the equity Exchanges. The 
Commission notes that on a percentage basis, however, the 45-point 
limit on the CME would reflect a slightly greater percentage decline 
in the S&P 500 index than would the 350-point decline in the DJIA. 
The same is true for the 70-point limit in the S&P 500 futures and 
the 550-point circuit breaker trigger in the DJIA. While this poses 
a slight possibility that trading on the futures exchanges may not 
halt at the same time as trading on the stock exchanges, experience 
indicates that futures generally fall faster than stocks during 
periods of severe market declines and thus the futures price limits 
are more likely to be triggered ahead of the circuit breakers. 
Consequently, the CME's proposed limits appear to be in line with 
the trigger levels in the securities markets.
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    In evaluating the new levels proposed by the Exchanges, the 
Commission notes that, when the circuit breaker rules were adopted in 
1988, the 250-point and 400-point triggers represented one-day declines 
of 12% and 19%, respectively, in the DJIA. At current market levels, 
these triggers represent declines of approximately 3.7% and 6.0%, 
respectively.\28\ The Commission believes that the maintenance of the 
trigger levels at 250 and 400 points for eight years, while the market 
has risen substantially, has acted to effectuate a significant de facto 
diminution of the price movement that would cause a market-wide trading 
halt.\29\ Accordingly, the Commission has substantial doubt as to 
whether a 3.7% decline in the DJIA warrants a marketwide halt.
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    \28\ These figures are based on the DJIA close of 6696.48 on 
January 24, 1997.
    \29\ The Commission also notes the concern raised in the Markey 
Letter that the 550 points circuit breaker would be greater than the 
508 points decline experienced during the October 1987 crash. 
However, relative to the DJIA of October 1987, a 508 points decline 
is approximately a 22.63% decline, whereas, relative to the DJIA of 
January 1992, a 550 points decline is the equivalent of a 8.2% 
decline.
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    In support of this conclusion, the Commission notes the market 
decline of March 8, 1996, when the DJIA fell as much as 217 points 
(3.85%) on an intra-day basis. This decline represented the largest 
intra-day point decline since the adoption of circuit breakers. The 
Commission's consultations with market officials indicated that, even 
though volume was extremely heavy during the price decline on March 8, 
trading appears to have been orderly. There was no evidence of the 
types of systemic stress, as were present in the 1987 market break, 
warranting the one-hour market-wide trading halt that would have been 
imposed if the DJIA had reached the 250-point circuit breaker trigger.
    In considering the Exchanges' current proposals to modify the 
circuit breaker trigger levels, the Commission also has taken into 
account the guidelines expressed by the Working Group when originally 
proposing the circuit breaker procedures in 1988. At that time, the 
Working Group indicated that pre-determined, coordinated, cross-market 
trading halts should be implemented so as to address market declines 
that threaten to result in ad hoc and potentially destabilizing market 
closings. The Working Group's report stressed that the circuit breaker 
trigger levels should be ``broad enough to be tripped only on rare 
occasions, but * * * sufficient to support the ability of the payment 
and credit systems to keep pace with extraordinary large market 
declines.'' Consequently, the Working Group recommended that the first 
market-wide trading halt be imposed only when the DJIA had declined by 
250 points and that the second halt be imposed when the decline had 
reached a total of 400 points, levels that represented extraordinary 
declines of approximately 12% and 19%, respectively, in 1988.
    The Working Group's report also cautioned that the circuit breaker 
trigger levels should be reviewed by market regulators periodically to 
adjust the point-decline triggers to ensure that market-wide halts 
would be imposed only after extraordinary market declines. The Working 
Group envisioned in 1988 that the circuit breaker levels would be 
reevaluated periodically and adjusted to reflect market levels.\30\ In 
recent consultations, the Working Group has supported the Commission's 
determination that it is time to raise the current circuit breaker 
triggers.
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    \30\ See supra note 17.
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    Consequently, the Commission is approving the adoption of the new 
350/550 trigger levels. The DJIA has tripled in value since circuit 
breaker trading halts were adopted in 1988. This rise in the market 
necessitates increases in the circuit breaker trigger levels so as to 
prevent their unnecessary application. The existing levels of 250/400 
(approximately 3.7% and 6.0%) are far below the percentage originally 
adopted (approximately 12% and 19%). While the 350/550 levels on a 
percentage basis are below the percentages represented by 250/400 
points in 1988, the Commission believes that increasing the trigger 
levels better reflects the state of the market than current levels. The 
trigger levels should reflect an extraordinary decline under current 
market conditions. The 350/550 trigger levels more accurately meet this 
standard than the 250/400 point triggers.
    The Commission recognizes that the Exchanges have been cautious in 
their efforts to raise the circuit breaker triggers and that the 
proposed new triggers of 350/550 points represent approximately a 40% 
increase in trigger levels. Nevertheless, the Commission believes that 
the Exchanges' determinations regarding the new trigger levels 
represent a substantial improvement over the current trigger levels and 
reduce the Commission's concerns that the market-wide circuit breaker 
trading halts should not be triggered except during extraordinary 
market declines.
    As has been done in the past, the Commission is approving these 
changes on a pilot basis. In addition, the Commission finds good cause 
for approving the proposals by the CHX, BSE, Phlx, and CBOE's Amendment 
No. 1 prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. These proposals are 
analogous to the circuit breaker proposals published in the Federal 
Register, for the full statutory period, by the NYSE, Amex, and 
CBOE.\31\ The Commission believes that it is important that the 
Exchanges' circuit breaker procedures be approved simultaneously to 
preserve the existence of uniform market-wide circuit breaker 
provisions. Accordingly, the Commission believes that granting 
accelerated approval of the proposals and the amendments thereto is 
appropriate and consistent with Sections 6(b)(5) and 19(b)(2) of the 
Act.
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    \31\ See supra part I.
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    The proposals being approved today effectively supersede and 
replace the existing circuit breaker pilot provisions of the respective 
Exchanges.\32\ The Commission is approving each of the Exchanges' 
revised circuit breaker rules for a one-year period becoming effective 
on February 1, 1997, and remaining in force until January 31, 1988.\33\ 
The

[[Page 5875]]

Commission expects the markets to continually reevaluate the circuit 
breaker trigger levels in order to prevent imposing cross-market 
trading halts that are not justified by the overall magnitude of a 
market decline. Accordingly, the Commission will work with the markets 
to develop procedures for reevaluating the circuit breaker triggers on 
at least an annual basis. In this connection, the Commission requests 
that within ten months of the date of this order the markets submit 
their respective recommendations for the trigger levels that will be 
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used upon expiration of the 350/550 levels one year from this order.
    \32\ The AMEX, CHX, and Phlx have submitted letters clarifying 
certain potential ambiguity contained in the originally filed 
proposals, by making clear that the proposals approved today 
supersede each Exchanges' existing circuit breaker provisions. See 
Letters to Michael A. Walinskas, Senior Special Counsel, Market 
Regulation Commission, from Michael Cavalier, Associate General 
Counsel, Legal and Regulatory Policy, Amex, dated January 16, 1997; 
from David T. Rusoff, Esq., Foley & Lardner, CHX, dated January 16, 
1997; and from Philip H. Becker, Senior Vice President, Chief 
Regulatory Officer, Phlx, dated January 17, 1997.
    \33\ The CBOE, in its Amendment No. 1, revised the language to 
its circuit breaker rule, deleting language that referred to the 
applicable DJIA trigger levels. Instead, the CBOE proposes the 
adoption of new language that would impose circuit breaker trading 
halts on the CBOE whenever such halts are in effect on the NYSE. See 
supra note 5. The Commission notes that because the CBOE has 
determined to adopt this piggyback approach, and their circuit 
breaker rule is currently approved on a permanent basis, it should 
generally not be necessary for the CBOE to file conforming rule 
changes to revise specific circuit breaker trigger levels after the 
adoption of its current proposal.
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V. Solicitation of Comments
    Interested persons are invited to submit written data, views, and 
arguments concerning BSE Amendment No. 2, SR-Phlx-97-03, and CBOE 
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 changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes 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 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 Exchanges. 
All submissions should refer to BSE Amendment No. 2, SR-Phlx-97-03, and 
CBOE Amendment No. 1 and should be submitted by February 28, 1997.
VI. Conclusion
    For the reasons discussed above, the Commission believes the 
proposals by the Exchanges to amend their circuit breaker trigger 
levels are consistent with Section 6(b)(5) of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
\34\ that the
proposed rule changes (SR-NYSE-96-38, SR-Amex-96-49, SR-BSE-96-12, SR-
CBOE-96-78, SR-CHX-96-33, and SR-Phlx-97-03) are hereby approved to 
become effective on February 1, 1997 and will remain in force until 
January 31, 1998.

    \34\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\35\
    \35\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3032 Filed 2-6-97; 8:45 am]
BILLING CODE 8010-01-M