Federal Register / Vol. 62, No. 26 / Friday, February 7, 1997 / Notices 5871

4 15 U.S.C. 78o–3(b)(6).

5 15 U.S.C. 78k–1(a)(1)(C).

6 15 U.S.C. 78o–3(b)(6).

7 15 U.S.C. 78k–1(a)(1)(C).

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

requirements regarding minimum

public float, and a ‘‘market

capitalization’’ test that Nasdaq is in the

process of proposing. Corporate name

charge information also must be kept up

to date.

2. Statutory Basis

The NASD and Nasdaq believe the

proposed rule change is consistent with

Sections 15A(b)(6) 4 and 11A(a)(1)(C) 5

of the Act. Section 15A(b)(6) requires

that the rules of a national securities

association be designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in regulating, clearing, settling,

processing information with respect to,

and facilitating transactions in

securities, and to remove impediments

to and perfect the mechanism of a free

and open market. Section 11A(a)(1)(C)

provides that it is in the public interest

and appropriate for the protection of

investors to, among other things, assure

the availability to brokers, dealers, and

investors of information with respect to

quotations for and transactions in

securities. The restoration of the

notification requirement is necessary to

ensure that the NASD and Nasdaq have

current information on the total shares

outstanding for Nasdaq issuers. This

information is important to accurately

calculate market capitalization and

adjust indices containing Nasdaq

securities. These indices are relied upon

by market participants and the public to

indicate the value and movement, in the

aggregate, of the securities of which they

are comprised. In addition, the

information is relevant to Nasdaq listing

standards. Records regarding corporate

name changes also must be kept current.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD and Nasdaq do not believe

that the proposed rule change will result

in any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act, as amended.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

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

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. 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 NASD. All

submissions should refer to File No.

SR–NASD–97–03 and should be

submitted by February 28, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

NASD’s and Nasdaq’s proposal is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities association. Specifically, the

Commission finds that the proposed

rule change is consistent with Sections

15A(b)(6) 6 and 11A(a)(1)(C) 7 of the Act,

which require that a national securities

association have rules that are designed

to prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

and perfect the mechanism of a free and

open market and, in general, to protect

investors and the public interest.

The Commission believes that this

proposal is consistent with Section

15A(b)(6) and 11A(a)(1)(C) of the Act

because it will reinstate filing

requirements imposed on Nasdaq-listed

companies prior to the elimination of

Form 10–C by the Commission. The

reinstatement of the notification

requirement will ensure that the NASD

and Nasdaq continue to receive

pertinent information relating to

Nasdaq-listed companies on a timely

basis. The Commission believes that the

continued receipt of timely information

relating to changes in the amount of

shares outstanding of more than 5% or

changes in corporate name of Nasdaqlisted companies may prevent

fraudulent or manipulative acts and

practices and will serve the public

interest as such information is relied

upon by market participants. The

Commission therefore 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.

It is therefore ordered, pursuant to

Section 19(b)(2) 8 of the Act, that the

proposed rule change (File No. SR–

NASD–97–03) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3067 Filed 2–6–97; 8:45 am]

BILLING CODE 8010–01–M

[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
5872 Federal Register / Vol. 62, No. 26 / Friday, February 7, 1997 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See 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.

4See 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.

5See 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.

6See 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.

7The 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.

8See 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.

9See supra note 6.

10 Id.

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.

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. § 78c(f).

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.

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

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 onehalf 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

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

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

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

In 1988, the Commission approved

circuit breaker rule proposals by the
Federal Register / Vol. 62, No. 26 / Friday, February 7, 1997 / Notices 5873

14See 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).

15See 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).

16See 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).

17The 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.

18 Id.

19See 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.

20See supra note 15.

21 Id.

22See 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’’).

23These percentages are based on the DJIA close

of 6094.23 on October 18, 1996.

24 In arriving at these percentages (5.4% and

8.5%), the Exchanges estimated the DJIA to be

approximately 6500.

25The Commission notes that the BSE and Phlx

did not explicitly include this contingency in their

filings.

26See supra part II. The NASD, CSE, and PSE

have reaffirmed their policy statements to halt

trading whenever circuit breakers are triggered.

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

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

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

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.

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.

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.

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

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
5874 Federal Register / Vol. 62, No. 26 / Friday, February 7, 1997 / Notices

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.

28These figures are based on the DJIA close of

6696.48 on January 24, 1997.

29The 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. 30See supra note 17.

31See supra part I. 32The 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.

33The CBOE, in its Amendment No. 1, revised the

language to its circuit breaker rule, deleting

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.

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.

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 intraday 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 onehour 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 predetermined, 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.

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.

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
Federal Register / Vol. 62, No. 26 / Friday, February 7, 1997 / Notices 5875

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.

34 15 U.S.C. 78s(b)(2). 35 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 38015

(December 3, 1996), 61 FR 65099 (December 10,

1996). 3 15 U.S.C. 78f(b)(5).

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 used upon

expiration of the 350/550 levels one

year from this order.

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.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.35

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3032 Filed 2–6–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38225; File No. SR–NYSE–

96–32]

Self-Regulatory Organizations; New

York Stock Exchange, Incorporated;

Approval of Proposed Rule Change

Relating to the Exchange’s Policy on

Tape Indications

January 31, 1997.

I. Introduction

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

November 26, 1996, the New York Stock

Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change relating to the

Exchange’s policy on tape indications.

The proposal was published for

comment in the Federal Register on

December 10, 1996.2 No comments were

received on the proposed rule change.

The Commission is approving the

proposed rule change.

II. Description of the Proposal

The NYSE proposed to amend the

Exchange Policy on Indications,

Openings and Reopenings, which will

be issued as an Information

Memorandum. Indications are price

ranges published on the tape before or

during a trading halt to display the

probable price range in which a stock

will open or reopen.

The Exchange’s policy on

dissemination of tape indications

currently requires a minimum of 15

minutes elapse between the first

indication and the opening or reopening

of a stock. In addition, when multiple

indications are used, a minimum of 10

minutes must elapse after the last

indication when it does not overlap the

prior indication; a minimum of 5

minutes must elapse after the last

indication when it overlaps the prior

indication. In all cases, a minimum of

15 minutes must elapse between the

first indication and the opening or

reopening of a stock.

The Exchange proposed that these

minimum time periods before opening

or reopening a stock be compressed

from 15 to 10 minutes after the first

indication; and to 5 minutes after the

last indication, regardless of whether it

overlaps the prior indication, provided

that a minimum of 10 minutes elapse

between the first indication and the

opening or reopening of a stock. The

Exchange indicated that it believes that

a minimum time period of 10 minutes

for dissemination has proven sufficient

in other contexts, such as the

publication of imbalances of 50,000

shares or more of market-on-close orders

on trading days other than expiration

days.

The Exchange stated that over the

years, in developing procedures for

openings, it has focused on providing a

balance between timeless and

appropriateness of price, i.e., achieving

a price that reflects an appropriate

equilibrium of buying and selling

interest at the time. The Exchange noted

that since current procedures were

formulated, the speed of

communications has increased, meaning

that relevant market information can be

disseminated and responded to very

quickly. The Exchange believes that the

proposed rule change would shorten the

time period for indications, thereby

allowing the opening or reopening of a

stock in a more expeditious fashion,

while still providing sufficient time for

appropriate pricing of orders.

The Exchange believes that the

revised procedures for tape indications

strike an appropriate balance between

preserving the price discovery process

while providing timely opportunities for

investors to participate in the market.

III. Discussion

After careful review, 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 and, in particular,

the requirements of Section 6(b)(5) of

the Act.3 The proposed rule change is

designed to promote just an equitable

principles of trade, to remove

impediments to, and perfect the

mechanism of a free and open market,