[Federal Register Volume 62, Number 228 (Wednesday, November 26, 1997)]
[Notices]
[Pages 63210-63211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31017]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39337; File No. SR-CHX-97-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated Codifying the Exchange's Clearing the Post Policy

November 19, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 23, 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 self-regulatory organization. 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. 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 interpretation and policy .02 to Rule 
10 of Article XX relating to clearing the post. The text of the 
proposed rule change is as follows: Additions are italicized.

Article XX

    Rule 10. Manner of Bidding and Offering.
    No change in text.
    * * * Interpretations and Policies
    .02  Clearing the Post.
    Policy. All orders received by floor brokers or originated by 
market makers on the floor of the Exchange must effectively clear the 
post before the orders may be routed to another market, either via the 
ITS System or through the use of alternative means.
    Floor brokers who receive an order on the floor have a fiduciary 
responsibility to seek a best price executive for such order. This 
responsibility includes clearing of the Exchange's post prior to 
routing an order to another market so that other buying and selling 
interest at the post can be checked for a potential execution that may 
be as good as or better than the execution available in another market.
    Market makers are required to provide depth and liquidity to the 
Exchange market, among other things. Exchange Rules require that all 
market maker transactions constitute a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market. In so doing, market makers must adhere to traditional agency/
auction market principles on the floor. Transactions by Exchange market 
makers on other exchanges which fail to clear the Exchange post do not 
constitute such a course of dealings.
    Notwithstanding the above, it is understood that on occasion a 
customer will insist on special handling for a particular order that 
would preclude it from clearing the post on the Exchange floor. For 
example, a customer might request that a specific order be given a 
primary market execution. These situations must be documented and 
reported to the Exchange. Customer directives for special handling of 
all orders in a particular stock or all stocks, however, will not be 
considered as exceptions to the clearing the post policy.
    All executions resulting from bids and offers reflected on Instinet 
terminals resident on the Exchange floor constitute ``orders'' which 
are ``communicated'' to the Exchange floor. Therefore, all orders 
resulting from interest reflected on Instinet terminals on the Exchange 
floor must be handled as any other order communicated to the floor. All 
such orders must be presented to the post during normal trading hours. 
All trades between Instinet and Exchange floor members are Exchange 
trades and must be executed on the Exchange.
    Method of Clearing the Post. The Exchange's clearing the post 
policy requires the floor broker or market maker to be physically 
present at the post. A market maker, after requesting the specialist's 
market quote, must bid or offer the price and size of his intended 
interest at the post. A floor broker must clear the post by requesting 
a market quote from the specialist. If the specialist or any other 
member who has the post indicates an interest to trade at the price 
that was bid or offered by the market maker or the price of the floor 
broker's order (even though that order has not yet been bid or 
offered), then the trade may be consummated with the specialist (or 
whomever has the post) in accordance with existing Exchange priority, 
parity and precedence rules. If the specialist (or any other member who 
has the post) indicates interest to trade at that price but the member 
communicating the intended interest, including Instinet interest, 
determines not to consummate the trade with the specialist or such 
member, then, to preserve the Exchange's existing priority, parity and 
precedence rules, the trade may not be done with any other Exchange 
floor member. (See Article XXX, Rule 2.) If the trade is consummated 
with the specialist or other member who has the post, the specialist 
(or any customer represented by the specialist) is not required to pay 
any fees to the broker or market maker in connection with the execution 
of the order, unless such fee is expressly authorized by an Exchange 
Rule. If the specialist does not indicate an interest to trade, then 
the trade may be consummated with another Exchange

[[Page 63211]]

floor member on the Exchange floor with a resultant Exchange print.
    Failure to clear the post may result in a ``trade-through'' or 
``trading ahead'' of other floor interest. In addition, failure to 
properly clear the post may result in a violation of the Exchange's 
Just and Equitable Trade Principles Rile (Article VIII, Rule 7) and a 
market maker rule that requires all market maker transactions to 
constitute a course of dealing reasonably calculated to contribute to 
the maintenance of a fair and orderly market (Article XXXIV, Rule 1). 
Failure to properly clear the post may also subject the violator to a 
minor rule violation under the Exchange's Minor Rule Violation Plan.

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 self-regulatory organization 
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 self-regulatory organization 
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
    The purpose of the proposed rule change is to codify the Exchange's 
existing clearing the post policies in the CHX Guide. The clearing the 
post policy will become an interpretation and policy of CHX Article XX, 
Rule 10. The Exchange's clearing the post policies are currently 
contained in several Notices to Members which had been approved by the 
Commission.\2\ These Notices to Members, and their corresponding 
Approval Orders explain the Exchange's clearing the post requirements. 
No substantive change is being made to the clearing the post policy at 
this time.
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    \2\ Securities Exchange Act Release No. 33806 (March 23, 1994) 
59 FR 15248 (Notice of Filing and Immediate Effectiveness of file 
No. SR-CHX-94-03); Securities Exchange Act Release No. 17766 (May 8, 
1981) 46 FR 25745 (Order approving SR-MSE-81-3 and SR-MSE-81-5); and 
Securities Exchange Act Release No. 28638 (November 30, 1990) 55 FR 
49731 (Order approving SR-MSE-90-7).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \3\ in that it is designed to prevent fraudulent and manipulative 
acts and practices and to perfect the mechanism of a free and open 
market.
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    \3\ 15 U.S.C. 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 has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange pursuant to Section 
19(b)(3)(A) \4\ of the Act and subparagraph (e) of Rule 19b-4 \5\ 
thereunder. At any time within 60 days of the filing of such rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(e).
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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 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. 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 CHX. All 
submissions should refer to File No. SR-CHX-97-30 and should be 
submitted by December 17, 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. 97-31017 Filed 11-25-97; 8:45 am]
BILLING CODE 8010-01-M