Federal Register / Vol. 65, No. 205 / Monday, October 23, 2000 / Notices 63273

10 15 U.S.C. 78f.

11 15 U.S.C. 78f(b)(5).

12Original Notice at 63 FR 66952.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 17 CFR 240.19b–4(f)(6).

4The Exchange has represented that the proposed

rule change: (i) Will not significantly affect the

protection of investors or the public interest; (ii)

will not impose any significant burden on

competition; and (iii) will not become operative for

30 days after the date of this filing, unless otherwise

accelerated by the Commission. The Exchange also

has provided at least five business days notice to

the Commission of its intent to file this proposed

rule change, as required by Rule 19b–4(f)(6) under

the Act. Id.

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 CBOE. All

submissions should refer to File No.

SR–CBOE–00–35 and should be

submitted by November 13, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

After careful review, the Commission

finds that the proposal is consistent

with Section 6 of the Act.10 In

particular, the Commission finds the

proposal consistent with Section 6(b)(5)

of the Act,11 which requires, among

other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade and to

protect investors and the public interest.

The Commission finds that it is in the

public interest to encourage the

Exchange to expand its implementation

of ABP. The broader the implementation

of ABP, the more likely customer limit

orders will, where appropriate, be given

priority over other interest on the

Exchange. On the other hand,

implementation of ABP may also expose

market makers to an unfair risk of

financial loss where the market in an

underlying stock moves significantly

and quickly in a direction that makes a

price established by a booked order

substantially better than the price

calculated by CBOE’s Autoquote

formula.12 The Commission approves

this extension of the Pilot in order to

permit the mitigation of these risks

while encouraging the Exchange to more

broadly implement ABP. At the same

time, this extension will provide the

Commission an opportunity to evaluate,

while the Pilot is still in effect, the

Trigger and ABP Split price proposals

designed to reduce the number of RAES

rejects pursuant to the Pilot.

Finally, the Commission plans to

evaluate the continued impact of the

Pilot on ABP executions, as well as the

impact of any related rule proposals

approved and implemented during the

Pilot, based on statistical data provided

by the Exchange. Accordingly, 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.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–00–

35) is hereby approved through

February 21, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–27133 Filed 10–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43444; File No. SR–CHX–

00–32]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of a Proposed Rule Change by the

Chicago Stock Exchange, Incorporated

Relating to Partial Automatic

Execution of Orders for NASDAQ/NM

Issues

October 13, 2000.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4

thereunder,2 notice hereby is given

that on October 10, 2000, the Chicago

Stock Exchange, Incorporated (‘‘CHX’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in Items I, II and III

below, which Items have been prepared

by the Exchange. The Exchange has

designated the proposed rule change as

constituting a ‘‘non-controversial’’ rule

change under paragraph (f)(6) of Rule

19b–4 under the Act,3 which renders

the proposal effective upon receipt of

this filing by the Commission.4 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend the

CHX rule governing automatic

execution of orders for NASDAQ/NM

issues. Specifically, the Exchange

proposes to amend CHX Article XX,

Rule 37(b)(7)(ii), to provide ordersending firms with the option to select

partial automatic execution of orders

that are larger than the specialist’s autoexecution threshold in instances where

a specialist’s quote is away from the

national best bid or offer (‘‘NBBO’’). The

text of the proposed rule change is

available at the Commission or the CHX.

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 regarding the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange prepared summaries, set forth

in Section 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 Exchange proposes to amend the

CHX rules governing the execution of

NASDAQ/NM Securities. Specifically,

the Exchange proposes to amend CHX

Article XX, Rule 37(b)(7)(ii) to give

order-sending firms the option to

receive partial automatic executions if

their orders are larger than the

specialist’s auto-execution threshold

when the specialist’s quote is away from

the NBBO, or have these orders

manually executed in their entirety as

they are handled under the current rule.

The proposed amendments are intended

to bring the Exchange’s rules in line

with the practices that currently exist in

other markets with respect to the trading

of NASDAQ/NM Securities.

63274 Federal Register / Vol. 65, No. 205 / Monday, October 23, 2000 / Notices

5 If the specialist’s quote is at the NBBO, the

execution size is subject to the specialist’s firm

quote obligations.

6 15 U.S.C. 78f(b).

7 15 U.S.C. 78f(b)(5).

8 15 USC 78s(b)(3)(A).

9 17 CFR 240.19b–4(f)(6).

10For purposes only of accelerating the operative

date of this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

CHX Article XX, Rule 37, commonly

referred to as the ‘‘BEST Rule,’’ among

other things, guarantees automatic

executions if an order falls within

certain size parameters, i.e., the autoacceptance threshold and the autoexecution threshold. The auto-execution

threshold is an order size designated by

the specialist for each issue, up to

which size orders will be executed

automatically at the NBBO.5

CHX Article XX, Rule 37(b)(7)(ii)

currently provides that in instances

where a NASDAQ/NM specialist’s quote

is not at the NBBO, an order that is of

a size greater than the auto-execution

threshold for the security will not be

automatically executed, but will be

filled manually in accordance with the

specialist’s obligations under the BEST

Rule, and the manual handling

requirements of CHX Rule 43(d) of

Article XX.

Some of the Exchange’s order-sending

firms believe that prompt execution of

‘‘partial fills’’ may be advantageous for

their customers in many instances.

Therefore, the Exchange proposes this

rule change to provide an alternative to

these firms that would permit partial

automatic executions of orders larger

than the specialist’s auto-execution

threshold, upon the election of an ordersending firm. Amended CHX Rule

37(b)(7) would provide that in instances

where a NASDAQ/NM specialist’s quote

is not at the NBBO, an order that is of

a size greater than the auto-execution

threshold for the security will be

designated as an open order and filled

manually in accordance with he

specialist’s obligations under the BEST

Rule and the manual handling

requirements of Rule 43(d) of Article

XX, unless the customer sending the

order previously has indicated its

election to have such orders filled on a

partial basis, i.e., filled automatically up

to the auto-execution threshold, with

the balance of the order to be designated

as an open order.

The Exchange believes that the

proposed rule change is to the

advantage of those order-sending firms

and their customers that have a strong

preference for quick executions even in

circumstances where less than the entire

order is confirmed as filled. As set forth

above, the foregoing rule change is

intended to place the Exchange’s rules

in line with existing market practice

relating to the trading of NASDAQ/NM

Securities. The proposed rule change

thus necessarily contemplates certain

distinctions between transactions in

Dual Trading System issues and

NASDAQ/NM issues. The Exchange’s

Rules Committee and its Committee on

Floor Procedure, both of which are

populated by specialists in both issues,

approve all such distinctions. Both

committees concur that the proposed

rule change does not place specialists

on unequal footing based on the type of

issue traded, but merely reflects the

distinctions between the markets for

Dual Trading System issues and

NASDAQ/NM issues.

2. Statutory Basis

The proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder that are applicable to a

national securities exchange, and, in

particular, with the requirements of

section 6(b).6 In particular, the proposed

rule change is consistent with section

6(b)(5) of the Act 7 in that it is designed

to promote just and equitable principles

of trade, to remove impediments and to

perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement of 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 Regarding the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change has been

filed by the Exchange as a ‘‘noncontroversial’’ rule change pursuant to

section 19(b)(3)(A) of the Act 8 and

subparagraph (f)(6) of Rule 19b–4

thereunder.9 The proposed rule change:

(i) Does not significantly affect the

protection of investors or the public

interest; (ii) does not impose any

significant burden on competition; and

(iii) does not become operative until

thirty days after the date of filing, or

such shorter time as the Commission

may designate if consistent with the

protection of investors and the public

interest, provided that the Exchange has

given the Commission written notice of

its intent to file the proposed rule

change, along with a brief description

and text of the proposed rule change, at

least five business days prior to the date

of filing of the proposed rule change, or

such shorter time as designated by the

Commission.

The Exchange has requested that the

Commission accelerate the operative

date of the proposal. In addition, the

Exchange provided the Commission

with written notice of its intent to file

the proposed rule change, along with a

brief description and text of the

proposed rule change, more than five

business days prior to the date of the

filing the proposed rule change.

The Commission finds that it is

appropriate to accelerate the operative

date of the proposal and designate the

proposal to become operative today.10

The Commission finds that it is

appropriate to accelerate the operative

date of the proposed rule change

because the change will provide

investors who have a preference for

quick executions the efficiency of

automatic execution, even in

circumstances where less than the entire

order is confirmed as filled. For this

reason, and because use of the partial

execution feature is completely

voluntary on the part of investors, the

Commission finds that designation of

the proposal to become operative today

is consistent with the protection of

investors and the public interest.

Further, the Commission expects that

with the advent of this proposed rule,

more investors will receive executions

at the NBBO because they will be able

to elect to receive automatic executions

that are guaranteed to be at the NBBO,

instead of relying entirely on less

certain manual executions.

At any time within 60 days of the

filing of the proposed 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 Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Federal Register / Vol. 65, No. 205 / Monday, October 23, 2000 / Notices 63275

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, NASD Regulation

proposes to amend the proposed rule language.

Specifically, Amendment No. 1 clarifies that if the

equity in a customer’s margin account falls below

applicable requirements, an NASD member firm

can force the sale of any of the securities in any of

the customer’s accounts held at the firm and such

liquidations are not limited to the customer’s

margin account. Additionally, NASD Regulation

deletes the phrase ‘‘under the law’’ from its original

filing to clarify that maintenance margin

requirements are requirements of self-regulatory

organizations. See Letter from Alden S. Adkins,

General Counsel and Senior Vice President, NASD

Regulation, to Katherine A. England, Assistant

Director, Division of Market Regulation,

Commission, dated September 25, 2000.

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 at

the Commission’s Public Reference

Room. Copies of the 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–00–32 and should be

submitted by November 13, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–27135 Filed 10–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43441; File No. SR–NASD–

00–55]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to the Delivery

Requirement of a Margin Disclosure

Statement to Non-Institutional

Customers

October 12, 2000.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on

September 5, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’),

filed with the Securities and Exchange

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

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by NASD

Regulation. On September 26, 2000, the

NASD submitted Amendment No. 1 to

the proposed rule change.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to add

a new NASD Rule 2341 to require its

members to deliver to their noninstitutional customers, prior to or at the

opening of a margin account, a specified

disclosure statement that discusses the

operation of margin accounts and the

risk associated with trading on margin.

NASD Regulation also proposes to

require NASD members to deliver the

specified disclosure statement to their

non-institutional customers with margin

accounts on an annual basis. Below is

the test of the proposed rule change.

Proposed new language is in italics.

Rule 2341. Margin Disclosure Statement

(a) No member shall open a margin

account, as specified in Regulation T of

the Board of Governors of the Federal

Reserve System, for or on behalf of a

non-institutional customer, unless, prior

to or at the time of opening the account,

the member has furnished to the

customer, individually, in writing or

electronically, the following margin

disclosure statement:

Your brokerage firm is furnishing this

document to you to provide some basic

facts abut purchasing securities on

margin, and to alert you to the risks

involved with trading securities in a

margin account. Before trading stocks in

a margin account, you should carefully

review the margin agreement provided

by your firm. Consult your firm

regarding any questions or concerns you

may have with your margin accounts.

When you purchase securities, you

may pay for the securities in full or you

may borrow part of the purchase price

from your brokerage firm. If you choose

to borrow funds from your firm, you will

open a margin account with the firm.

The securities purchased are the firm’s

collateral for the loan to you. If the

securities in your account decline in

value, so does the value of the collateral

supporting your loan and, as a result the

firm can take action, such as issue a

margin call and/or sell securities in any

of your accounts held with the member,

in order to maintain the required equity

in the account.

It is important that you fully

understand the risks involved in trading

securities on margin. These risks

include the following:

• You can lose more funds than you

deposit in the margin account A decline

in the value of securities that are

purchased on margin may require you

to provide additional funds to the firm

that has made the loan to avoid the

forced sale of those securities or other

securities in your account(s).

• The firm can force the sale of

securities in your account(s). If the

equity in your account falls below the

maintenance margin requirements of

the firm’s higher ‘‘house’’ requirements,

the firm can sell the securities in any of

your accounts held at the firm to cover

the margin deficiency. You also will be

responsible for any short fall in the

account after such a sale.

• The firm can sell your securities

without contacting you. Some investors

mistakenly believe that a firm must

contact them for a margin call to be

valid, and that the firm cannot liquidate

securities in their accounts to meet the

call unless the firm has contacted them

first, This is not the case. Most firms will

attempt to notify their customers of

margin calls, but they are not required

to do so. However, even if a firm has

contacted a customer and provided a

specific date by which the customer can

meet a margin call, the firm can still

take necessary steps to protect its

financial interests, including

immediately selling the securities

without notice to the customer.

• You are not entitled to choose

which securities in your account(s) are

liquidated or sold to meet a margin call.

Because the securities are collateral for

the margin loan, the firm has the right

to decide which security to sell in order

to protect its interests.

• The firm can increase its ‘‘house’’

maintenance margin requirements at

any time and is not required to provide

you advance written notice. These

changes in firm policy often take effect

immediately and may result in the

issuance of a maintenance margin call.

Your failure to satisfy the call may

cause the member to liquidate or sell

securities in your account(s).

• You are not entitled to an extension

of time on a margin call. While an

extension of time to meet margin

requirements may be available to

customers under certain conditions, a

customer does not have a right to the

extension.