[Federal Register Volume 65, Number 205 (Monday, October 23, 2000)]
[Notices]
[Pages 63273-63275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27135]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
    \4\ The 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.
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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 order-
sending firms with the option to select partial automatic execution of 
orders that are larger than the specialist's auto-execution 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.

[[Page 63274]]

    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 auto-acceptance threshold and 
the auto-execution 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\
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    \5\ If the specialist's quote is at the NBBO, the execution size 
is subject to the specialist's firm quote obligations.
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    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 order-sending 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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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 ``non-
controversial'' 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.
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    \8\ 15 USC 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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     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.
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    \10\ For 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).
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    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

[[Page 63275]]

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\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27135 Filed 10-20-00; 8:45 am]
BILLING CODE 8010-01-M