Federal Register / Vol. 65, No. 27 / Wednesday, February 9, 2000 / Notices 6425

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the CHX requested that

the Commission approve extension of the pilot

program through May 1, 2000 instead of December

31, 2000 as initially proposed. Amendment No. 1

also removed proposed rule language that is

currently being considered in another Exchange

filing (SR–CHX–99–27). See letter from Kathleen M.

Boege, Associate General Counsel, CHX, to

Katherine A. England, Assistant Director, Division

of Market Regulation, Commission, dated January

28, 2000.

4See Amendment No. 1, supra note 3.

5See Securities Exchange Act Release No. 24424

(May 4, 1987), 52 FR 17868 (May 12, 1987) (order

approving File No. SR–MSE–87–2); see also,

Securities Exchange Act Release Nos. 28146 (June

26, 1990), 55 FR 27917 (July 6, 1990) (order

expending the number of eligible securities to 100);

36102 (August 14, 1995), 60 FR 43626 (August 22,

1995) (order expanding the number of eligible

securities to 500); 41392 (May 12, 1999), 64 FR

27839 (May 21, 1999) (order expanding the number

of eligible securities to 1,000).

6The MAX system may be used to provide an

automated delivery and execution facility for orders

that are eligible for execution under the Exchange’s

BEST Rule and certain other orders. See CHX Rules,

Art. XX, Rule 37(b). A MAX order that fits within

the BEST parameters is executed pursuant to the

BEST Rule via the MAX system. If an order is

outside the BEST parameters, the BEST rule does

not apply, by MAX system handling rules remain

applicable.

7See Securities Exchange Act Release No. 38119

(January 3, 1997), 62 FR 1788 (January 13, 1997).

8See Securities Exchange Act Release No. 39512

(December 31, 1997), 63 FR 1517 (January 9, 1998).

9See Securities Exchange Act Release No. 39823

(March 31, 1998), 63 FR 17246 (April 8, 1998).

10See Securities Exchange Act Release No. 40150

(July 1, 1998), 63 FR 36983 (July 8, 1998).

1. The Proposed Exchange will

comply with the terms of rule 17a–7(b)

through (f).

2. The Proposed Exchange will not

occur unless and until the Board

(including a majority of the Independent

Trustees) finds that participation by the

ARK Portfolios in the Proposed

Exchange is in the best interests of each

ARK Portfolio and that the interests of

existing shareholders of the ARK

Portfolio will not be diluted as a result

of the transaction. These findings, and

the basis upon which they are made,

will be recorded fully in the minute

books of ARK Funds.

3. The Proposed Exchange will not

occur unless and until AIA, as

investment manager and fiduciary of the

Allfirst Plan, has determined in

accordance with its fiduciary duties that

the Proposed Exchange is in the best

interests of the Allfirst Plan.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–2879 Filed 2–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42372; File No. SR–CHX–

99–27]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Stock

Exchange, Incorporated Relating to the

Trading of Nasdaq/NM Securities on

the CHX

January 31, 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 December

27, 1999, the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been prepared by the Exchange. On

January 31, 2000, the CHX submitted to

the Commission 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 and to

grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange has requested a threemonth extension of the pilot program

relating to the trading of Nasdaq/NM

securities on the Exchange. Specifically,

the pilot program proposes to amend

Article XX, Rule 37 and Article XX,

Rule 43 of the Exchange’s rules. The

current pilot expires on January 31,

2000. The Exchange proposes to extend

the rules governing trading of Nasdaq/

NM securities on the Exchange through

May 1, 2000.4

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 III below. The

Exchange 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

On May 4, 1987, the Commission

approved certain Exchange rules and

procedures relating to the trading of

Nasdaq/NM securities on the

Exchange.5 Among other things, these

rules rendered the Exchange’s BEST

Rule guarantee (Article XX, Rule 37(a))

applicable to Nasdaq/NM securities and

made Nasdaq/NM securities eligible for

the automatic execution feature of the

Exchange’s Midwest Automated

Execution System (the ‘‘MAX’’ system).6

On January 3, 1997, the Commission

approved,7 on a one year pilot basis, a

program that eliminated the

requirement that CHX specialists

automatically execute orders for

Nasdaq/NM securities when the

specialist is not quoting at the national

best bid or best offer disseminated

pursuant to Exchange Act Rule 11Ac1–

1 (the ‘‘NBBO’’). When the Commission

approved the program on a pilot basis,

it requested that the Exchange submit a

report to the Commission describing the

Exchange’s experience with the pilot

program. The Commission stated that

the report should include at least six

months of trading data. Due to

programming issues, the pilot program

was not implemented until April 1997.

Six months of trading data did not

become available until November 1997.

As a result, the Exchange requested an

additional three-month extension to

collect the data and prepare the report

for the Commission.

On December 31, 1997, the

Commission extended the pilot program

for an additional three months, until

March 31, 1998, to give the Exchange

additional time to prepare and submit

the report and to give the Commission

adequate time to review the report prior

to approving the pilot on a permanent

basis.8 The Exchange submitted the

report to the Commission on January 30,

1998. Subsequently, the Exchange

requested another three-month

extension, to give the Commission

adequate time to approve the pilot

program on a permanent basis.

On March 31, 1998, the Commission

approved the pilot for an additional

three-month period, until June 30,

1998.9 On July 1, 1998, the Commission

approved the pilot for an additional sixmonth period, until December 31,

1998.10 On December 31, 1998, the

Commission approved the pilot for an

additional six-month period, until June

6426 Federal Register / Vol. 65, No. 27 / Wednesday, February 9, 2000 / Notices

11See Securities Exchange Act Release No. 40868

(December 31, 1998), 64 FR 1845 (January 12, 1999).

12See Securities Exchange Act Release No. 41586

(June 30, 1999), 64 FR 36938 (July 8, 1999).

13See Amendment No. 1, supra note 3.

14The term ‘‘agency order’’ means an order for

the account of a customer, but does not include

professional orders, as defined in CHX Rules, Art.

XXX, Rule 2, Interp. and Policy .04. The rule

defines a ‘‘professional order’’ as any order for the

account of a broker-dealer, the account of an

associated person of a broker-dealer, or any account

in which a broker-dealer or an associated person of

a broker-dealer has any direct or indirect interest.

15The Exchange currently is seeking Commission

approval of a rule amendment that would lower the

auto-execution minimum to 300 shares in the case

of Nasdaq/NM securities. See SR–CHX–99–21.

16Specifically, the autoquote is currently for one

normal unit of trading (usually 100 shares) for

issues that became subject to mandatory

compliance with Exchange Act Rule 11Ac1–4 on or

prior to February 24, 1997 to 1,000 shares for other

issues.

17 15 U.S.C. 78f(b).

18 15 U.S.C. 78f(b)(5).

19 In reviewing this proposal, the Commission has

considered its impact on efficiency, competition

and capital formation. 15 USC 78c(f).

20 15 U.S.C. 78f(b)(5).

30, 1999.11 On June 30, 1999, the

Commission approved the pilot for an

additional seven-month period, until

January 31, 2000.12 The Exchange now

requests another extension of the

current pilot program, through May 1,

2000.13 On December 22, 1999, the

Exchange also submitted to the

Commission a report identical in format

to the Exchange’s report of January 30,

1998, to enable the Commission to

continue its review of the pilot program.

Under the pilot program, specialists

must continue to accept agency 14

market orders or marketable limit

orders, but only for orders of 100 to

1,000 shares of Nasdaq/NM securities

rather than the 2,099 share limit

previously in place. Specialists,

however, must accept all agency limit

orders in Nasdaq/NM securities from

100 up to and including 10,000 shares

for placement in the limit order book.

As described below, however,

specialists are required to automatically

execute Nasdaq/NM orders only if they

are quoting at the NBBO when the order

was received.

The pilot program requires the

specialists to set the MAX autoexecution threshold at 1,000 shares or

greater for Nasdaq/NM securities.15

When a CHX specialist is quoting at the

NBBO, orders for a number of shares

less than or equal to the auto-execution

threshold designated by the specialist

are executed automatically (in an

amount up to the size of the specialist’s

quote). Orders in securities quoted with

a spread greater than the minimum

variation are executed automatically

after a fifteen second delay from the

time the order is entered into MAX. The

size of the specialist’s bid or offer is

then automatically decremented by the

size of the execution. When the

specialist’s quote is exhausted, the

system will generate an autoquote at an

increment away from the NBBO, as

determined by the specialist from time

to time, for either 100 or 1,000 shares,

depending on the issue.16

When the specialist is not quoting a

Nasdaq/NM security at the NNBBO, it

can elect, on an order-by-order basis, to

manually execute orders in that

security. If the specialist does not elect

manual execution, MAX market and

marketable limit orders in that security

that are of a size equal to or less than

the auto-execution threshold will

automatically be executed at the NBBO,

provided that the auto-execution

threshold is less than or equal to the

NBBO. If the specialist elects manual

execution, the specialist must either

manually execute the order at the NBBO

or a better price or act as agent for the

order in seeking to obtain the best

available price for the order on a

marketplace other than the Exchange. If

the specialist decides to act as agent for

the order, the pilot program requires the

specialist to use order-routing systems

to obtain an execution where

appropriate. Market and marketable

limit orders that are for a number of

shares greater than the auto-execution

threshold are not subject to these

requirements, and may be canceled

within one minute of being entered into

MAX or designated as an open order.

2. Statutory Basis

The CHX believes that the proposed

rule 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).17 In particular, the

proposed rule is consistent with Section

6(b)(5) 18 of the Act 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.

The CHX’s proposal is intended to

conform CHX specialist obligations to

those applicable to OTC market makers

in Nasdaq/NM securities, while

recognizing that the CHX provides a

separate, competitive market for

Nasdaq/NM securities. The rules

establish execution procedures and

guarantees that attempt to provide

executions reflective of the best quotes

among OTC market makers and

specialists in Nasdaq/NM securities

without subjecting CHX specialists to

execution guarantees that are

substantially greater than those imposed

on their competitors.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any unnecessary or inappropriate

burden on competition.

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

including whether the proposal is

consistent with the Act. Persons making

written submission should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. 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. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Room. Copies of such filings will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CHX–99–27 and should be

submitted by March 1, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

Exchange’s proposal is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange.19 Specifically, the

Commission finds that the proposed

rule change is consistent with section

6(b)(5) 20 of the Act, which requires that

an Exchange have rules designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to remove

Federal Register / Vol. 65, No. 27 / Wednesday, February 9, 2000 / Notices 6427

21 15 U.S.C. 78k–1(a)(1)(C).

22 15 U.S.C. 78k–1(a)(1)(D).

23 23 See 1997 Order, supra note 7.

24 15 U.S.C. 78s(b)(2).

25 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Filing amended to clarify text of proposed rule

change by including (iii). Phone conversation

between Ernesto A. Lanza, Associate General

Counsel, MSRB, and Melinda R. Diller, Attorney,

Division of Market Regulation, Commission on

January 24, 2000.

impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest. The Commission also

believes that the proposal is consistent

with section 11A(a)(1)(C) 21 and

11A(a)(1)(D) 22 of the Act. The proposal

is consistent with section 11A(a)(1)(C)

in that it seeks to ensure economically

efficient execution of securities

transactions. Moreover, the proposal is

consistent with Section 11A(a)(1)(D) in

that it attempts to foster the linking of

markets for qualified securities through

communication and data processing

facilities.

The Commission notes, however, that

while the Exchange has been working

toward establishing a linkage,

specialists and OTC market makers do

not yet have an effective method of

routing orders to each other. The

Commission expects the Exchange to

continue to work towards establishing a

linkage with the Nasdaq systems as

requested in the January 1997 Order.23

In connection with this effort, the

Commission has requested an update on

the information provided in the

December 21, 1999 report using the

Exchange’s surveillance system. The

Commission requests that the Exchange

supplement the available trading data so

that it can consider issues concerning

the pilot program, including the

circumstances involving orders that are

not automatically executed through

MAX, whether orders are given the

NBBO shown at the time the order is

received or the NBBO posted at the time

the order is executed, and what

explanations are available for price

disimprovement. The Commission is

extending the pilot program for 90 days

so that the Exchange may compile this

data for the Commission’s review.

At the conclusion of this pilot’s

extension, the Commission requests that

the Exchange rewrite Article XX, Rule

37 and Article XX, Rule 43 of the

Exchange’s rules so these rules clearly

explain the difference between how

listed (or dually traded) securities and

over-the-counter (or Nasdaq/NM)

securities are routed and executed by

the Exchange, and submit the new

proposed language to the Commission

for review and approval. Additionally,

the Commission requests that the

Exchange include in its rules an

explanation of how the provisions of the

Exchange’s Best Rule interact with the

Exchange’s Rules governing automatic

execution of orders. Thus, the

Commission’s approval of the pilot

extension has several ramifications.

Approval will: (1) Allow the Exchange

to operate without interruption; (2)

provide a period for compilation of

additional data; and (3) allow the

Exchange to revise the language of the

existing rules for clarity and ease of

understanding in the public interest and

for protection of investors.

The Commission does not want to

interrupt the current operations of the

Exchange while the above-described

issues are being addressed. The

Commission, therefore, finds good cause

for approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register.

It Is Therefore Ordered, pursuant to

section 19(b)(2) 24 of the Act that the

proposed rule change (SR–CHX–99–27)

be, and hereby is, approved through

May 1, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–2882 Filed 2–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42374; File No. SR–MSRB–

99–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board to Amend Rule G–36

February 2, 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 December

10, 1999, the Municipal Securities

Rulemaking Board (‘‘MSRB’’ or the

‘‘Board’’) 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 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 Board has filed with the

Commission a proposed rule change to

amend Rule G–36, on delivery of official

statements, advance refunding

documents and Forms G–36(OS) and G–

36(ARD) to the Board or its designee.

The text of the proposed rule change is

set forth below. Deletions are in

brackets; additions are in italics.

Rule G–36—Delivery of Official

Statements, Advance Refunding

Documents and Forms G–36(OS) and

G–36(ARD) to Board or its Designee

(a)–(b) No Change.

(c) Delivery Requirements for Issues

not Subject to Securities Exchange Act

Rule 15c2–12.

(i) Subject to paragraph (iii) below,

each broker, dealer, or municipal

securities dealer that acts as an

underwriter in a primary offering of

municipal securities not subject to

Securities Exchange Act Rule 15c2–12

for which an official statement in final

form is prepared by or on behalf of the

issuer shall send to the Board or its

designee, by certified or registered mail,

or some other equally prompt means

that provides a record of sending,

[within] by the later of one business day

[of] after delivery of the securities by the

issuer to the broker, dealer, or

municipal securities dealer or one

business day after receipt of the official

statement in final form from the issuer

or its designated agent, the following

documents and written information: two

copies of the official statement in final

form[, if prepared by or on behalf of the

issuer]; and[, if an official statement in

final form is prepared,] two copies of

completed Form G–36(OS) prescribed

by the Board, including the CUSIP

number or numbers for the issue.

(ii)–(iii) 3 No change.

(d)–(f) No change.

* * * * *

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

MSRB 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