71164 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices

6To better the market, the quote would have to

improve the CHX quote by one quoting increment,

or otherwise cause the specialist to change the

existing CHX quotation. Currently, Article XX, Rule

7, Interpretation .05 requires a specialist to input

any bids or offers that increase the size that has

been bid or offered at the current price. The CHX

has proposed an amendment to this provision in

SR–CHX–99–18, which is pending with the

Commission.

7An exposable order will be defined in the

proposed rule change as ‘‘all or any part of an order

for more than 100 shares that is either (i) a market

order or (ii) a limit order that is at or better than

the ITS best bid or offer or the national best bid or

offer.’’

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78k.

10 15 U.S.C. 78f(b)(5).

11 17 CFR 240.11b–1.

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

Exchange’s quotation system. The

proposal would require bids or offers

that better the Exchange market 6 to be

provided to the specialist via written

ticket, or by any other form agreed upon

by the specialist and market maker or

floor broker. The proposed rule change

also contains a similar requirement for

limit orders left with the specialist by

market makers or floor brokers.

The CHX is making a few changes to

its CHX Rule 10 of Article XX. The first

change would reflect the changes made

to CHX Rule 7 of Article XX by

removing the audibalization

requirement. Because bids and offers

will have to be provided to the

specialist for input into the Exchange’s

quotation system, the audibalization

requirement is no longer necessary. The

proposed rule change also adds

language to require specialists to adhere

to agency/auction market principles.

Among other things, specialists are

required to clear the post of exposable

orders they received on the floor.7 Thus,

a specialist would not be permitted to

route exposable orders to another

market until the specialist has first

exposed the portion of the order that he

intends to route to another market to

market makers and floor brokers at the

post. The intent of the proposed rule

change is to extend to specialists the

requirement of clearing the post that

now applies to orders received by floor

brokers and market makers on the floor

of the Exchange. The CHX believes it is

consistent with exchange auction

market principles to require all market

orders and marketable or displayable

limit orders received by the specialist to

have the opportunity to interact with

other interest on the Exchange floor

before being routed to another market.

Finally, the CHX is proposing to

amend CHX Rule 37 of Article XX to

limit the automtic execution feature of

MAX, the Exchange’s automatic

execution system, for limit orders at or

less than the specialist’s auto

acceptance level. Currently, if a

specialist chooses to activate the limit

order auto-ex feature, he must do so for

all limit orders on the book regardless

of size. By allowng the specialist to

automatically execute these limit orders

only when the orders are of a size at or

less than his auto acceptance level, the

specialist will be required to present

larger orders to the crowd as required by

the new market maker participation

rules. Of course, specialists will still be

obligated to exercise care and diligence

to provide quality executions to

manually handled limit orders if the

two conditions of paragraph (b)(12) of

CHX Rule 37 of Article XX are triggered

by executions in the primary market.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6 8 and Section 11 9 of the Act. The

proposal furthers the objectives of

Section 6(b)(5) 10 of the Act in particular

in that it should promote just and

equitable principles of trade, serve to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and

protect investors and the public interest.

The proposal is also consistent with

Rule 11b–1 11 of the Act because it is

designed to require specialists and

market makers to assist in the

maintenance of a fair and orderly

market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change does not impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act. The CHX

believes that the proposed rule change

will enhance competition on the

Exchange by providing an incentive for

the CHX market makers to aggressively

compete on quotes.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the Exchange consents,

the Commission will:

(A) by order approve such proposed

rule change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

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

Commission, 450 Fifth Street, N.W.,

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 the CHX. All

submissions should refer to File No.

SR–CHX–00–34 and should be

submitted by December 20, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30375 Filed 11–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43577; File No. SR–CHX–

00–37]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 by the Chicago

Stock Exchange, Incorporated,

Relating to the Exchange’s SuperMAX

2000 Price Improvement Program

November 16, 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 November

Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 71165

3See November 15, 2000 letter from Kathleen M.

Boege, Associate General Counsel, CHX, to Joseph

Morra, Special Counsel, Division of Market

Regulation, SEC (‘‘Amendment No. 1’’). In

Amendment No. 1, the CHX made a minor,

technical correction to the language of proposed

Rule 37(h).

4See Securities Exchange Act Release No. 35753

(May 22, 1995), 60 FR 28007 (May 26, 1995)(SR–

CHX–95–08).

6, 2000, 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 Exchange.

On November 16, 2000, the CHX

amended the proposal.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, 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 rules governing its voluntary price

improvement programs. Specifically,

the Exchange proposes to amend Article

XX, Rule 37 to add a new price

improvement algorithm entitled

SuperMAX 2000, applicable to all issues

trading in decimal price increments.

The CHX anticipates that SuperMAX

2000 will supplant all of the Exchange’s

existing price improvement algorithms

upon completion of the securities

industry transition to decimal pricing.

The text of the proposed rule change is

below. Additions are in italics.

ARTICLE XX

Regular Trading Sessions

* * * * *

Guaranteed Execution System and

Midwest Automated Execution System

Rule 37.

* * * * *

(h) SuperMAX 2000

SuperMAX 2000 shall be a voluntary

automatic execution program within the

MAX System. SuperMAX 2000 shall be

available for any security trading on the

Exchange in decimal price increments.

A specialist may choose to enable this

voluntary program within the MAX

System on a security-by-security basis.

(1) Pricing

(i) In the event that an order to buy

or sell at least 100 shares is received in

a security in which SuperMAX 2000 has

been enabled, such order shall be

executed at the ITS Best Offer or NBO

(for a buy order) or the ITS Best Bid or

NBB (for a sell order) if (A) the spread

between the ITS Best Bid and the ITS

Best Offer (or NBB or NBO, for Nasdaq/

NM issues) in such security at the time

the order is received is less than $.03.

(ii) In the event that an order to buy

or sell 100 shares is received in a

security in which SuperMAX 2000 has

been enabled, and (a) the spread

between the ITS Best Bid and the ITS

Best Offer (or NBB and NBO, for

Nasdaq/NM issues) in such security at

the time the order is received is $.03 or

greater, such order shall be executed

(subject to the short sale rule) at a price

at least $.01 lower than the ITS Best

Offer or NBO (for a buy order) or at least

$.01 higher than the ITS Best Bid or

NBB (for a sell order).

(iii) In the event that an order to buy

or sell more than 100 shares is received

in a security in which SuperMAX 2000

has been enabled, such order shall be

executed at the ITS Best Offer or NBO,

or better (for a buy order) or the ITS Best

Bid or NBB, or better (for a sell order)

as the specialist may designate and as

is approved by the Exchange.

(2) Operating Time. SuperMAX 2000

will operate each day that the Exchange

is open for trading from the

commencement of the Primary Trading

Session until the close of the Primary

Trading Session; provided, however,

that preopening orders shall not be

eligible for SuperMAX 2000 price

improvement. A specialist may enable

or remove SuperMAX 2000 for a

particular security only on one given

day each month, as determined by the

Exchange from time to time.

Notwithstanding the previous sentence,

during unusual market conditions,

individual securities or all securities

may be removed from SuperMAX 2000

with approval of two members of the

Committee on Floor Procedure.

(3) Timing. Orders entered into

SuperMAX 2000 shall be immediately

executed upon completion of the

foregoing price improvement algorithm

without any delay (i.e., in 0 seconds).

(4) Applicability to Odd Lots.

Although an order generated by the

Odd-Lot Execution Service (‘‘OLES’’) is

a professional order (because it is

deemed to be for the account of a

broker-dealer), it is nonetheless eligible

for SuperMAX 2000 execution if (i) the

order is for 100 to 199 shares and (ii) the

order is an OLES passively-driven

system-generated market order (and not

an actively managed order).

(5) Out of Range. Notwithstanding

anything herein to the contrary,

SuperMAX 2000 will not automatically

execute an order if such execution

would result in an out of range

execution.

(6) Other. Any eligible order in a

security for which SuperMAX 2000 has

been enabled which is manually

presented at the post by a floor broker

must also be guaranteed an execution

by the specialist pursuant to the pricing

criteria set forth in paragraph (1) above.

If the contra side order which would

better a SuperMAX 2000 execution is

presented at the post, the incoming

order which is executed pursuant to the

SuperMAX 2000 criteria must be

adjusted to the better price.

* * * * *

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 on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV 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

According to the CHX, the primary

purpose of the proposed rule change is

to increase the number of orders that are

eligible for price improvement and to

afford CHX specialists the opportunity

to provide price improvement

alternatives equal to or more favorable

than existing alternatives.

Background

On May 22, 1995, the Commission

approved a proposed CHX rule change

that allows specialists on the Exchange,

through the Exchange’s MAX system, to

provide order execution guarantees that

are more favorable than those required

under CHX Rule 37(a), Article XX.4 That

approval order contemplated that the

CHX would file with the Commission

specific modifications to the parameters

of MAX that are required to implement

various options under this new rule.

SuperMAX, Enhanced SuperMAX,

SuperMAX Plus and Derivative

SuperMAX are four existing CHX

programs within the MAX system that

use computerized algorithms to provide

automated price improvement. The

Commission has approved each of these

71166 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices

5See Securities Exchange Act Release Nos. 40017

(May 20, 1998), 63 FR 29277 (May 28, 1998)(SR–

CHX–98–9) and 40235 (July 17, 1998), 63 FR 40147

(July 27, 1998), (SR–CHX–98–09)(orders approving

revised SuperMAX and Enhanced SuperMAX

algorithms); 41480 (June 4, 1999), 64 FR 32570

(June 17, 1999)(SR–CHX–99–04)(order approving

revised SuperMAX Plus algorithm); and 42565

(March 22, 2000), 65 FR 16442 (March 28,

2000)(SR–CHX–99–24)(order approving Derivative

SuperMAX algorithm).

6The Exchange anticipates that its existing price

improvement programs, which have been amended

on a pilot basis to include decimal price

increments, would become obsolete once the pilot

expires on February 28, 2001. In accordance with

an Exchange rule approved by the Commission, the

four existing price improvement programs would be

deemed deleted from the Exchange’s rules upon the

completion of the securities industry transition to

a decimal pricing environment. See Article XXB,

Rule 4, which provides, in pertinent part, that all

rule references to fractional price increments shall

be deemed deleted.

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

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

price improvement programs on a

permanent basis.5

The Exchange believes that, for it to

remain competitive, its specialists must

be able to swiftly and meaningfully

respond to the price improvement

considerations articulated by the

Exchange’s order sending firms and

their customers. To this end, the

Exchange proposes the following change

to its existing price improvement

program.

Proposal

At present, Exchange specialists may

voluntarily participate, on an issue-byissue basis, in one of the four price

improvement programs referenced

above. Each of the existing price

improvement programs provides for a

fixed amount of price improvement)

when the national BBO spread meets

certain spread parameters (e.g., in

SuperMAX Plus, $.01 on a BBO spread

of $.03 on orders from 100 to 199

shares).

Under the proposed SuperMAX 2000,

customers would be guaranteed the

same minimum amount of price

improvement they would receive under

SuperMAX Plus (i.e., $.01 on a spread

of $.03 on orders of 100 shares) if a

specialist has enabled SuperMAX 2000;

in addition, specialists would be

permitted to provide additional

automated price improvement on an

issue-by-issue basis. This opportunity

for additional price improvement would

exist for all orders of 100 shares or

greater.

The Exchange believes that

SuperMAX 2000 will provide CHX

specialists with the requisite flexibility

to respond to customer price

improvement requirements in a decimal

pricing environment. Significantly, the

proposal contemplates equality among

order-sending firms (and their

customers) by mandating that CHX

specialists provide additional price

improvement on an issue-by-issue basis;

specialists would not be permitted to

distinguish among order-sending firms

when designating price improvement

levels.

The Exchange also believes that

SuperMAX 2000 would simplify the

Exchange’s existing price improvement

framework by eliminating multiple

price improvement programs with

different names, requirements and

results.6 By replacing four existing price

improvement programs with one

comprehensive program that will

incorporate (as a minimum threshold)

the level of price improvement currently

available, the Exchange will afford its

specialists the flexibility to provide a

wide variety of price improvement

alternatives, all of which will be equal

to or more favorable than existing

alternatives.

2. Statutory Basis

The CHX believes 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 on Burden on Competition.

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the Exchange consents,

the Commission will:

A. By order approve such proposed

rule change, or

B. Institute proceedings to determine

whether the proposed rule change

should be disapproved.

The CHX has requested accelerated

approval of the proposed rule change.

While the Commission is not prepared

to grant accelerated approval at this

time, the Commission will consider

granting accelerated approval of the

proposal at the close of an abbreviated

comment period of 15 days from the

date of publication of the proposal in

the Federal Register.

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

Commission, 450 Fifth Street, N.W.,

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 filings will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to file number

SR–CHX–00–37 and should be

submitted by December 14, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30379 Filed 11–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43565; File No. SR–CHX–

00–36]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by The

Chicago Stock Exchange; Incorporated

Relating to the Trading of Nasdaq/NM

Securities on the CHX

November 15, 2000.

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

Securities Exchange Act of 1934

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