10102 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Notices

5 17 CFR 200.30–3(a)(12).

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

2See Securities Exchange Act Release No. 35753

(May 22, 1995), 60 FR 28007.

3See Securities Exchange Act Release No. 36027

(July 27, 1995), 60 FR 39465.

4See Securities Exchange Act Release No. 37491

(July 29, 1996), 61 FR 48690.

5See Securities Exchange Act Release No. 38098

(December 30, 1996), 62 FR 1008. Commission note:

The CHX Form 19b–4 filing indicates incorrectly

that the pilot program was extended until March 31,

1997.

6See Securities Exchange Act Release No. 30058

(December 10, 1991), 56 FR 65765. 7 15 U.S.C. 78f(b)(5).

should refer to File No. SR–CBOE–97–

07 and should be submitted by March

26, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–5373 Filed 3–4–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38338; File No. SR–CHX–

97–02]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Stock

Exchange, Incorporated Relating to

Enhanced SuperMAX

February 26, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

January 30, 1997, 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 self-regulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval to the

proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange requests permanent

approval of its Enhanced SuperMAX

pilot program, as amended, located in

subsection (e) of Rule 37 of Article XX.

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 organizations 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 22, 1995, the Commission

approved a proposed rule change of the

CHX 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.2 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 available under this new rule.

On July 27, 1995, the Commission

approved a proposed rule change of the

CHX that implemented two options

available under this new rule.3 These

two new options, Enhanced SuperMAX

and Timed Enhanced SuperMAX, we

approved on a pilot basis until July 31,

1996. The Commission extended the

pilot program until December 31, 1996

and requested that the CHX provide a

report to the Commission, by August 31,

1996,4 describing its experience with

the pilot program. On August 30, 1996,

the CHX submitted the report. Most

recently, the Commission extended the

pilot program until March 1, 1997.5 In

connection with the extension, the CHX

agreed to provide additional data to the

Commission regarding the pilot. On

January 31, 1997, the Exchange

submitted this data.

The purpose of the proposed rule

change is to request permanent approval

of the pilot program, as amended by this

filing. Specifically, the Exchange is

combining the two options currently

available under the pilot program into

one option, to be called Enhanced

SuperMAX. Enhanced SuperMAX was

merely a reactivation of the Exchange’s

Enhanced SuperMAX program, a

program originally approved by the

Commission on a pilot basis in 1991.6

The proposed Enhanced SuperMAX

program differs from the original pilot

program approved in 1991 in that it is

available starting at 8:45 a.m. instead of

9:00 a.m. This program also differs from

the Exchange’s SuperMAX program in

that under this program, certain orders

are ‘‘stopped’’ at the consolidated best

bid or offer and are executed with

reference to the next primary market

sale instead of the previous primary

market sale.

The Enhanced SuperMAX program, as

amended by this filing, also includes all

of the features of the pilot version of the

Timed Enhanced SuperMAX program.

Essentially, the new Enhanced

SuperMAX program will execute orders

in the same manner as the pilot

Enhanced SuperMAX program, except

that if there are no executions in the

primary market after the order has been

stopped for a designated time period,

the order is executed at the stopped

price at the end of such period. Such

period, known as a time out period, is

pre-selected by a specialist on a stockby-stock basis based on the size of the

order, may be changed by a specialist no

more frequently than once a month, and

may be no less than 30 seconds.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b)(5) 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.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose a

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No comments were solicited or

received.

III. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission has carefully

reviewed the Exchange’s proposed rule

change and, for the reasons set forth

below, finds that the proposed rule

change, as amended by this filing, is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to the Exchange,

and, in particular, with Section 6(b)(5)7

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
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Notices 10103

8See Securities Exchange Act Release No. 28014

(May 14, 1990), 55 FR 20880.

9Supra note 6.

10Securities Exchange Act Release No. 32631

(July 14, 1993), 58 FR 30969 (order approving

SuperMAX permanently).

11 Id.

12Report of the Chicago Stock Exchange Relating

to the Enhanced SuperMAX and Timed Enhanced

SuperMAX Pilot Programs (August 30, 1996) at 1

(‘‘First Report’’) (covering the three month period

ending August 27, 1996); Second Report of the

Chicago Stock Exchange Relating to the Enhanced

SuperMAX and Timed Enhanced SuperMAX Pilot

Programs (January 30, 1997) at 1 (‘‘Second Report’’)

(covering the three month period ending January

20, 1997).

13First Report, supra note 12 at 1; Second Report,

supra note 12 at 1.

14First Report, supra note 12 at 2.

15Second Report, supra note 12 at 2.

16 Id.

open market and a national market

system, and, in general, to protect

investors and the public interest.

The proposed rule change provides

for a modified version of the SuperMAX

system. SuperMAX is a system that

automatically improves executions of

small agency market orders from the

consolidated best bid or offer according

to certain predefined criteria, including

the last sale in the primary market. In

1990, the Commission first approved

SuperMAX on a pilot basis.8 In 1991,

the Commission approved Enhanced

SuperMAX on a pilot basis to run

concurrently with SuperMAX, which

was still on a pilot at that time.9 This

program differed from the Exchange’s

SuperMAX program in that under this

program, certain orders are ‘‘stopped’’ at

the consolidated best bid or offer and

are executed with reference to the next

primary market sale instead of the

previous primary market sale. The

Exchange sought approval of the

Enhanced SuperMAX and SuperMAX

systems to evaluate both systems and to

determine which system it wanted to

implement.

In 1993, the Exchange chose to

implement SuperMAX rather than

Enhanced SuperMAX and sought

approval of SuperMAX on a permanent

basis. The Commission permanently

approved SuperMAX, believing that the

automated execution feature of

SuperMAX would provide a more

efficient means of bettering the

execution price on a large volume of

electronically delivered market orders

than through manual processing.10 The

Enhanced SuperMAX pilot expired in

1993 without the Exchange requesting

an extension or permanent approval. In

the initial Enhanced SuperMAX pilot

approval order, the Commission had

described its concerns with the program

and requested that the Exchange submit

a report detailing the use of the pilot.

The Exchange, however, did not submit

a report because specialists on the

Exchange made little or no use of the

pilot program.11 Since the Exchange

revived the Enhanced SuperMAX pilot

program in 1995 (and at the same time

requested the Commission approve a

pilot of Timed Enhanced SuperMAX),

according to reports submitted by the

Exchange, no orders have been executed

in the Enhanced SuperMAX program

because no specialist has chosen this

option.12 According to the Exchange,

there are two reasons for the lack of use

of this option. First, there has been no

interest in this option from customers.

Second, competitors (especially third

market firms) now give executions with

a time-out feature that is akin to Timed

Enhanced SuperMAX. As a result, the

Exchange states, customers have come

to expect, and now desire, an execution

after a designated time period.13

The Exchange has revised the rule to

combine Enhanced SuperMAX and

Timed Enhanced SuperMAX into one

option, Enhanced SuperMAX, as

amended, which preserves the option of

the Enhanced SuperMAX in its pilot

form while recognizing that customers

have almost exclusively chosen the

Timed Enhanced SuperMAX option. As

a result, if a specialist has selected a

time-out period, and there is a sale

during the time-out period, the

execution price is the same as it would

have been under Enhanced SuperMAX.

If, however, there is no sale in the

primary market during the time-out

period, execution will occur at the

stopped price at the end of the time-out

period.

The Commission finds appropriate

the combining of the two options

currently available under the pilot

program into one option, now called

Enhanced SuperMAX, even if no orders

have been executed on the Enhanced

SuperMAX pilot program. With this

approach, the Exchange has streamlined

the rule and also preserved the option

for customers to use the former

Enhanced SuperMAX option. This

approach also eliminates the need for

the Exchange to apply to the

Commission for a re-activation of the

Enhanced SuperMAX option.

The Commission finds that the

pricing and execution features of

Enhanced SuperMAX, as amended, are

not inconsistent with the maintenance

of fair and orderly auction markets on

national securities exchanges and the

protection of investors. The execution

criteria of Enhanced SuperMAX, as

amended, should contribute to an

orderly market because they help to

reduce the price variations from trade to

trade on low volume.

The Commission recognizes that the

increased competition that results from

permitting regional specialists to attract

orders from other markets by providing

superior quotations and more efficient

order executions generally enhances

market making ability and the quality of

customer order executions. The

Commission believes the automated

pricing parameters and execution

procedures of the Enhanced SuperMAX

system, as amended, may enhance

competition by opening an alternative

electronic order routing and execution

system for smaller size orders.

Although the Commission finds that

Enhanced SuperMAX, as amended,

would not automatically provide a 1⁄8

point price improvement, it would

provide some opportunity for price

improvement. The Exchange indicated

in the First Report that 38% of the

eligible orders under the Timed

Enhanced SuperMAX algorithm

received price improvement,4 and in the

Second Report that 44% of the eligible

orders under the Timed Enhanced

SuperMAX algorithm received price

improvement.15 As part of the Second

Report, the Exchange provided a

comparison of executions occurring on

one day under SuperMAX and Timed

Enhanced SuperMAX (Enhanced

SuperMAX, as amended) for a single

stock, Nike, Inc. Under the SuperMAX

algorithm, 12 of 81 eligible trades

received 1⁄8 point price improvement.

The Exchange determined that if Nike,

Inc, had been on Timed Enhanced

SuperMAX, rather than SuperMAX,

between two and twelve orders would

have received price improvement,

depending on the length of the time-out

period. If the time-out period had been

set at 30 seconds, only two orders

would have been price improved. If the

time-out period had been set at 30

seconds, only two orders would have

been priced improved. If the time-out

period had been set at 5 minutes, 12

orders would have been price improved,

and one of those orders would have

received 1⁄4 price improvement. The

Exchange concluded that Timed

Enhanced SuperMAX could provide

greater price improvement than the

SuperMAX algorithm under certain

circumstances.16

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication thereof in the Federal

Register. The Commission believes that

it is appropriate to approve the

proposed rule change on an accelerated
10104 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Notices

17Securities Exchange Act Release No. 37497

(November 13, 1996), 61 FR 59124.

18 15 U.S.C. 78f.

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12)

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

2A copy of the Policy marked to show the

specific changes to DTC’s procedures is attached as

Exhibit C to DTC’s proposed rule change which is

available for inspection and copying at the

Commission’s Public Reference Room or through

DTC.

3The Commission has modified the text of the

summaries prepared by DTC.

4For a complete description of the procedures

relating to the Policy, refer to Securities Exchange

Act Release Nos. 23219 (May 8, 1986), 51 FR 17845

[SR–DTC–03] (notice of filing and immediate

effectiveness on a temporary basis of a proposed

rule change); 23686 (October 7, 1986), 51 FR 37104

[SR–DTC–86–4] (order permanently approving

proposed rule change); 26070 (September 9, 1988)

53 FR 36142 [SR–DTC–88–17] (notice of filing and

immediate effectiveness of proposed rule change

clarifying that charge back proceedings apply to

DTC’s same-day funds settlement system and nextday funds settlement system); and 35452 (March 7,

1995), 60 FR 13743, [SR–DTC–95–03] (notice of

filing and immediate effectiveness of proposed rule

change excluding money market instrument

programs from DTC’s charge back and return of

funds procedures).

5The Policy also allows DTC to return previously

credited payments upon written request from a

paying agent within ten business days of the

payable date due to an error by the paying agent.

The proposed rule change does not alter this

position of the Policy.

6Under the proposed rule change, although the

time within which a paying agent can request a

reversal of allocated funds will be reduced from ten

business days to one business day following

payable date, the actual reversal may take up to two

or three business days after the payable date. For

example, if a paying agent requests a reversal from

DTC late in the day of the first business day after

the payable (‘‘P+1’’), DTC would likely notify its

participants’ on the morning of the following

business day (‘‘P+2’’). In the interest of fairness and

pursuant to DTC’s procedures, DTC must notify all

affected participants one business day prior to the

date on which DTC enters the reversal into its

participant’s daily settlement accounts.

Accordingly, the actual reversal will not occur until

P+3. Telephone conversation between Larry E.

Thompson, Deputy General Counsel and Senior

Vice President, DTC; Mark Steffensen, Special

Counsel, Division of Market Regulation

(‘‘Division’’), Commission; and Jeffrey Mooney,

Attorney, Division, Commission (December 18,

1996).

7Letter from Heather L. Ruth, President, PSA to

William F. Jaenike, Chairman of the Board and

Chief Executive Officer, DTC (August 16, 1996).

basis so that the Exchange can enable

public customers to receive the benefits

of Enhanced SuperMAX, as amended,

without the interruption that would

result if the pilot program were allowed

to expire on March 1, 1997 without

permanent approval of the program in

place. Moreover, both the Enhanced

SuperMAX and Timed Enhanced

SuperMAX have operated without any

significant problems as pilot programs

since July, 1995. Finally, the

Commission received no comments on

the Exchange’s earlier request for

permanent approval of the pilot, which

was published for comment on

November 20, 1996.17 The Commission,

therefore, believes that granting

accelerated approval of the proposed

rule change is appropriate and

consistent with Section 6(b)(5) of the

Act.18

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing.

Persons making written submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington DC 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. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the Exchange.

All submissions should refer to File No.

SR–CHX–97–02 and should be

submitted by March 26, 1997.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,19 that the

proposed rule change be, and hereby is,

approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–5369 Filed 3–4–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38340; File No. SR–DTC–

22]

Self-Regulatory Organization’s; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change To

Amend DTC’s Charge Back and Return

of Funds Procedures

February 26, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

December 4, 1996, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–96–22) as

described in Items I, II, and III below,

which items have been prepared

primarily by DTC. 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 proposed rule change amends

DTC’s charge back and return of funds

policies (‘‘Policy’’) 2 to shorten from ten

business days to one business day the

period within which a paying agent can

request that DTC return principal and

income (‘‘P&I’’) payments that have

been allocated to participants.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filings with the Commission,

DTC 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. DTC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The Policy 4 currently authorizes DTC

to return P&I payments to paying agents

after the funds have been credited to the

accounts of DTC participants, which is

commonly referred to as a ‘‘clawback,’’

if the paying agent notifies DTC in

writing within ten business days of the

payable date that: (i) The issuer has

failed to provide the paying agent with

sufficient funds to cover the payments;

or (ii) the issuer has become bankrupt.5

The proposed rule change will reduce

the period within which a paying agent

can request DTC to return funds to such

paying agent from ten business days to

one business day.6 Furthermore, the

Policy provides that if an agent requests

the return of a P&I payment more than

ten business days after a payable date,

DTC will work with the agent and

participate to resolve the matter.

However, DTC will not return the

allocated payments without the

participant’s consent.

PSA The Bond Market Trade

Association (‘‘PSA’’) has expressed

concern with the current policy and the

associated risk of loss placed on DTC

participants in the event a payment is

returned to a paying agent.7 In response,

DTC convened a joint working group of