[Federal Register Volume 62, Number 9 (Tuesday, January 14, 1997)]
[Notices]
[Pages 1938-1939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-809]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38130; File No. SR-CHX-96-33]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to the 
Circuit Breaker Pilot Program

January 6, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
18, 1996, 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, II, 
and III below, which Items have been prepared by the CHX. 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 CHX proposes to amend Article IX, Rule 10A ``Trading Halt Due 
to Extraordinary Market Volatility'' (``circuit breakers'') \1\ to 
increase the levels at which such circuit breakers are triggered. The 
Exchange seeks to effect these changes on a one-year pilot basis.
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    \1\ See Securities Exchange Act Release Nos. 26218 (October 26, 
1988), 53 FR 44137 (November 1, 1988); 27370 (October 23, 1989), 54 
FR 43881 (October 27, 1989); 28580 (October 25, 1990), 55 FR 45895 
(October 31, 1990); 29868 (October 28, 1991), 56 FR 56535 (November 
5, 1991); 33120 (October 29, 1993), 58 FR 59503 (November 9, 1993); 
36414 (October 25, 1995), 60 FR 55630 (November 1, 1995); and 37459 
(July 19, 1996), 61 FR 39172 (July 26, 1996).
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    The text of the proposed rule change is available at the Office of 
the Secretary, the CHX, and at the Commission.

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
    Article IX, Rule 10A (Trading Halts Due to Extraordinary Market 
Volatility) is the Exchange's codification of the several 
recommendations for circuit breakers which were made in the wake of the 
market break of 1987. The current rule, which is due to expire on 
October 31, 1997, provides that if the Dow Jones Industrial Average \2\ 
(``DJIA'') falls 250 or more points below its previous trading day's 
closing value, trading in all stocks on the Exchange shall halt for 
one-half hour. The Rule further provides for a one hour trading halt if 
the decline in the DJIA is 400 or more points. Although the Rule was 
amended in July 1996 to shorten the time periods for marketwide trading 
halts, the levels of the circuit breakers themselves have not been 
adjusted since the Rule was first adopted. The Exchange believes that 
it is appropriate to amend Article IX, Rule 10A to raise the circuit 
breakers from 250 points to 350 points and from 400 points to 550 
points.
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    \2\ ``Dow Jones Industrial Average'' is a service mark of Dow 
Jones & Company, Inc.
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    Article IX, Rule 10A was approved by the Commission in October 1988 
as a one-year pilot\3\ and has been extended on a pilot basis since 
then. At that time, the DJIA was at a level of about 2100 points. A 250 
point drop would have represented at 12% decline in the average. A 400 
point drop would have

[[Page 1939]]

represented a 19% decline in the average. Article IX, Rule 10A has 
never been invoked, as the DJIA has not declined by 250 points or more 
since the rule was adopted. The largest decline occurred on March 8, 
1996, when the DJIA fell intra-day 217 points below its previous day's 
closing value. Today, with the DJIA at about 6500 points, a 250 or 400 
point drop would represent a much smaller percentage decline in the 
average (3.8% and 6.2%, respectively).
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    \3\ See Securities Exchange Act Release No. 26218 (October 26, 
1988), 53 FR 44137 (November 1, 1988).
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    The proposed circuit breakers of 350 and 550 points would 
represent, respectively, a 5.4% and 8.5% decline in the DJIA, which are 
significant market declines and thus represent appropriate levels at 
which to halt trading. The proposed trigger values take into account 
the rise in market values since the Rule was first adopted, while also 
recognizing the fact that the original trigger values have never been 
reached. The Exchange believes that the new trigger values in Article 
IX, Rule 10A should be stated in absolute numbers, rather than in terms 
of percentages of the DJIA, in order to facilitate understanding by all 
market participants as to exactly when the circuit breakers will be 
utilized.
    The Exchange seeks to effect these changes on a one-year pilot 
basis. The adoption of amendments to Article IX, Rule 10A would be 
contingent upon the adoption of amended rules or procedures 
substantively identical to this rule by:
    (1) All United States stock exchanges and the National Association 
of Securities Dealers, Inc. with respect to the trading of stocks, 
stock options and stock index options; and,
    (2) All United States futures exchanges with respect to the trading 
of stock index futures and options on such futures.
    The exchange believes that an all-market trading halt requirement 
at appropriate levels will promote stability and investor confidence 
during periods of significant stress by providing market participants 
with a reasonable opportunity to become aware of and respond to 
significant price movements, thereby facilitating in an orderly manner 
the maintenance of an equilibrium between buying and selling interest.
2. Basis
    The exchange believes that 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. The Exchange believes that amending 
Article IX, Rule 10A on a pilot basis is consistent with these 
objectives in that the revised trading halt triggers during a period of 
significant stress can be expected to provide market participants with 
a reasonable opportunity to become aware of and respond to significant 
price movements, thereby facilitating, in an orderly manner, the 
maintenance of an equilibrium between buying and selling interest.

B. Self-Regulatory Organization's Statement on 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 on the Proposed 
Rule Change Received from Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 self-regulatory organization 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-96-33 and should be 
submitted by January 27, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-809 Filed 1-13-97; 8:45 am]
BILLING CODE 8010-01-M