29276 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices

2 15 U.S.C. 78f(b)(5).

3 15 U.S.C. 78f(b)(5) requires, among other things,

that the rules of an exchange be designed to

promote just and equitable principles of trade and,

in general, to protect investors and the public

interest.

4 In approving this rule, the Commission notes

that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

5 15 U.S.C. 78s(b)(2).

6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39822

(March 31, 1998), 63 FR 17248 (April 8, 1998).

4The Board of Governors of the Federal Reserve

System is authorized, pursuant to Section 7 of the

Act, to establish initial margin requirements and

credit restrictions on margin financing. 12 CFR 220

and 221. Generally, Regulation T limits to 50% the

amount of financing extended to or by a brokerdealer to finance a securities position. 12 CFR

220.18. Bona fide market making activity, however,

may be exempt from these credit restrictions.

and $1,000 for subsequent offenses. The

Exchange believes the amount of the

fines will be sufficient to ensure

attendance. However, in the event

members refuse to attend even after

being assessed a fine, as with all Minor

Rule violations, the Exchange has the

discretion to refer violations to the

Business Conduct Committee pursuant

to Chapter XVII of the Exchange’s Rules.

2. Statutory Basis

The proposed rule change will give

the Exchange the ability to provide for

a more professional and informed

membership and is therefore consistent

with and furthers the objectives of

Section 6(b)(5) of the Act 2 in that it is

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and to

protect investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE 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 solicited

or received with respect to the proposed

rule change.

III. 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, 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

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of CBOE. All

submissions should refer to the file

number (SR–CBOE–98–12) and should

be submitted by June 18, 1998.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

CBOE’s proposal is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange.

Specifically, the Commission finds that,

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

Act,3 requiring members and those

associated with members to attend

continuing education classes on such

topics as professional conduct and the

operation of new technology will both

promote just and equitable principles of

trade and benefit investors. Moreover,

the Commission finds that mandating

continuing education training for

members and persons associated with

members is consistent with the

provisions of Section 6(c)(3)(B) of the

Act, which makes it the responsibility of

an exchange to prescribe standards of

training, experience, and competence

for persons associated with selfregulatory organization members.

The Commission therefor finds good

cause for approving the proposed rule

change prior to the thirtieth day after

date of publication of notice of filing

thereof in the Federal Register.4

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,5 that the

proposed rule change (SR–CBOE–98–

12) be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

[FR Doc. 98–14115 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40016; File No. SR–CHX–

98–5]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change by the Chicago Stock

Exchange, Inc. Relating to the

Utilization of Exempt Credit by Market

Makers

May 20, 1998.

I. Introduction

On February 18, 1998, the Chicago

Stock Exchange, Inc. (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) a proposed

rule change pursuant to Section 19(b)(1)

of the Securities Exchange Act of 1934

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

In the filing, the CHX proposed

amendments to an interpretation to

Article XXXIV, Rule 16 relating to

registered market makers’ utilization of

exempt credit. Notice of the proposed

rule change was published in the

Federal Register on April 8, 1998.3 The

Commission received no comments on

the proposal.

II. Description of the Proposal

Interpretation .01 to Article XXXIV,

Rule 16 notes that ‘‘[e]xchange members

registered as equity market makers are

members registered as specialists for

purposes of [the Act] and as such they

are entitled to obtain exempt credit for

financing their market maker

transactions.’’ 4 The Interpretation also

sets forth certain parameters that market

makers must satisfy to obtain such

exempt credit. The Interpretation

specifies that 50% of the quarterly share

volume that creates or increases a

position in a market maker account

must result from transactions

consummated on the Exchange or sent

from the Exchange floor for execution in

another market via the Intermarket

Trading System (‘‘ITS’’). The proposed

rule change modifies this Interpretation

by eliminating the reference to ‘‘creating

or increasing a position,’’ thereby

including all transactions consummated
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 / Notices 29277

5 15 U.S.C. 78f(b) and 78k(b).

6 15 U.S.C. 78f(b)(5).

7 17 CFR 240.11b–1.

8Under Article XXXIV, Rule 16, registered market

makers are registered as specialists for purposes of

the Act.

9For example, under Article XXXIV, a registered

market maker on the Exchange has the duty to

maintain fair and orderly markets in assigned issues

(Rule 1); the duty to execute at least 50% of

quarterly share volume in assigned issues (Rule 3);

and the duty to register separately for each security

to be traded as a market maker (Rule 4).

10Under the federal securities laws and the

Exchange’s Rules as set forth in Article XXXIV,

market makers are also granted special treatment

and exemptions from requirements regarding net

capital, position financing, and short sales for

transaction effected during the course of bona fide

market making.

11 In approving the rule change, the Commission

has considered the proposed rule’s impact on

efficiency, competition and capital formation. 15

U.S.C. 78c(f).

12 15 U.S.C. 78s(b).

13 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

on the Exchange or sent from the

Exchange floor via ITS in determining a

market maker’s ability to use exempt

credit.

In providing assistance in maintaining

a fair and orderly market, a market

maker may be required to decrease

either a long or a short position in a

particular security. Consequently, a

market maker may, from time to time,

engage in transactions that decrease its

position. These transactions were not

previously included in the calculation

of transactions that qualify for exempt

credit. The proposed rule change

amends Interpretation .01 to Article

XXXIV, Rule 16 to note that positions

that decrease a position in a market

maker account will be treated the same

way as those that create or increase a

position for purposes of determining

whether a market maker has satisfied

the 50% volume requirements needed to

obtain exempt credit.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with Sections 6(b) and 11(b)

of the Act.5 In particular, the

Commission believes the proposal is

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

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

remove 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

believes, moreover, that the proposed

rule change is consistent with the

requirements of Section 11(b) and Rule

11b–1 thereunder 7 that specialist (i.e.,

market maker) 8 transactions contribute

to the maintenance of fair and orderly

markets.

The Commission believes that

registered market makers on the

Exchange serve an important function

inasmuch as they add depth and

liquidity to the market for CHX-traded

securities. Pursuant to Article XXXIV of

the CHX Rules, market makers are

subject to both affirmative and negative

obligations,9 and, in return, are

accorded certain privileges, including

exempt credit financing.10 For this

reason, it is critical that only those

members who are engaged in bona fide

market making activities qualify for

favorable margin treatment under the

Exchange’s rules. To the extent that

transactions that decrease a position in

a market maker account contribute to

the depth and liquidity in the market for

CHX-traded securities, the Commission

believes that it is appropriate for the

Exchange to conclude that such

transactions constitute bona fide market

making activity.

By including in the Exchange’s

exempt credit 50% minimum quarterly

share volume requirements a greater

number of transactions that contribute

to the maintenance of fair and orderly

markets, registered market makers are

facilitated in their ability to finance

transactions that provide market

continuity and stability. Enhancements

in the quality of the market CHX-traded

securities in turn foster investor

confidence and participation in the

market. Accordingly, the Commission

believes the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange and, in particular,

with the requirements of Section 6(b)

and 11(b).11

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change SR–CHX–98–05

be and hereby is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14021 Filed 5–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40017; File No. SR–CHX–

98–09]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Partial Temporary

Approval of Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated Amending the SuperMAX

and Enhanced SuperMAX Algorithms

May 20, 1998.

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

Securities Exchange Act of 1934

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

April 20, 1998, 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, on a

temporary basis, for a portion of the

proposed rule change relating to a new

SuperMAX algorithm.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend its

SuperMAX and Enhanced SuperMAX

programs, located in subsections (c) and

(e) of Rule 37 of Article XX.

Specifically, the Exchange is proposing

new algorithms to provide price

improvement under SuperMAX and

Enhanced SuperMAX in 1⁄16th point

markets. Below is the text of the

proposed rule change, additions are

italicized; deletions are bracketed.

(c) SuperMAX.

[The Exchange’s SuperMAX program

shall be an automatic execution program

within MAX in which a Specialist may

voluntarily choose to participate on a

stock-by-stock basis. A Specialist shall

decide if his or her stock will be eligible

for SuperMAX treatment. In the event

that a Specialist determines that his

stock is eligible for SuperMAX and

voluntarily chooses to participate in

SuperMAX, small agency market orders

in that stock will automatically be

executed in MAX, through the

SuperMAX program, without any

Specialist intervention based on the

following criteria (for purposes of this

Rule, small market orders shall mean

orders up to and including 599 shares,

except for the 500 stocks listed in the