Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices 36983

16 15 U.S.C. 78s(b)(2).

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

the initial listing distribution criteria

from 500,000 warrants publicly held

and not less than 800 public warrant

holders or 1,000,000 publicly held

warrants and not less than 400 public

warrantholders to 200,000 warrants

publicly held and not less than 100

public warrantholders with a

maintenance standard of 50,000

warrants publicly held. The

Commission recognizes that the

reduction in the initial listing standards

is substantial. In reviewing the Amex’s

proposal the Commission has been

particularly concerned about the

lowered public holder requirement and

the lack of such a public holder

requirement for continued listing. While

the Commission’s determination on this

issue was close, we have determined to

approve the new standards based, in

part, on the unique, completely

derivative nature of warrants and the

fact that they are exercisable into

another security that must remain in

‘‘good standing’’ on its listed market.

Accordingly, although the Commission

is concerned about maintaining

sufficient liquidity in the marketplace

for listed warrants, the Commission

believes that the revised initial listing

criteria together with the added

maintenance standard will serve to

enable the Exchange to evaluate the

propriety of continued exchange trading

of warrants.

Finally, the Commission notes that

warrants will trade under the Amex’s

existing regulatory regime for trading

securities, and, therefore, the

Commission believes that adequate

safeguards are in place to ensure the

protection of investors in warrants. In

addition, the Amex will delist or

suspend trading in warrants whenever

the underlying equity security is

delisted or suspended. Because warrants

represent a claim on a company to issue

stock, it is reasonable to expect the

underlying equity security to meet the

maintenance criteria of the exchange on

which it is listed. It also would be

undesirable to continue trading in listed

warrants when the underlying equity

security has been suspended or delisted

and no longer trades in the secondary

market.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 1

raises the initial listing requirements

from 100,000 warrants with no public

warrantholder requirement, as originally

proposed, to 200,000 warrants publicly

held by not less than 100 public

warrantholders. The Commission

believes that these higher standards are

appropriate and serve to protect

investors and the public interest. In

addition, the Commission notes that no

comments were received when the

original notice of the proposed rule

change was published and that no new

regulatory issues are presented in

Amendment No. 1.

Accordingly, the Commission believes

that good cause exists, consistent with

Section 6(b)(5) and 19(b)(2) 16 of the Act,

to approve Amendment No. 1 on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1, 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 comments,

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. 522, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–97–

38 and should be submitted by July 29,

1998.

For the foregoing reasons, the

Commission finds that the Amex’s

amended proposal to revise original

listing and maintenance requirements

for Section 105 warrants is consistent

with the requirements of the Act and the

rules and regulations thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (SR–Amex–97–

38), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18003 Filed 7–7–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40150; File No. SR–CHX–

98–16]

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

July 1, 1998.

On June 17, 1998, the Chicago Stock

Exchange, Incorporated (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’),1 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 and to

grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organizations

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange hereby requests a six

month extension of the pilot program

relating to the trading of Nasdaq/NM

Securities on the Exchange that is

currently due to expire on June 30,

1998. Specifically, the pilot program

amended Article XX, Rule 37 and

Article XX, Rule 43 of the Exchange’s

Rules and the Exchange proposes that

the amendments remain in effect on a

pilot basis through December 31, 1998.

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 statutory

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 III below.

The Exchange has prepared summaries,

set forth in Sections A, B and C below,

of the most significant aspects of such

statements.
36984 Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices

2See Securities Exchange Act Release No. 24424

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

(ordering approving File No. SR–MSE–87–2). See

also Securities Exchange Act Release Nos. 28146

(June 26, 1990) (order expanding the number of

eligible Nasdaq/NM securities to 100); and 36102

(August 14, 1995) (ordering expanding the number

of Nadaq/NM securities to 500).

3The 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, Art.

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

but MAX system handling rules do apply.

4See Securities Exchange Act Release No. 38119.

5The NBBO is the best bid or offer disseminated

pursuant to SEC Rule 11Ac1–1.

6See Securities Exchange Act Release No. 39512

(December 31, 1997), 62 FR 1517 (January 9, 1998).

7See Securities Exchange Act Release No. 39823

(March 31, 1998).

8The term ‘‘agency order’’ means an order for the

account of a customer, but shall not include

professional orders as defined in CHX, Article XXX,

Rule 2, interpretation 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.

9The 100 to 2099 share auto-acceptance

threshold previously in place continues to apply to

Dually Listed securities (those issues that are traded

on the CHX and are listed on either the New York

Stock Exchange or American Stock Exchange).

10Specifically, the autoquote is currently for one

normal unit of trading (usually 100 shares) in issues

that became subject to mandatory compliance with

SEC Rule 11Ac1–4 on or prior to February 24, 1997,

and for 1000 shares in other issues.

11The twenty second delay is designed, in part,

to provide an opportunity for the order to receive

price improvement from the specialist’s displayed

quote.

12 15 U.S.C. 78f(b)(5).

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 CHX rules and

procedures relating to the trading of

Nasdaq/NM securities on the

Exchange.2 Among other things, these

rules made 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 (‘‘MAX system’’).3

On January 3, 1997, the Commission

approved,4 on a one year pilot basis, a

program that eliminated the

requirement that CHX specialist

automatically execute orders in Nasdaq/

NM securities when the specialists is

not quoting at the national best bid or

best offer (‘‘NBBO’’).5 When the

Commission approved the program on a

pilot basis, it stated that the

arrangement in place for Exchange

specialists to access OTC market makers

was not an ideal linkage between the

markets on a permanent basis and that

the Exchange should work with Nasdaq

to establish a more effective linkage. In

addition, the Commission 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 a least six months worth

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.6 The Exchange

submitted the report to the Commission

on January 30, 1998.

The Exchange, prior to the pilot

expiring, requested another three month

extension. On March 31, 1998, the

Commission approved the pilot for an

additional three month period, until

June 30, 1998.7 The Exchange now

requests another extension of the

current pilot program, through

December 31, 1998.

Under the pilot program, specialists

must continue to accept agency 8 market

orders or marketable limit orders, but

only for orders of 100 to 1000 shares in

Nasdaq/NM securities rather than the

2099 share limit previously in place. 9

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 where the order was received.

The pilot program requires the

specialist to set the MAX auto-execution

threshold at 1000 shares or greater for

Nasdaq/NM securities. When a CHX

specialist is quoting at the NBBO, orders

for a number of shares less than or equal

to the auto-execution threshold set by

the specialist will be automatically

executed (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 1000 shares, depending on

the issue.10

When the specialist is not quoting a

Nasdaq/NM security at the NBBO, 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

after a twenty second delay.11 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 orderrouting systems to obtain an execution

where appropriate. Market and

marketable limit orders that are for a

number of shares greater than the autoexecution 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 basis under the Act for the

proposed rule change is the

requirements under Section 6(b)(5) 12

that an exchange have rules that are

designed, in part, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

and perfect the mechanism of a free and

open market and a national market

system.

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.
Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices 36985

13 15 U.S.C. 78f(b)(5).

14See Securities Exchange Act Release No. 38119

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

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

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Agnes M. Gautier, Vice

President, Market Surveillance, NYSE, to Richard

Strasser, Assistant Director, Division of Market

Regulation, Commission, dated June 17, 1998

(‘‘Amendment No. 1’’). In Amendment No. 1, the

NYSE clarifies that percentage orders, under the

proposed rule change, will be treated the same as

other orders other than stop orders. The NYSE also

notes that the proposed amendment to NYSE Rule

115, permitting a specialist to respond to an issuer’s

inquiry regarding buying and selling interest in its

stock, is consistent with NYSE Rule 106, recent

changes to the Exchange’s Allocation Policy, and

the duties of a specialist in that the proposal should

promote a positive professional relationship

between the specialist and the exchange-listed

company. Furthermore, the Exchange notes it

believes that non-member, non-issuer market

participants are not disadvantaged by

communications between the issuer and the

specialist because the same information is available

through a member’s market probe of the specialist.

The Exchange represents that under the proposed

rule change issuers will not have direct access to

the floor of the Exchange.

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. 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 submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 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 also will be

available for inspection and copying at

the Exchange. All submissions should

refer to file number SR–CHX–98–16 and

should be submitted by July 29, 1998.

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. Specifically, the Commission

finds that the proposed rule change is

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

Act,13 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

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) and

11A(a)(1)(D) of the Act because the

Exchange’s proposal conforms CHX

specialist obligations to those applicable

to OTC market makers in Nasdaq/NM

securities, while CHX provides a

separate, competitive market for

Nasdaq/NM securities.

The Commission notes however that,

while the Exchange has been working

towards 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 3, 1997 order.14

The Commission is approving the

extension of the pilot so that the rules

of the exchange will operate without

interruption.

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),15 that the proposed

rule change (SR–CHX–98–16) be, and

hereby is, approved through December

31, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18052 Filed 7–7–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40146; File No. SR–NYSE–

98–10]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.,

and Amendment No. 1 Thereto, To

Amend Exchange Rule 115 Regarding

Disclosure of Specialists’ Orders

June 30, 1998.

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 March 17,

1998, the New York Stock Exchange,

Inc. (the ‘‘NYSE’’ or ‘‘Exchange’’) 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.

On June 23, 1998, the NYSE filed an

amendment to 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 proposed rule change consists of

amendments to Exchange Rule 115,

Disclosure of Specialists’ Orders

Prohibited. The text of the proposed

rule change is available at the Office of

the Secretary, the NYSE, 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

NYSE 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 NYSE 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

Exchange Rule 115 prohibits

disclosure of information in regard to

orders on a specialist’s book except in

certain limited circumstances. This

policy was first adopted as a rule in

February 1934. Limited exceptions were

adopted for disclosure when

demonstrating methods of trading to

visitors in 1938 and to implement the

Intermarket Trading System in 1978. A

third exception, approved in 1991,

allows a specialist to provide