Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices 37157

14 15 U.S.C. 78f(b)(5).

15 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Proposed rule change SR–CHX–98–13, which

was filed with the Commission on June 10, 1998,

(i) requests permanent approval of the policy that

permits market makers to clear the cabinet post by

phone, and (ii) proposes to expand this policy to

include all securities traded on the trading floor.

4Securities Exchange Act Release No. 39519

(January 6, 1998), 63 FR 1985 (January 13, 1998).

6(b)(5) 14 of the Act, in particular, in that

it is designed to promote just and

equitable principles of trade and 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 that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments on the proposed

rule change were neither solicited nor

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 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,

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, located at the above address.

Copies of such filing will also be

available for inspection and copying at

the principal office of the self-regulatory

organization. All submissions should

refer to File No. SR–CBOE–98–25 and

should be submitted by July 30, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18148 Filed 7–8–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40144; File No. SR–CHX–

98–17]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change by the Chicago Stock

Exchange, Inc., to Extend the

Exchange’s Clearing the Post Policy

for Cabinet Securities

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 June 18,

1998, the Chicago Stock Exchange, Inc.

(‘‘CHX’’ or the ‘‘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 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 proposes to extend the

current pilot program that amends

interpretation and policy .02 of CHX

Rule 10 of Article XX and amends CHX

Rule 11 of Article XX relating to

clearing the post for cabinet securities

on an interim basis until December 6,

1998, or until the Commission approves

SR–CHX–98–13,3 whichever occurs

first. The initial six-month pilot

program was approved by the

Commission on January 6, 1998, and

expires on July 6, 1998.4 The text of the

proposed rule change is as follows:

Additions are italicized; deletions are

bracketed.

ARTICLE XX

Rule 10. Manner of Bidding and

Offering.

No change in text.

. . . Interpretations and Policies

.02 Clearing the Post.

Policy. All orders received by floor

brokers or originated by market makers

on the floor of the Exchange must

effectively clear the post before the

orders may be routed to another market,

either via the ITS System or through the

use of alternative means.

Floor brokers who receive an order on

the floor have a fiduciary responsibility

to seek a best price execution for such

order. This responsibility includes

clearing of the Exchange’s post prior to

routing an order to another market so

that other buying and selling interest at

the post can be checked for a potential

execution that may be as good as or

better than the execution available in

another market.

Market makers are required to provide

depth and liquidity to the Exchange

market, among other things. Exchange

Rules require that all market maker

transactions constitute a course of

dealings reasonably calculated to

contribute to the maintenance of a fair

and orderly market. In so doing, market

makers must adhere to traditional

agency/auction market principles on the

floor. Transactions by Exchange market

makers on other exchanges which fail to

clear the Exchange post do not

constitute such a course of dealings.

Notwithstanding the above, it is

understood that on occasion a customer

will insist on special handling for a

particular order that would preclude it

from clearing the post on the Exchange

floor. For example, a customer might

request that a specific order be given a

primary market execution. These

situations must be documented and

reported to the Exchange. Customer

directives for special handling of all

orders in a particular stock or all stocks,

however, will not be considered as

exceptions to the clearing the post

policy.

All executions resulting from bids and

offers reflected on Instinet terminals

resident on the Exchange floor

constitute ‘‘orders’’ which are

‘‘communicated’’ to the Exchange floor.

Therefore, all orders resulting from

interest reflected on Instinet terminals
37158 Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices

5 Id.

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

on the Exchange floor must be handled

as any other order communicated to the

floor. All such orders must be presented

to the post during normal trading hours.

All trades between Instinet and

Exchange floor members are Exchange

trades and must be executed on the

Exchange.

Method of Clearing the Post. Subject

to Article XX, Rule 11 relating to cabinet

securities. [T]the Exchange’s clearing

the post policy requires the floor broker

or market maker to be physically

present at the post. A market maker,

after requesting the specialist’s market

quote, must bid or offer the price and

size of his intended interest at the post.

A floor broker must clear the post by

requesting a market quote from the

specialist. If the specialist or any other

member who has the post indicates an

interest to trade at the price that was bid

or offered by the market maker or the

price of the floor broker’s order (even

though that order has not yet been bid

or offered), then the trade may be

consummated with the specialist (or

whomever has the post) in accordance

with existing Exchange priority, parity

and precedence rules. If the specialist

(or any other member who has the post)

indicates interest to trade at that price

but the member communicating the

intended interest, including Instinet

interest, determines not to consummate

the trade with the specialist or such

member, then, to preserve the

Exchange’s existing priority, parity and

precedence rules, the trade may not be

done with any other Exchange floor

member. (See Article XXX, Rule 2). If

the trade is consummated with the

specialist or other member who has the

post, the specialist (or any customer

represented by the specialist) is not

required to pay any fees to the broker or

market maker in connection with the

execution of the order, unless such fee

is expressly authorized by an Exchange

Rule. If the specialist does not indicate

an interest to trade, then the trade may

be consummated with another Exchange

floor member on the Exchange floor

with a resultant Exchange print.

Failure to clear the post may result in

a ‘’trade-through’’ or ‘‘trading ahead’’ of

other floor interest. In addition, failure

to properly clear the post may result in

a violation of the Exchange’s Just and

Equitable Trade Principles Rule (Article

VIII, Rule 7) and a market maker rule

that requires all market maker

transactions to constitute a course of

dealing reasonably calculated to

contribute to the maintenance of a fair

and orderly market (Article XXXIV,

Rule 1). Failure to properly clear the

post may also subject the violator to a

minor rule violation under the

Exchange’s Minor Rule Violation Plan.

Rule 11. Cabinet Securities

Stocks having no designated specialist

unit of trading shall be assigned for

dealings by use of cabinets and shall be

dealt in at a location designated for that

purpose.

The Exchange may also designate

bonds which are to be dealt in by use

of cabinets.

Bids and offers in securities dealt in

by use of cabinets shall be written on

cards, which shall be filed in the

cabinets in the following sequence:

1. According to price, and

2. According to the time received at

the cabinet.

Orders in such securities shall be filed

according to the bids and offers filed in

the cabinets, in the sequence indicated

above, except that oral bids and offers

in such securities may be made if not in

conflict with bids and offers in the

cabinets. Oral bids and offers may be

made by clearing the cabinet post by

phone provided that such bids and

offers are audibly announced at the

cabinet post through a speaker system

maintained by the Exchange.

Every card placed in the cabinets

shall bear a definite price and number

of shares and no mark or identification

shall be placed thereon to indicate it is

other than a limited order at the 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

CHX 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 III below. The CHX 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

The purpose of the proposed rule

change is to extend the Exchange’s

existing pilot program that permits

market makers and floor brokers to clear

the cabinet post by phone until the

earlier of the two following occurrences;

(i) December 6, 1998, or (ii) the

Commission’s approval of SR–CHX–98–

13, whichever occurs first. The initial

six-month pilot program was approved

by the Commission on January 6, 1998

and is scheduled to expire on July 6,

1998.5 In approving the original pilot

program, the Commission requested that

the Exchange file a report describing its

experience with the program. On June 5,

1998, the Exchange filed such a report

with the Commission. The purpose of

this proposed rule change is to permit

the current pilot to continue without

interruption while the Commission

considers the Exchange’s proposal to

expand the policy on a permanent basis

to all securities traded on the Exchange.

In general, the clearing the post policy

requires a floor broker or market maker

to clear the post by his or her physical

presence at the post. The purpose of this

proposed rule change is to permit a floor

broker or market maker to clear the post

in cabinet securities by phone. The bids

and offers made to clear the post by

phone will be audibly announced at the

cabinet post through a speaker system

maintained by the Exchange.

2. Statutory Basis

The proposed rule change is

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

Act 6 in that it is designed to prevent

fraudulent and manipulative acts and

practices and to perfect the mechanism

of a free and open market.

(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 either

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 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

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
Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices 37159

7 Id.

8See Securities Exchange Act Release No. 39519,

n.4 above.

9 15 U.S.C. 78s(b)(2).

10 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. 40016 (May

20, 1998), 63 FR 29276 (May 28, 1998).

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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CHX–98–17 and should be

submitted by July 30, 1998.

IV. Commission Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

After careful review, the Commission

finds that the proposed rule change is

consistent with the Act and the rules

and regulations under the Act

applicable to a national securities

exchange. In particular, the proposal is

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

Act 7 in that it is designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, and to remove

impediments to and perfect the

mechanism of a free and open market.

The Commission believes that allowing

floor brokers or market makers to clear

the post for cabinet securities while

remaining at their respective posts will

ensure that these floor brokers or market

makers will be at their posts when they

need to respond to orders in more liquid

securities at a much faster pace.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the proposal

in the Federal Register because the

extension will permit the current pilot

to continue without interruption while

the Commission considers the

Exchange’s proposal to expand the

policy on a permanent basis to all

securities traded on the Exchange. The

extension is only for five months (or

until the Commission approves SR–

CHX–98–13, if it decides to do so,

whichever occurs first), and will merely

preserve the status quo. Moreover, the

original pilot was noticed for the full 21-

day comment period and the

Commission received no comments on

the proposal.8 The Commission’s

approval of the proposal to extend the

pilot for five months has no bearing on,

and should not be interpreted to suggest

that the Commission ultimately will

approve SR–CHX–98–13.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,9 that the

proposed rule change (File No. SR–

CHX–98–17) be, and hereby is,

approved on an accelerated basis

through December 6, 1998, or until the

Commission approves SR–CHX–98–13,

whichever occurs first.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18149 Filed 7–8–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40152; File No. SR–CHX–

98–14]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of a Proposed Rule Change by the

Chicago Stock Exchange, Inc. Relating

to Exempt Credit by Market Makers

July 1, 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 June 10,

1998, the Chicago Stock Exchange, Inc.

(‘‘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. 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 Exchange proposes to clarify an

interpretation to Article XXXIV, Rule 16

of CHX’s Rules relating to registered

market makers’ utilization of exempt

credit.

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

CHX 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

The purpose of the proposed rule

change is to clarify an interpretation to

the Exchange’s rules regarding market

makers and exempt credit. The

Exchange recently modified

Interpretation .01 to Article XXXIV,

Rule 16, to eliminate a reference to

‘‘creating or increasing a position,’’

thereby including all transactions

consummated on the Exchange or sent

from the Exchange floor via ITS in

determining a market makers’ ability to

use exempt credit.3

In making such a change to the

interpretation, the Exchange did not

intend to eliminate the requirement that

volume be measured on an issue by

issue basis. To eliminate any possibility

that the change may be misinterpreted

in that manner, the Exchange is

clarifying the language of the

interpretation to make it clear that

volume is measured for a particular

issue to determine a market makers’

ability to use exempt credit for that

issue. The text of the proposed rule

change is as follows:

Additions are italicized.

ARTICLE XXXIV

Registered Market Makers—Equity

Floor

Regulatory Status

RULE 16. No text change.

* * *Interpretations and Policies:

.01 Utilization of Exempt Credit.

Exchange Members registered as equity

market makers are members registered

as specialists for purposes of the

Securities Exchange Act of 1934 and as

such are entitled to obtain exempt credit

for financing their market maker

transactions. Members and/or

prospective members who are

anticipating becoming registered as

equity market makers as well as those

clearing firms who are or will be

carrying the accounts of market makers

should be aware of the following

interpretation relative to the use of such

credit:

1. Only those transactions initiated on

the Exchange Floor qualify as market

maker transactions. This restriction

prohibits the use of exempt credit where

market maker orders are routed to the

Floor from locations off the Floor.