Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices 40147

13 17 CFR 200.20–3(c)(12).

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

2Securities Exchange Act Release No. 40017 (May

20, 1998), 63 FR 29277 (May 28, 1998).

3Both the SuperMAX and Enhanced SuperMAX

programs have been approved by the Commission

on a permanent basis. See Securities Exchange Act

Release No. 32631 (July 14, 1993), 58 FR 39069

(July 21, 1993) (File No. SR–MSE–93–10) (Order

approving SuperMax on a permanent basis),

Securities Exchange Act Release No. 38338

(February 26, 1997), 62 FR 10102 (March 5, 1997)

(File No. SR–CHX–97–02) (Order approving

Exchange SuperMax on a permanent basis).

4See Securities Exchange Act Release No. 38816

(July 3, 1997), 62 FR 37325 (July 11, 1997) (File No.

SR–CHX–97–18).

5Rather than amending the existing text of the

SuperMax and Exchange SuperMax rules, the text

of the existing rule has been deleted and replaced

with new language. This was done to permit the

Exchange to re-write the rule, with non-substantive

changes, to clarify some language in the old rule

that may have been ambiguous.

6Under the proposal, small agency market orders

for SuperMax would be orders from 100 shares to

499 shares (or a greater amount chosen by the

specialist).

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange did not solicit or

receive written comments with respects

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 longer

period to be appropriate and publishes

its reasons for so finding, or (ii) as to

which the Exchange consents, the

Commission will:

(A) By order approve the 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 submission

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 statement 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 persons, other

than those that may be withheld from

the public in accordance with the

provisions of 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. 20549. 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–Amex–98–

24 and should be submitted by August

17, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19987 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40235; File No. SR–CHX–

98–09]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

The Chicago Stock Exchange,

Incorporated Amending the SuperMax

and Enhanced SuperMax Algorithms

July 17, 1998.

I. Background

On April 20, 1998, noticed 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 pursuant to Section 19(b)(1) of

the Securities Exchange Act of 1934

(‘‘Act’’).1 The proposed rule change was

published for comment in the Federal

Register.2 The Commission granted

accelerated approval to part of the

proposal, the new SuperMAX algorithm,

on a temporary basis until August 20,

1998. No comment letters were

received. For the reasons discussed

below, the Commission is approving the

proposed rule change on a permanent

basis.

II. Description of the Proposal

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 automated

price improvement under SuperMax

and Enhanced SuperMAX in 1⁄16th point

markets.3

In 1997, virtually every registered

national securities exchange and

national securities association changed

their minimum trading variation to one

sixteenth of a point or smaller. Although

the CHX made some technical changes

to its SuperMax and Enhanced

SuperMax programs at that time in light

of assumptions as to the smallest

minimum variation that were contained

in the text of the SuperMax and

Enhanced SuperMax rules, the CHX did

not change the algorithms to reflect the

additional price improvement

opportunities that are available because

of trading in sixteenths.4 The purpose of

the proposed rule change is to amend

the existing programs to both simplify

the price improvement algorithms and

increase the number of orders that are

eligible for price improvement due to

the smaller minimum trading variation.5

Under the new simplified algorithm

for SuperMax, small agency market

orders 6 would now be eligible for price

improvement if the market for the

security is quoted with a spread of 1⁄8 of

a point or greater (rather than the 1⁄4

point spread that is required under the

existing rule). In addition, the doubleup/double-down concept has been

eliminated. The simplified algorithm

will now provide 1⁄16th of a point price

improvement from the Intermarket

Trading System (‘‘ITS’’) best bid or offer

(‘‘BBO’’) if an execution at the ITS BBO

would be at least 1⁄8th point higher than

(for a buy order) or lower than (for a sell

order) the last primary market sale.

Basically price improvement is given

under certain circumstances when the

security is trading between the spread.

All other aspects of the existing

algorithm, including operating time,

timing of execution, applicability to

odd-lots, and out of range situations,

remain the same.

With respect to Enhanced SuperMax,

the Exchange proposes to make this

program an add-on feature for securities

for which the SuperMax program has

already been activated, rather than a

stand-alone program. As stated in the

Exchange’s Report on the operation of

the Enhanced SuperMax program that

was provided to the Commission in

advance of the Commission’s permanent

approval of Enhanced SuperMax

program, taken as a whole, the existing

SuperMax program provides more price

improvement than the existing

Enhanced SuperMax program. The

Exchange believes that interconnecting

the two programs will encourage more

specialists to enable the SuperMax

program, with greater resulting price

improvement, since the Enhanced

SuperMax program will only be

available when SuperMax is enable.
40148 Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices

7Under the proposal, small agency market orders

for Enhanced SuperMax would be orders from 500

shares to 2099 shares (or a greater amount chosen

by the specialist). Notwithstanding the 500 share

minimum order size contained in the rule, the

smallest size order eligible for Enhanced SuperMax

must always be at least one share greater than the

largest size order in such security that is eligible for

SuperMax. In other words, if a specialist voluntarily

increases the maximum order size for SuperMax,

the minimum order size for Enhanced SuperMax

must be increased accordingly.

8 15 U.S.C. 78f(b)(5).

9See Securities Exchange Act Release No. 35753

(May 22, 1995), 60 FR 28007 (May 26, 1995) (File

No. SR–CHX–95–08).

10The Exchange has compared the proposed

changes to SuperMax with the existing SuperMax

algorithm and believes that the new algorithm will

provide price improvement to a greater number of

trades. using data for January 1998, the Exchange

determined that the proposed changes to the

algorithm would have resulted in over 32,000 trades

receiving price improvement (for a total savings of

$329,000 to customers), as opposed to the 5800

trades that received price improvement (for a total

savings of $126,000 to customers) under the

existing SuperMax program. This means that the

changes to SuperMax would have resulted in

customers receiving $203,000 additional dollars of

price improvement over the Exchange’s existing

SuperMax algorithm.

11 Dual Trading issues are issues traded on the

CHX, either through listing on the CHX or pursuant

to unlisted trading privileges, and are also listed on

either the New York Stock Exchange or the

American Stock Exchange.

12See Securities Exchange Act Release No.

37619A (September 6, 1996), 61 FR 48290

(September 12, 1996).

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

1The Board initially filed this proposal on

December 22, 1997. However, an amendment was

filed to restore rule language that the initial

proposal deleted. The Board filed Amendment No.

1 on this date.

2 15 U.S.C. 78s(b)(1).

3 17 CFR 240.19b–4.

Currently, some specialists have only

turned on the Exchange Super Max

program without enabling the SuperMax

program.

Under the new simplified algorithm

for Enhanced SuperMax, small agency

market orders 7 would be eligible for

price improvement if the market for the

security is quoted with a spread of 3⁄16

of a point (rather than the 1⁄4 point

spread that is required under the

existing rule). In addition, the doubleup/double down concept currently in

place to determine whether an order is

stopped has been eliminated. The

simplified algorithm will now ‘‘stop’’ an

eligible order at the ITS BBO if an

execution at the ITS BBO would be at

least 1⁄8 point higher than (for a buy

order) or lower than (for a sell order) the

last primary market sale. (This stopping

algorithm is identical to the new

algorithm above for SuperMax.) Once

stopped, an order would receive 1⁄16

price improvement over the stopped

price if the next primary market sale

occurs before the end of the Time Out

Period and the sale is at least 1⁄8 of a

point lower than (for a buy order) or

higher than (for a sell order) the stopped

price. As is the case for SuperMax, all

other aspects of the existing algorithm,

including operating time, timing of

execution, applicability to odd-lots, and

out of range situations, remain the same.

III. Discussion

The Commission finds that the

proposed rule change 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 8 which requires that the rules of an

exchange be designed, among other

things, 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 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.

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.9 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.

The Commission believes, in light of

the industry’s move to trading in finer

increments last year, that CHX’s

modification to price improvement

algorithms will provide investors a

meaningful opportunity for price

improvement when securities trading in

1⁄16’s have a spread of 1⁄8 point or

greater. In addition, the Commission

finds that the new SuperMAX and

Enhanced SuperMAX rules provide

greater price improvement opportunities

for investors because the criteria for

when such opportunities are available

has been simplified.10 The Commission

believes that, because the opportunity

for price improvement is automatic and

without any specialist intervention,

SuperMAX and Enhanced SuperMAX

facilitate order interaction and enhance

customer orders consistent with Section

6(b)(5) of the Act. The Commission

notes that while SuperMAX and

Enhanced SuperMAX are voluntary

programs that specialists choose to

participate in for Dual Trading System

issues,11 providing a greater number of

investors an opportunity to achieve

price improvement is compatible with

the views on best execution expressed

in the Order Handling release.12

IV. Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change, SR–CHX–98–09, is

consistent with the Act and the rules

and regulations thereunder applicable to

a national securities exchange. In

addition, in approving this rule, the

Commission notes that it has also

considered the proposed rule’s impact

on efficiency, competition, and capital

formation.

It is therefore ordered, pursuant to

Section 19(b)(2), of the Act,13 that the

proposed rule change be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19986 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40230; File No. SR–MSRB–

97–14]

Self-Regulatory Organizations;

Municipal Securities Rulemaking

Board; Order Granting Approval of

Proposed Rule Change Relating to

Rule G–32, on Disclosures in

Connection With New Issues

July 17, 1998.

I. Introduction

On March 12, 1998,1 the Municipal

Securities Rulemaking Board (‘‘Board’’

or ‘‘MSRB’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 2 and Rule

19b–4 thereunder,3 a proposed rule

change to amend Rule G–32, on

disclosures in connection with new

issues. The proposed rule change

strengthens the provisions of the rule

relating to dissemination of official

statements among dealers and

incorporates a long-standing Board

interpretation relating to disclosures

required to be made to customers in

connection with negotiated sales of new

issue municipal securities. Notice of the