26058 Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices

5As the Commission noted in approving the

trading of SPDRs in 1⁄64’s, another market could

seek to commence trading in PDRs; however, the

Intermarket Trading System (‘‘ITS’’) does not

currently accommodate quotes in 1⁄64’s. See

Securities Exchange Act Release No. 33900, supra

note 2. The Exchange would discuss with the ITS

Operating Committee or other ITS participants

appropriate modifications to ITS to permit trading

of PDRs in fraction of 1⁄64’s, should another market

seek to initiate such trading. The Exchange notes,

however, that other regulatory issues (e.g., the need

for a market seeking to trade PDRs to adopt a rule

comparable to Amex Rule 1000, Commentary .01)

would also need to be addressed prior to the

commencement of PDR trading in other markets.

6As noted above, ITS currently is not capable of

accommodating quotes in 1⁄64’s. See id.

Consequently, if other securities exchanges or

national securities associations desire to list and

trade MidCap SPDRs, the Commission expects the

Amex to discuss with ITS and other ITS

participants the means by which ITS would be

modified to accommodate such trading. 7 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 35388

(February 16, 1995), 60 FR 10134 (February 23,

1995).

4RAES automatically executes public customer

market and marketable orders of a certain size

against participating market makers in the CBOE

trading crowd at the best bid or offer reflected in

the CBOE quotation system. A more detailed

description of RAES is provided in Securities

Exchange Act Release No. 22015 (May 6, 1985), 50

FR 19832 (May 10, 1985).

believes the benefits identified by the

Commission in connection with trading

PDRs in 1⁄32’s will be further enhanced

by trading MidCap SPDRs in 1⁄64’s.5 The

Amex believes that trading MidCap

SPDRs in 1⁄64’s should further reduce

price fluctuations based on the

underlying index for the particular

issuance (i.e., the S&P MidCap 400

Index). According to the Exchange,

trading MidCap SPDRs in 1⁄64’s should

benefit retail customers, institutions,

and other market participants that

invest in or trade these PDRs. In

addition, the expected result of a

narrower quotation spread in MidCap

SPDRs should make such securities

more useful instruments for

institutional arbitragers and other

market professionals who may hedge

their positions in futures or other

derivative markets.6

The Exchange will issue an

‘‘Information Circular’’ to members and

member organizations relating to trading

MidCap SPDRs in 1⁄64’s prior to

commencement of such trading.

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act in general, and

Section 6(b)(5) in particular, in that it is

designed to promote just and equitable

principles of trade, to facilitate

transactions in securities, and to protect

investors and the public interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Amex believes that the proposed

rule change will impose no burden on

competition.

(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

Because the proposed rule change

constitutes a stated policy, practice, or

interpretation with respect to the

meaning, administration, or

enforcement of Amex Rule 127, it has

become effective pursuant to Section

19(b)(3)(A) of the Act and subparagraph

(e) of Rule 19b–4 thereunder. At any

time within 60 days of the filing of such

proposed rule change, the Commission

may summarily abrogate such rule

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.

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

above-mentioned self-regulatory

organization. All submissions should

refer to File No. SR–Amex–95–16 and

should be submitted by June 6, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12001 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35695; File No. SR–CBOE–

95–06]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated, Relating to the CBOE

Retail Automatic Execution System

May 9, 1995.

I. Introduction

On January 18, 1995, the Chicago

Board Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed a

proposed rule change with the

Securities and Exchange Commission

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

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder,2 to modify the

operation of the CBOE’s Retail

Automatic Execution System (‘‘RAES’’).

The proposed rule change would grant

senior staff in the Exchange’s Control

Room the authority to turn off RAES in

the event of a system malfunction that

affects the Exchange’s ability to

disseminate or update market quotes.

Notice of the proposal was published

for comment and appeared in the

Federal Register on February 23,1995.3

No comment letters were received on

the proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

CBOE proposes to grant the

Exchange’s Control Room the authority

to turn off RAES 4 if there is a system

malfunction that affects the Exchange’s

ability to disseminate or update market

quotes. Specifically, the proposal would

add Interpretation .01 to CBOE Rule

24.15, and Interpretation .03 to Rule 6.8

to grant the senior person then in charge

of the Exchange’s Control Room the

authority to turn off RAES if there is a

system malfunction that affects the

Exchange’s ability to disseminate or

update market quotes. The proposed

language for both Interpretation .01 to

Rule 24.15, and Interpretation .03 to

Rule 6.8 is identical.

When an order is entered on RAES,

the system automatically attaches to the

order an execution price, determined by

the prevailing market quote at the time
Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices 26059

5The CBOE represents that examples of ‘‘systems

malfunctions’’ include: outages of the Exchange’s

autoquote system; communications disruptions

between the Exchange and the processor for the

Options Price Reporting Authority; and the

unavailability of market data from the underlying

market due to systems malfunctions in that market

or in the communications between that market and

CBOE. See Letter from Michael Meyer, Attorney,

Schiff, Hardin and Waite, to John Ayanian,

Attorney, Office of Market Supervision (‘‘OMS’’),

Division of Market Regulation (‘‘Market

Regulation’’), Commission, dated February 17,

1995.

6The Control Room immediately notifies the floor

that RAES has been turned off by (1) transmitting

a message to the book staff, floor broker, and

member firm booth printers; (2) announcing it via

the public address system; (3) posting it on the

electronic administrative message board located in

the pits; and (4) posting it on the CBOE bulletin

board, which is available from any Exchange

terminal. Telephone conversation between Tim

Watkins, Market Operations Department, CBOE,

and John Ayanian, Attorney, OMS, Market

Regulation, Commission, on April 19, 1995.

7According to CBOE, when determining order

parameters for routing purposes, the member firms

look to (1) the size of the order, (2) whether the

series is on RAES, and (3) whether it is a market

order or an immediately executable limit order.

Telephone conversation between Edward Joyce,

CBOE, Michael Meyer, Attorney, Schiff, Hardin and

Waite, Michael Walinskas, Branch Chief, OMS,

Market Regulation, Commission, and John Ayanian,

Attorney, OMS, Market Regulation, Commission, on

February 13, 1995.

8Telephone conversation between Barbara Casey,

Market Regulation Department, CBOE, and John

Ayanian, Attorney, OMS, Market Regulation,

Commission, on April 18, 1995.

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1988).

2Securities Exchange Act Release No. 35148

(December 23, 1994), 60 FR 155.

of the order’s entry into the system. A

buy order will pay the prevailing market

quote for an offer and a sell order will

sell at the prevailing market quote for

the bid. A market maker who has signed

on as a participant in RAES will be

designated as a contra-broker on the

trade; trades are assigned to

participating market makers on a

rotating basis.

By agreeing to participate in RAES, a

market maker is automatically assigned

trades based on the prevailing market

quote that is then being disseminated.

Consequently, it is important that the

prevailing market quote be accurate,

because otherwise market makers

participating in RAES may be assigned

trades at prices other than the actual

prevailing market quote. In addition, in

the event that incorrect quotes are

displayed because of a quote

dissemination problem, a customer’s

order could be filled at a price other

than the quote the customer sees on

display.

CBOE believes that the proposed

interpretations to Rules 24.15 and 6.8

are necessary to prevent market makers

from being assigned trades based on

inaccurate or ‘‘stale’’ market quotes that

are the result of a system malfunction,

and to prevent customer orders from

being filled based on such inaccurate or

‘‘stale’’ market quotes. CBOE also

believes that the proposed

interpretations are necessary to prevent

filling customers’ orders at prices

different from the prices displayed.

The proposed rule change seeks to

address these occurrences by vesting the

senior person then in charge of the

Exchange’s Control Room with the

authority to act quickly to turn off RAES

if there is a system malfunction that

affects the Exchange’s ability to

disseminate or update market quotes.5

Because RAES trades are based on the

current disseminated quote, RAES

trades would be based on inaccurate or

‘‘stale’’ quotes during a system

malfunction that interferes with

dissemination of current quote

information. The Exchange believes it is

important for staff persons in the

Control Room to have the authority to

turn off RAES because the Control Room

will most likely learn of the system

malfunction before Floor Officials or

other Exchange staff. Consequently,

Control Room staff can act in a timely

manner to prevent trades based on

‘‘stale’’ market quotes.

If RAES is turned off because of the

circumstances described above, the

Control Room will disseminate a floorwide announcement that RAES has been

turned off,6 and the orders that would

have been routed to RAES will be

automatically rerouted to the floor

broker printer in the trading crowd or to

the appropriate member firm booth.

Where the order is re-routed will

depend upon parameters set by member

firms for their customers’ orders prior to

entering the orders onto RAES.7 If the

order is not re-routed to the member

firm booth, the order will be

automatically re-routed to the

designated floor broker printer, where

the floor broker assigned to that printer

will promptly execute the order.8

Pursuant to the proposed

interpretations, once the system

malfunction has been corrected and the

market quotes have been updated, either

the senior person then in charge of the

Exchange’s Control Room, or the Order

Book Official, or the RAES Supervisor

may re-start RAES.

III. Commission Finding and

Conclusions

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, and, in particular, the

requirements of Section 6(b)(5) of the

Act.9 Specifically, the Commission finds

that the proposed rule change provides

a reasonable mechanism for the CBOE to

respond to system malfunctions that

impact the integrity of the RAES system.

The Commission notes that this

proposal only authorizes the senior

person in the Control Room to turn off

RAES in circumstances that involve

technical system malfunctions affecting

the accuracy of the CBOE’s automated

pricing system. While the Commission

understands that it is impractical to

enumerate every possible system

malfunction that may affect the

accuracy of market quotations, it notes,

nonetheless, that not all ‘‘stale’’ or

inaccurate market quotations are the

result of system malfunctions, and that

this proposal does not grant senior

persons in the Control Room the

authority to turn off RAES in these other

circumstances.

Finally, the Commission believes that

CBOE’s alternative routing procedures,

as proposed for RAES orders in the

event of a system malfunction, should

provide small investors an efficient and

effective method for order execution in

circumstances where RAES is turned off

pursuant to this rule change.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (File No. SR–

CBOE–95–06), is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12002 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35696; File No. SR–NSCC–

94–19]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving

Proposed Rule Change to Settle

Certain Mutual Fund Services

Transactions in Same Day Funds

May 9, 1995.

On November 8, 1994, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NSCC–94–19) pursuant to Section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on January 3, 1994.2 One comment letter