27358 Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices

5Pursuant to Article XXII, Rule 37 of the CHX

rules, trades by a member in depository eligible

securities generally must be settled by book-entry

through a securities depository.

6 15 U.S.C. 78f(b)(5) (1988).

7Supra note 3 and accompanying text.

8 17 CFR 200.30–3(a)(12) (1994).

1See letter from Craig Long, Foley & Lardner, to

Glen Barrentine, Senior Counsel, SEC, dated May 4,

1995. In Amendment No. 1, the Exchange requests

that the rule filing be approved on a one-year pilot

basis and makes certain clarifying changes to the

text of Item I.

2A limit order is an order to buy or sell a stated

amount of a security at a specified price or at a

better price.

3 In the Pilot Approval Order, the Commission

described its concerns with the program and

requested that the Exchange submit a report

detailing the use of the pilot. The Exchange,

however, did not submit the report because

specialists on the Exchange made little or no use

of the pilot program. Telephone conversation

between Craig Long, Foley & Lardner, and Jennifer

Choi, SEC, on April 17, 1995.

4 In the original pilot program,the Auto-Ex was to

operate by comparing the size of CHX-entered limit

Requirements’’).5 The proposed rule

specifies different requirements for

depository eligibility depending upon

whether a new issue is distributed by an

underwriting syndicate before or after

the date a securities depository system

is available for monitoring repurchases

of the distributed shares by syndicate

members (‘‘flipping tracking system’’).

Currently, a flipping tracking system

is being developed that will include a

securities depository service that (i) can

be activated upon the request of the

managing underwriter for a period of

time that the managing underwriter

specifies, (ii) in certain circumstances,

will require the delivering participant to

provide to the depository information

sufficient to identify the seller of such

shares as a precondition to the

processing of book-entry delivery

instructions for distributed shares, and

(iii) will report to the managing

underwriter the identity of any other

syndicate member or selling group

member whose customer(s) sold

distributed shares (but will not report to

the managing underwriter the identity

of such customer[s]) and, in certain

circumstances, will report to such

syndicate member or selling group

member the identity of such

customer(s). Prior to the availability of

a flipping tracking system, the managing

underwriter may delay the date a

security is deemed ‘‘depository eligible’’

for up to three months after trading has

commenced in the security. After the

availability of a flipping tracking

system, a new issue will be deemed to

be depository eligible upon

commencement of trading on CHX.

The proposed rule change is

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

Act 6 in that it is designed to promote

just and equitable principals of trade.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

CHX believes that no burden will be

placed on competition as a result of the

proposed rule change.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

No written comments have been

solicited or received. CHX will notify

the Commission of any written

comments received by CHX.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 CHX 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.

CHX has requested accelerated

effectiveness of the proposed rule

change in order that the rule can

become effective on June 7, 1995.7

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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 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 5th Street, N.W.,

Washington, D.C. 20549. Copies of such

filings will also be available for

inspection and copying at the principal

office of CHX. All submissions should

refer to the file number SR–CHX–95–12

and should be submitted by June 13,

1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12518 Filed 5–22–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35722; File No. SR–CHX–

95–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated Relating to the Automatic

Execution of Limit Orders

May 16, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on March 31, 1995,

the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change and on May 5,

1995, filed Amendment No. 1 to the

proposed rule change,1 as described in

Items I, II, and III below, which Items

have been prepared by the selfregulatory organization. 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 reactivate

its system enhancement relating to the

automatic execution of limit orders 2

with one modification. This system

enhancement was originally approved

by the Commission as a one-year pilot

program. See Securities Exchange Act

Release No. 32124 (Apr. 13, 1993), 58

FR 21325 (approving File No. SR–MSE–

92–03) (‘‘Pilot Approval Order’’). The

original one-year pilot program lapsed

on April 15, 1994 without the Exchange

filing for an extension or permanent

approval.3

The proposed automatic execution

feature (‘‘Auto-Ex’’) will operate by

comparing the size of the CHX-entered

limit order against the amount of stock

ahead of that order in the primary

market when the issue is trading in the

primary market at the limit price.4 The
Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices 27359

order against the amount of stock ahead of that

order in the ‘‘consolidated market’’ rather than in

the primary market. This change is the one

modification made by the Exchange to the original

pilot program. Telephone conversation with Craig

Long, Foley & Lardner, and Jennifer Choi, SEC, on

April 17, 1995.

5For example, assume a CHX specialist receives

an agency limit order to buy 2,000 shares of ABC

at 1⁄2. The primary market quotation is 1⁄2 bid, 3⁄4

offered, 5,000 shares bid and 5,000 shares offered,

meaning there are 5,000 shares ahead of the CHX

order. The Auto-Ex system will automatically

execute the entire CHX limit order after 7,000

shares print at 1⁄2 in the primary market. However,

when more than 5,000 but less than 7,000 shares

print at 1⁄2 in the primary market, the order will be

flagged with a flashing prompt to alert the specialist

that the order may be due at least a partial fill. See

CHX Article XX, Rule 37(a) governing primary

market protection of certain limit orders.

6For example, if the primary market quotation is 1⁄4 bid, 1⁄2 offered, 4,000 shares bid and 4,000 shares

offered, and a CHX specialist receives a limit order

to buy 2,000 shares for 1⁄8, that limit order will not

be compared against the amount of stock ahead of

the order in the primary market until such time as

the 1⁄4 bid is exhausted and the 1⁄8 bid becomes the

best bid. At that time, the size that is disseminated

with the 1⁄8 bid is the size against which the limit

order is compared for Auto-Ex purposes.

7The CHX specialist will be the contra-side of all

Auto-Ex trades. See Securities Exchange Act

Release No. 32124 (Apr. 13, 1993), 58 FR 21325

(approving File No. SR–MSE–92–03).

8The CHX will limit a specialist’s ability to

activate and then deactivate Auto-Ex regularly by:

(1) Only permitting a specialist to deactivate AutoEx on a certain day each month and (2) requiring

that issues remain on Auto-Ex for a minimum of

five trading days.

9Telephone conversation between Craig Long,

Foley & Lardner, and Glen Barrentine and Jennifer

Choi, SEC, on May 3, 1995.

10Under CHX Rule 37(b)(7), specialists generally

are required to automatically execute

nonmarketable agency limit orders at the limit price

when there is a price penetration of the limit price

in the primary market.

11A limit order is called ‘‘marketable’’ when the

prevailing best offer (bid) is equal to or less (greater)

than the limit buy (sell) order price. CHX Rule

37(b)(7) provides for the automatic execution at the

BBO or better of all limit orders that are marketable

when entered into the Exchange’s automated

execution system (‘‘MAX’’) provided that such

orders are of a certain size and are eligible for

execution under CHX rule 37(a).

comparison will be made against the

primary market quotation size. The

Auto-Ex system will keep track of all

prints in the primary market and will

automatically execute the limit order

once sufficient size prints in the

primary market.5 As additional limit

orders at the same price are received by

the specialist, comparisons will be made

and entered based upon the shares

ahead of those limit orders at the time

of receipt, including shares ahead on the

CHX. The Auto-Ex feature will not

permit a limit order to be filled out of

sequence. Limit orders will not be

compared for Auto-Ex purposes until

such time as the limit price equals the

bid or offer, as the case may be, quoted

in the primary market for the first time.6

The Auto-Ex feature will execute limit

orders in accordance with existing CHX

rules.7 Auto-Ex will be available for all

dually traded issues; however,

specialists will be permitted to choose

Auto-Ex on an issue by issue basis.8

Generally, the Exchange believes that

specialists will choose to use Auto-Ex

for issues that, based on experience,

have demonstrated reliable and accurate

quotes in the primary market.9 Limit

orders not subject to Auto-Ex will be

‘‘flagged’’ with a prompt to alert the

specialist that a fill may be due. The

proposal to establish an Auto-Ex feature

applies only to non-marketable limit

orders.10 It is not applicable to

marketable limit orders or to market

orders.11 The text of the proposed rule

change is as follows [new text is

italicized]:

Article XX

Rule 37(b)

(12) Automatic Execution of Limit Orders.

A Specialist may voluntarily choose to

activate a feature of MAX that

automatically executes limit orders on a

specialist’s book at the limit price after

both of the following conditions are met:

(1) the issue is trading at the limit price

in the primary market, and (2) enough

transactions in the issue are executed in

the primary market at prices which are

equal to the limit price of the order such

that the size associated with such

transactions are, in aggregate, equal to or

greater than the sum of (a) the size

displayed at the limit price in the

primary market when the limit order was

entered on the specialist’s book, plus (b)

the size of the limit order. This feature

can be activated on a stock-by-stock

basis only. Once activated, it must

remain activated for a minimum of five

trading days and can only be deactivated

on a certain day (to be determined by the

Exchange from time to time) each month.

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

self-regulatory organization 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 self-regulatory organization 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 reactivate the CHX’s AutoEx feature for limit orders in order to

further automate the CHX’s trading floor

functions and in order to improve the

CHX’s performance in filling limit

orders.

By providing for automatic execution

of limit orders in accordance with

existing Exchange rules, the CHX is

eliminating the need for the manual

operation required of specialists in

determining when and to what extent

limit orders are due fills based on

primary market prints. The manual

effort expended by specialists in filling

limit orders that are entitled to primary

market protection is often timeconsuming and can result in errors,

particularly when there is heavy trading

volume. The present proposal will,

therefore, directly benefit customers

because it will result in more timely fills

while eliminating errors resulting from

manual execution

The Auto-Ex feature will not change

or amend any CHX trading rules, nor

will it cause or allow limit orders to be

filled under different parameters than

under existing rules. Auto-Ex will only

automate the manner in which limit

orders are filled. The CHX will continue

to monitor specialist execution of limit

orders through the Market Regulation/

Surveillance Department. In addition,

CHX specialists will continue to be

responsible for their books to the same

degree as they are now under the

manual execution system for limit

orders.

2. Statutory Basis

The proposed rule change is

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

Act 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.
27360 Federal Register / Vol. 60, No. 99 / Tuesday, May 23, 1995 / Notices

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

2Securities Exchange Act Release No. 35613

(April 17, 1995), 60 FR 19971.

3The term ‘‘next-day funds’’ refers to payment by

means of certified checks that are for value on the

following day.

4The term ‘‘same-day funds’’ refers to payment in

funds that are immediately available and generally

are transferred by electronic means.

5For a description of the SDFS system, refer to

Securities Exchange Act Release Nos. 24689 (July 9,

1987), 52 FR 26613 [File No. SR–DTC–87–04] (order

granting temporary approval to DTC’s SDFS

settlement service); 26051 (August 31, 1988), 53 FR

34853 [File No. SR–DTC–88–06] (order granting

permanent approval to DTC’s SDFS settlement

service); 33958 (April 22, 1994), 59 FR 22878 [SR–

DTC–93–12] (order temporarily approving DTC’s

MMI settlement program through April 1, 1994);

and 35655 (April 30, 1995), 60 FR 22423 [File No.

SR–DTC–95–05] (order temporarily approving

DTC’s MMI settlement program through April 30,

1996).

6The Depository Trust Company and National

Securities Clearing Corporation, Memorandum (July

1, 1992) (‘‘1992 Memorandum’’); The Depository

Trust Company and National Securities Clearing

Corporation, Memorandum (July 26, 1993) (‘‘1993

Memorandum’’); The Depository Trust Company

and National Securities Clearing Corporation,

Memorandum (July 29, 1994) (‘‘1994

Memorandum’’).

7The Group of Thirty was established in 1978 as

an independent, nonpartisan, nonprofit

organization composed of international financial

leaders whose focus is on international economic

and financial issues.

8 Group of Thirty, Clearance and Settlement

Systems in the World’s Securities Markets (March

1989) (‘‘Group of Thirty Report’’).

9Only one DTC Participants Fund will be needed

when the NDFS system and the SDFS system are

combined into a new SDFS system.

10Supra note 6 and accompanying text.

11Currently, the SDFS system Participants Fund

consists of approximately $253 million in cash and

$567 million in pledged securities.

12Under the conversion plan, the SDFS system

Participants Fund will consist of $400 million in

cash. Based on current activity levels, DTC believes

that a $400 million cash-only Participants Fund

will provide sufficient protection against present

liquidity and credit risks. Pursuant to its rules, DTC

may change the formulas used to determine a

participant’s required deposit or require a

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such other 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 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.

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 at

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–CHX–92–11

and should be submitted by June 13,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12519 Filed 5–22–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35720; File No. SR–

DTC–95–06]

Self-Regulatory Organizations; The

Depository Trust Company; Order

Granting Accelerated Approval of a

Proposed Rule Change Modifying the

Same-Day Funds Settlement System to

Accommodate the Overall Conversion

to Same-Day Funds Settlement for

Securities Transactions

May 16, 1995.

On March 22, 1995, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–95–06) 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 April 21, 1995.2 No

comment letters were received. For the

reasons discussed below, the

Commission is granting accelerated

approval of the proposed rule change.

I. Description of the Proposal

DTC currently processes the money

settlements related to different types of

securities transactions in either the

next-day funds 3 settlement (‘‘NDFS’’)

system or the same-day funds 4

settlement (‘‘SDFS’’) system. The NDFS

system is used primarily for the money

settlement of equity, corporate debt, and

municipal debt issue transactions. The

SDFS system began operation in 1987

and is used primarily for the money

settlement of transactions in commercial

paper and other money market

instruments (‘‘MMIs’’).5

DTC and the National Securities

Clearing Corporation (‘‘NSCC’’) jointly

have issued three memoranda which

describe DTC’s and NSCC’s respective

plans for converting their payment

systems to SDFS.6 DTC’s sections of the

memoranda describe its plan to combine

its NDFS and SDFS systems into a

single system which will be based on

the design of the current SDFS system

with some modifications. DTC’s and

NSCC’s plans are in accord with the

1989 recommendation of the

international Group of Thirty 7 that all

securities transactions should settle in

same-day funds.8

Under the conversion plan, all issues

currently settling in DTC’s NDFS system

will be transferred to the SDFS system

on a single day, which DTC anticipates

will occur in the fourth quarter of 1995

or the first quarter of 1996.9 In order to

assure an efficient conversion, certain

modifications to the current SDFS

system will be implemented at various

times during 1995 prior to the overall

conversion date. The purpose of the

current rule change is to convert DTC’s

current SDFS system Participants Fund

to an all cash fund and to modify certain

risk management controls and other

features of the SDFS system. The

Participants Fund for the NDFS system

will not be affected by this rule change.

The rule change implements a number

of the modifications described in the

1994 Memorandum.10

Currently, the SDFS system

Participants Fund consists of cash and

securities and has separate components

for money market instruments and for

other SDFS system securities.11 The rule

change converts DTC’s SDFS system

Participants Fund to an all-cash fund

with no separate component for the

MMI Program.12 The rule change also