20498 Federal Register / Vol. 65, No. 74 / Monday, April 17, 2000 / Notices

5 17 CFR 240.19c–1 and 17 CFR 240.19c–3.

6 15 U.S.C. 78f(b)(5). 7See supra notes 3 and 4.

8 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. 42352

(January 20, 2000), 65 FR 4455.

4See letter from Jeffrey T. Brown, Vice President

Regulation and General Counsel, CSE, to Heather

Traeger, Attorney, Division of Market Regulation,

SEC, dated April 4, 2000 (‘‘Amendment No. 1’’).

Because of the technical nature of this amendment,

the Commission is not required to solicit comment

on it.

5The Exchange amended the text of the proposed

rule change to replace ‘‘NASDAQ’’ with ‘‘Nasdaq.’’

id.

Chapter II, Section 23, ‘‘Dealings on

Other Exchanges or Publicly Outside the

Exchange.’’ Originally, Chapter II,

Section 23 prohibited Exchange

members from trading over-the-counter

in certain securities. Off-board trading

restrictions in general provided an

additional incentive for members to

purchase regional specialist units which

promoted internalization of order flow

and limited fragmentation.

However, the Commission narrowed

the scope of exchange off-board trading

restrictions by the adoption of Rules

19c–1 and 19c–3 under the Act.5 Rule

19c–1 enabled Exchange members to

execute agency trades with a market

maker who is not an exchange member.

Rule 19c–3 permits Exchange members

to execute proprietary trades in

securities listed after April 26, 1979. On

a practical basis, the purchase of a

regional specialist unit allowed a

member firm to internalize its small

retail order flow without violating an

exchange’s off-board principal trading

restrictions.

The Exchange believes it is

appropriate to rescind its restrictions on

off-board trading at this time. Advances

in the application of technology have

resulted in the creation of new

competitors to the regional exchanges,

such as Alternative Trading Systems. As

such, the Exchange recognizes the need

for exchanges and their members to take

part in the greater level of free market

trading. The NYSE also filed to rescind

NYSE Rule 390. In light of these

developments (as well as the

Commission’s request that the Exchange

review its restrictions on off-board

trading), the Exchange now proposed to

rescind Chapter II, Section 23.

2. Statutory Basis

The Exchange believes that 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

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, and, in general, to protect

investors and the public interest; and is

not designed to permit unfair

discrimination between customers,

issuers, brokers, and dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will not 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

The Exchange has neither solicited

nor received written comments on 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 such

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 approved 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. The

Commission also invites interested

persons to submit written data, views,

and arguments on the market

fragmentation issues presented in the

NYSE Notice.7 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–

0609. 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 persons, 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 will also be

available for inspection and copying at

the principal office at the Exchange. All

submissions should refer to File No.

SR–BSE–00–02 and should be

submitted by May 8, 2000. Comments

responding to the Commission’s request

for comment on market fragmentation

issues should refer to File No. SR–

NYSE–99–48 and should be submitted

by April 28, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–9486 Filed 4–14–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42657; File No. SR–CSE–

99–05]

Self-Regulatory Organizations; Order

Approving the Proposed Rule Change

and Amendment No. 1 to the Proposed

Rule Change by the Cincinnati Stock

Exchange Enabling Members To Trade

Nasdaq/NM Securities

April 10, 2000.

I. Introduction

On December 10, 1999, the Cincinnati

Stock Exchange (‘‘CSE’’ or ‘‘Exchange’’)

submitted to 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 a proposed rule change to

enable its members to trade Nasdaq/NM

securities.

The proposed rule change was

published for comment in the Federal

Register on January 27, 2000.3 No

comments were received on the

proposal. On April 7, 2000, the

Exchange submitted Amendment No. 1,

making several technical changes to the

proposed rule text.4 This order approves

the proposed rule change, as amended.

II. Description of the Proposal

The proposed rule change would

amend the CSE Rules to permit

members to trade Nasdaq/NM 5

securities traded on The Nasdaq Stock

Federal Register / Vol. 65, No. 74 / Monday, April 17, 2000 / Notices 20499

6 In Amendment No. 1, the Exchange clarified

that the proposed rule change permits Exchange

members to trade securities traded on Nasdaq, not

securities traded on a ‘‘national securities

association.’’ Id.

7This filing is made in conjunction with the

Exchange joining the Unlisted Trading Privileges

Plan (‘‘UTP Plan’’) governing the collection,

consolidation and dissemination of quotation and

transaction information for Nasdaq/NM securities.

See Securities Exchange Act Release No. 42269

(December 23, 1999), 65 FR 799 (January 6, 2000).

8The Exchange represents that these variations

will be revisited in any proposed rule changes to

accommodate decimal pricing.

9 In Amendment No. 1, the Exchange clarified

that the System does not generate but merely

displays the Nasdaq System best bid or offer

quotations generated and disseminated by the

Nasdaq System. See Amendment No. 1, supra note

4.

10 15 U.S.C. 78f(b).

11 15 U.S.C. 78f(b)(5).

12 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

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

14 17 CFR 200.30–3(a)(12).

Market (‘‘Nasdaq’’), a wholly-owned

subsidiary of the National Association

of Securities Dealers (‘‘NASD’’) 6 on an

UTP basis.7 The majority of the

proposed rule change to Chapter XI,

‘‘Trading Rules,’’ of the CSE rules

relates to amendments to accommodate

the trading of Nasdaq securities,

however, certain changes are

housekeeping in nature.

The proposed rule change would

amend CSE Rule 11.1, ‘‘Hours of

Trading’’ by converting the hours of

trading on the Exchange from Cincinnati

local time to Chicago local time and

providing in subparagraphs (b) and (c)

for the inclusion of Nasdaq securities in

the determination of trading hours for

dually or multiple-traded securities. The

changes to CSE Rule 11.2, ‘‘Unit of

Trading,’’ would reflect the inclusion of

Nasdaq securities in determining the

appropriate unit of trading. Similarly,

the proposed rule change would amend

CSE Rule 11.4, ‘‘Trading Ex-Dividend,

Etc.’’, and CSE Rule 11.5, ‘‘Orders to be

Reduced and Increased on Ex-Date,’’ to

include Nasdaq securities in the

exception language of the rules.

In CSE Rule 11.3, ‘‘Price Variations,’’

the proposed rule change would amend

the stated minimum variation to reflect

the current primary market practice, i.e. 1⁄16 of $1.00 per share in stocks trading

at or above $.50 per share and 1⁄32 of

$1.00 per share in stocks trading below

$.50 per share.8 The changes would also

include securities traded on Nasdaq in

determining the appropriate variation.

CSE Rule 11.7, ‘‘Cabinet Trading,’’

would be amended to reflect that the

CSE facilities are now located in

Chicago, Illinois.

The proposed rule change would

make a number of amendments to CSE

Rule 11.9, ‘‘National Securities Trading

System’’ (‘‘System’’). The amendments

to subparagraph (a) would define the

terms ‘‘Nasdaq/NM Security,’’ ‘‘Nasdaq

System,’’ ‘‘Nasdaq System BBO’’ and

include the term ‘‘national securities

association’’ in the definition of

‘‘Approved Dealer.’’ The changes to

subparagraph (c) would add the term

‘‘Nasdaq System BBO’’ to the definition

of marketable limit order, except

Nasdaq/NM securities from the opening

guarantee of 1099 shares, and

implement a Nasdaq/NM opening

guarantee up to 1099 shares at an

opening price that is on or between the

first unlocked/uncrossed Nasdaq

System BBO. The changes to

subparagraph (e) would add specialists

or market makers who are members of

other national securities associations to

the entities that may submit bids or

offers to the System. The changes to

subparagraph (h) would ensure that the

System displays the Nasdaq System

BBO generated by Nasdaq System

market makers 9 and permits Nasdaq

System market makers telephonic, or

other such access to the System as may

be established between the Exchange

and the Nasdaq System, and conversely,

permit Designated Dealers to send

orders from the Exchange via telephone,

or by other such access as may be

established between the Exchange and

the Nasdaq System, to Nasdaq market

makers.

Subparagraph (j) of CSE Rule 11.9

would be amended to include the

Nasdaq System and the Nasdaq System

BBO in the prohibition of executing a

limit order only after a regular way

transaction occurs in another market at

a price equal or inferior to the limit

price of the order. The amendments to

subparagraph (n) would clarify that the

public agency guarantee for 1099 shares

at the opening price applies to securities

other than Nasdaq/NM securities.

However, the public agency guarantee

applies to those market and marketable

limit orders prices better than the first

unlocked/uncrossed Nasdaq System

BBO. In addition, the amendments

would add the Nasdaq System BBO to

the obligations to execute on the basis

of the ITS BBO. Finally, the

amendments to this subparagraph

clarify that the execution guarantees and

requirements of CSE Rule 12.6,

Customer Priority, apply during the

hours of trading on the Exchange (8:30

a.m. to 3:05 p.m. local Chicago time).

The proper rule change would also

amend the ‘‘Interpretations and

Policies’’ section of CSE Rule 11.9

Interpretation and Policies Section .01.

‘‘Market Order Requirement,’’ and .02,

‘‘Limit Order Protection Requirement,’’

would be amended to reflect that the

obligations of the interpretation apply to

securities other than Nasdaq/NM

securities.

III. Discussion

The Commission finds that the

proposed rule change, as amended, is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange, and in particular,

with the requirements of Section 6(b).10

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) 11 requirements in that

the proposed standards to permit CSE

members to trade NASDAQ/NM

securities should promote just and

equitable principles of trade and

facilitate transactions in securities,

thereby removing impediments to and

prefecting the mechanism of a free and

open market in a manner consistent

with the protection of investors and the

public interest.12

Furthermore, the proposed rule

change is consistent with Section

12(f)(2) of the Act. Section 12(f)(2)

granted the Commission explicit

authority to approve UTP in OTC

securities. Section 12(f)(2) requires the

Commission, prior to approving UTP, to

determine that the granting of UTP is

consistent with the maintenance of fair

and orderly markets and the protection

of investors. The Commission believes

that the proposed rule change is

consistent with these goals and thus, the

Commission is approving the proposed

rule change, subject to the CSE

complying with the requirements of the

UTP Plan.

IV. Conclusion

It is therefore ordered, pursuant to

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

proposed rule change (SR–CSE–99–05),

as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–9489 Filed 4–14–00; 8:45 am]

BILLING CODE 8010–01–M