[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65703-65704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30910]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36590; File No. SR-CHX-95-24]


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change Relating 
to Agency Crosses Between the Disseminated Exchange Market

December 13, 1995.
    On October 11, 1995, the Chicago Stock Exchange, Incorporated 
(``CHX'' 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 relating to the execution of 
agency cross transactions at a price between the disseminated Exchange 
market.\3\ On October 17, 1995, the Exchange submitted Amendment No. 1 
to the proposed rule change.\4\

    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In a cross transaction, a member or member organization that 
holds an order to buy and an order to sell an equivalent amount of 
the same security executes the orders against each other.
    \4\ See letter from David Rusoff, Foley & Lardner, to Glen 
Barrentine, Team Leader, SEC, dated October 13, 1995. Amendment No. 
1 corrected the text of Exhibit A to the filing, which sets forth 
the text of the proposed rule change, by adding a sentence that had 
been inadvertently omitted from Exhibit A as initially filed.

[[Page 65704]]

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    The proposed rule change and Amendment No. 1 were published for 
comment in Securities Exchange Act Release No. 36432 (Oct. 27, 1995), 
60 FR 55873 (Nov. 3, 1995). No comments were received on the proposal.
    Currently, Interpretation .01 to CHX Rule 23, Article XX, requires 
a CHX specialist to refrain from interfering with a floor-brokered 
agency cross \5\ of 10,000 shares or greater that is to be effected at 
a price between the disseminated Exchange market.\6\ The exchange 
proposes to amend this rule to require a CHX specialist to refrain from 
interfering with all floor-brokered agency crosses, regardless of size, 
at a cross price between the disseminated Exchange market. Under the 
Exchange's proposal, the specialist will continue to be obligated to 
satisfy all orders on the book with priority at the cross price.\7\ 
Moreover, the proposed rule change will continue to permit the 
specialist to participate at the cross price if the specialist is 
willing to provide one side of the cross with a better price or if the 
member presenting the cross previously solicited the specialist's 
assistance in consummating any part of the transaction.

    \5\ For purposes of this rule, an ``agency cross'' is defined as 
a cross where neither the order to buy or sell is for the account of 
any member or member organization.
    \6\ See Securities Exchange Act Release No. 33708 (Mar. 3, 
1994), 59 FR 11339 (File No. SR-MSE-93-05) (approving a proposed 
rule change to require that the CHX specialist refrain from 
interfering with a floor-brokered agency cross of 10,000 share or 
more at a cross price between the disseminated Exchange market).
    \7\ This requirement is to ensure that in situations where a 
limit order on the book has not been displayed in the quote, the 
specialist would be obligated to satisfy such limit orders with 
priority at the cross price.
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    The Exchange believes that the proposed rule change will increase 
the possibility of immediate execution for agency crosses on the 
Exchange, which in turn will improve the Exchange's ability to compete 
for order flow and enhance the depth and liquidity of the Exchange 
market. Moreover, the Exchange believes that the proposed rule change 
strikes an appropriate balance between the competing needs of various 
customer orders represented for execution on the Exchange and the 
proprietary trading operations of Exchange members and member 
organizations, including specialists.
    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, with the requirements of section 6(b) \8\ and Section 
11(a).\9\ The Commission believes the proposal is consistent with the 
Section 6(b)(5) requirements that the rules of an exchange be designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public interest. The Commission also believes that the proposed 
rule change is not inconsistent with the traditional auction market 
principle of customer priority as embodied in Section 11(a) of the Act.

    \8\ 15 U.S.C. Sec. 78f(b).
    \9\ 15 U.S.C. Sec. 78k(a).
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    The Commission believes that the proposed rule change should 
further competition among the exchanges,\10\ as well as between the 
exchanges and other markets, and should increase the opportunities for 
the efficient execution of cross transactions without operating in a 
manner inconsistent with traditional auction market principles. The 
proposal only restricts specialists from interfering with crosses 
between the disseminated Exchange market under certain circumstances 
and continues to allow another member, including an order for the 
principal account of a member, to break up the cross.

    \10\ Several exchanges have similar rules prohibiting 
specialists from interfering with agency crosses when the cross is 
at a price inside the disseminated exchange market without regard to 
size. See, e.g., Pacific Stock Exchange Rule 5.14(b) and 
Philadelphia Stock Exchange Rule 126.
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    The Commission believes that the proposal is not inconsistent with 
the auction market principles of time and price priority. As before, a 
member effecting a cross transaction at the prevailing bid or offer 
will continue to be required to obtain priority over all existing limit 
orders at that price and specialists will continue to be required to 
fill limit orders at the cross price, which have not been displayed in 
the quote. Moreover, the Commission believes that the proposal does not 
alter the safeguards provided in the current rule, which ensure that 
public customers are not disadvantaged. For example, the Commission 
notes that the proposed rule change does not change the opportunity for 
customer orders to receive price improvement: the specialist will 
continue to be allowed to participate at a better price.
    Finally, the Commission does not believe that the proposed rule 
change will significantly reduce order interaction on the floor of the 
Exchange. Only a CHX specialist who does not have a displayed bid or 
offer at the cross price must refrain from participating in a cross 
transaction at that price. The proposed rule change does not affect the 
ability of specialists to participate at a better price or the ability 
of other interest in the trading crowd to participate. The Commission 
does not expect the proposed rule change to substantially impair price 
discovery or market liquidity.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CHX-95-24) is approved.

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-30910 Filed 12-19-95; 8:45 am]
BILLING CODE 8010-01-M