Federal Register / Vol. 60, No. 48 / Monday, March 13, 1995 / Notices 13493

1See, Securities Exchange Act Release Nos. 28866

(February 7, 1991), 56 FR 5854 (February 13, 1991);

29524 (August 5, 1991), 56 FR 38160 (August 12,

1991), 30353 (February 7, 1992), 57 FR 5918

(February 18, 1992); 31011 (August 7, 1992), 57 FR

38704 (August 26, 1992); 32280 (May 7, 1993), 58

FR 28424 (May 13, 1993); 33975 (April 28, 1994),

59 FR 23243 (May 5, 1994); 34493 (August 5, 1994),

59 41531 (August 12, 1994).

body, other than the full Floor

Procedure Committee, may appeal to the

full Floor Procedure Committee within

five days of receiving notice of the

action by making a written request.

Upon appeal, the full Floor Procedure

Committee may increase or decrease the

amount of a summary fine or the length

of an exclusion from the Exchange. The

Floor Procedure Committee, however,

may not fine a member in an amount in

excess of $2,500 or exclude a member

from the Exchange in excess of five full

business days. The decision of the Floor

Procedure Committee is deemed final

with respect to any action involving no

more than a $100 fine.

By written request, a member may

appeal a determination of the full Floor

Procedure Committee involving more

than a $100 fine to the Executive

Committee. The Executive Committee

will review the report of the action as

certified by the Secretary unless it

decides to open the record for

additional evidence. The Executive

Committee may increase or decrease the

amount of a summary fine or the length

of an exclusion after review. The

Executive Committee, however, may not

fine a member in an amount in excess

of $2,500 or exclude a member from the

Exchange in excess of five full business

days.

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

At present, CHX Rule 3 of Article XII

describes the ability of the Exchange’s

Committee on Floor Procedure to

summarily fine members and exclude

them from the Exchange premises. The

purpose of the proposed rule change is

to give the Committee on Floor

Procedure the same authority over

persons associated with a member.

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 mechanisms

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.

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–95–5

and should be submitted by April 3,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6086 Filed 3–10–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35448; File No. SR–CSE–

95–03]

Self-Regulatory Organization; Notice of

Filing of Proposed Rule Change by the

Cincinnati Stock Exchange, Inc.

Relating to Preferencing of Agency

Orders by Approved Dealers

March 7, 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 1, 1995, the

Cincinnati Stock Exchange; Inc. (‘‘CSE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II and III

below, which Items have been prepared

by the self-regulatory 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 CSE hereby proposes to

permanently adopt Exchange Rule

11.9(u) and related portions of Rule

11.9(a) and (m). The rules were

approved by the Commission on a pilot

basis on February 7, 1991, and have

been in effect since then.1 The current

pilot expires May 18, 1995.

The Exchange is also requesting that,

in granting permanent approval, the

Commission not impose two restrictions

related to payment for order flow and

the number of securities in which an

Exchange specialist may preference.

These conditions appear only in the text

of certain Commission releases

approving and extending the pilot

program; they are not part of the text of

the Exchange’s rules. The text of the

proposed rule change is as follows
13494 Federal Register / Vol. 60, No. 48 / Monday, March 13, 1995 / Notices

2The report is available in the Commission

Public Reference room.

whereby the additions are italicized and

deletions are [bracketed]:

Rule 11.9 National Securities Trading

System

(a) through (k)—No change.

(l) Public agency orders to buy or sell at a

particular price shall, in all cases except

execution of such an order pursuant to a

limit order guarantee, have priority over all

other bids and offers in the System at the

same price. Subject to the foregoing

condition,

(1) All bids entered in the System shall be

queued for execution so that the highest price

bid shall be the first to be executed and so

that, in the case of bids at the same price,

except in the case of Approved Dealer bids

entered pursuant to subparagraph (u), the

bid entered earliest in time shall be the first

to be executed; and

(2) all offers entered in the System shall be

queued for execution so that the lowest price

offered shall be the first to be executed and

so that, in the case of offers at the same price,

except in the case of Approved Dealer [bids]

offers entered pursuant to subparagraph (u),

the offer entered earliest in time shall be the

first to be executed.

(m) It shall be the responsibility of each

Approved Dealer or other Proprietary

Member when trading on the Exchange for

his own account or as agent for professional

agency orders in round lots of designated

Issues to effect such transactions through the

System and, in so doing, to yield priority to:

(1) all public agency orders in the System

at prices equal to, or better than, his order,

bid, or offer; and

(2) all orders, bids and offers of Approved

Dealers and other Proprietary Members for

their own accounts and as agents for

professional agency orders in the System at

prices better than his order, bid or offer or

at the same price in the event any such

orders, bids or offers were entered in the

System (i) at an earlier time than his order,

bid or offer, or (ii) in the case of Approved

Dealers, for the purpose of trading for their

own account against public agency orders

which such approved Dealers are

representing as agent pursuant to

subparagraph (u).

(n) through (t)—No change.

(u) Public agency market and marketable

limit orders which an Approved Dealer

represents as agent may be preferenced to

such Approved Dealer in accordance with

the price-time and agency/principal priorities

set forth in Rule 11.9(l) and (m).

Notwithstanding subparagraphs (c) and (n),

an Approved Dealer shall be Dealer of the

day with respect to orders preferenced under

this subparagraph (u). Additionally,

Designated Dealers shall be allowed to

preference their customer order flow that is

related to index arbitrage only on plus or

zero plus ticks when the Dow Jones Industrial

Average (‘‘DJIA’’) declines by fifty points or

more from the previous day’s closing value.

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

the 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 Exchange proposes to make

permanent Rule 11.9(u) and selected

portions of Rule 11.9(l) and (m), which

were approved by the Commission on a

pilot basis in February, 1991. The rules

provide an exception to the Exchange’s

time priority requirements between

competing specialists when one

specialist is interacting with his or her

own customer order flow.

On the New York Stock Exchange

(‘‘NYSE’’) and other exchanges, a

unitary specialist can, without the price

competition of other specialists,

internalize the order flow of his or her

firm or an affiliated firm. On CSE,

however, a competing specialist system

limited the ability of a specialist to

interact with his or her own order flow.

Therefore, in order to provide the same

advantage which specialists on other

exchanges have vis-a-vis their own

customer order flow, the CSE modified

its time priority rules in order to permit

one specialist to step ahead of another

specialist at the same price when that

first specialist is trading with his or her

own customer order. This is the essence

of the Exchange’s program. All other

aspects of a traditional auction market

are preserved on CSE: public orders in

the CSE book continue to have priority

over all competing specialist interest,

and a specialist who participates in the

program must still provide ‘‘best

execution’’ to his customer’s order.

CSE’s pilot has been operating for

over four years and as documented

within the Exchange’s ‘‘Quality of

Markets Analysis’’ dated January 18,

1995,2 the program has served as a

means of improving the Exchange’s

market. In light of the favorable impact

the program has exhibited on CSE’s

market and CSE’s participation in the

National Market System, the Exchange

is requesting that the rules be approved

on a permanent basis.

The Exchange is also requesting that

the Commission eliminate two of the

three restrictions imposed on the pilot

when permanently approving the rules.

When the pilot was first approved,

Approved Dealers could only execute

preferenced trades in 60 securities to

which they had been appointed. With

the approval of subsequent pilot

extensions the number has been raised

to 350 securities, where it has been

capped for over two years. The

Exchange believes that this restrictive

cap should be removed since it serves

no regulatory purpose.

The second restriction, prohibiting

preferencing specialists from making

direct cash payments for retail orders,

conflicts with the practice of specialists

on other regional markets. When the

CSE program was initially approved, the

Commission had not yet reached a

determination and was studying what

impact the payment for order flow had

on the market. Recently, the

Commission reached a conclusion and

decided that payment for order flow

should be addressed through enhanced

disclosure requirements to make

investors aware of how their orders

were handled. CSE specialists must

abide by these disclosure standards just

as their counterparts on other markets.

On the other hand, CSE specialists

currently have the additional

restrictions that prohibits payment for

order flow. The Exchange believes that

this restriction is now unnecessary in

light of the Commission’s decision.

The third restriction addresses trading

when the Dow Jones Industrial Average

declines by more than fifty points from

the previous day’s closing value. The

Exchange has included this restriction

as part of paragraph (u).

2. Statutory Basis

The CSE believes that the proposed

rule change is consistent with Section

6(b) of the Act in general and furthers

the objectives of Section 6(b)(5) in

particular in that it will promote just

and equitable principles of trade and

remove impediments to and perfect the

mechanism of a free and open market

and a national market system as

required by Section 6(b)(5).

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CSE does not believe that the

proposed rule change will impose any

inappropriate burden on competition.
Federal Register / Vol. 60, No. 48 / Monday, March 13, 1995 / Notices 13495

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

2For a complete description of the Legal Expert

System, refer to Securities Exchange Act Release

Nos. 33756 (March 11, 1994), 59 FR 13350 [File No.

SR–MSTC–94–02] (order approving a rule change

regarding the Legal Expert System’s fees and a

clarification disclaiming any liability on MSTC’s

part for any misinformation contained in the Legal

Expert System) and 35098 (December 13, 1994), 59

FR 65551 [SR–MSTC–94–17] (order modifying the

pricing structure of the Legal Expert System).

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

On February 10, 1995, the Exchange

requested comments from the

participants of the Intermarket Trading

System (‘‘ITS’’) pursuant to Section

8(e)(iii) of the ITS Plan. On February 17,

1995, the NYSE submitted a brief

comment letter in which they had only

one substantive and one procedural

comment. The NYSE believes that the

CSE mischaracterized the functioning of

NYSE specialists and misapplied the

term ‘‘internalize’’ within the Statement

of Purpose of the filing. The NYSE

contends that the term ‘‘internalize’’ is

inapplicable to the NYSE. The CSE,

within the Statement of Purpose, states

‘‘On the NYSE and other exchanges, a

unitary specialist can (emphasis added),

without the price competition of other

specialists, internalize order flow of his

or her firm or an affiliated firm.’’

Regarding the procedural comment,

the NYSE states that the CSE has not

summarized or responded in detail to

prior comments made on CSE’s

preferencing pilot. The CSE has not

received any comments, prior to this

NYSE letter, on either CSE’s initial

filing proposing preferencing (SR–CSE–

90–06, Release No. 34–27910) or any of

the six amendments/extensions

subsequently approved by the

Commission. However, on August 25,

1993, the NYSE took the opportunity to

include within their comment letter

regarding the Boston Stock Exchange’s

Competing Specialists proposal (SR–

BSE–93–12, Release No. 34–32549),

comments on the preferencing pilot at

the CSE. The CSE, in a letter to Brandon

Becker, Director, Division of Market

Regulation dated March 18, 1994,

accordingly addressed certain assertions

concerning the CSE which appeared in

correspondence from the NYSE. The

CSE, under separate letter, requested the

Secretary to place copies within files

SR–CSE–93–03 and SR–CSE–94–01.

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 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 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, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CSE. All submissions

should refer to File No. (SR–CSE–95–03

and should be submitted by April 3,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6085 Filed 3–10–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35447; File No. SR–MSTC–

95–03]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by Midwest

Securities Trust Company Relating to

the Legal Expert System Fees

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

January 27, 1995, the Midwest

Securities Trust Company (‘‘MSTC’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by MSTC. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organizations

Statement of the Terms of Substance of

the Proposed Rule Change

MSTC proposes to waive the fees

associated with the Legal Expert System

until March 1, 1995.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

MSTC 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. MSTC has prepared

summaries, set forth in section (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

The purpose of the proposed change

is to waive the fees for the Legal Expert

System until March 1, 1995.

The text of the proposed rule change

is as follows with additions italicized:

MSTC LEGAL EXPERT SYSTEM

Terminal inquiry

1–2,500 inquiries per

month.

$0.50/inquiry.

2,501–5,000 ...................... 0.35/inquiry.

5,001–10,000 .................... 0.26/inquiry.

10,001 and over ................ 0.17/inquiry.

MSTC full legal deposit participants

will receive a free inquiry for each legal

deposit submitted to MSTC. The free

inquiries are only valid in the month the

legal deposit is made.

The above terminal inquiry fees are

waived until March 1, 1995.

The proposed rule change is

consistent with Section 17A of the Act

in that it provides for the equitable

allocation of reasonable fees and other

charges among participants using its

facilities.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

MSTC does not believe that the

proposed rule change will impose a