[Federal Register Volume 60, Number 65 (Wednesday, April 5, 1995)]
[Notices]
[Pages 17375-17376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8260]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35547; File No. SR-CHX-95-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Inc., Relating to Order Execution 
Guarantees

March 29, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
March 2, 1995, the Chicago Stock Exchange, Incorporated (``CHX'' 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 Exchange proposes to amend Article XX, Rule 37 to add a new 
subsection (d) thereunder. The text of the proposed rule change is as 
follows [new text is italicized]:

Article XX

    Rule 37(d) Notwithstanding anything herein to the contrary, a 
specialist may voluntarily provide order execution guarantees more 
favorable than those required pursuant to this Rule 37 (i.e., 
greater size, better price, limitations on partial executions, 
etc.). At the request of a specialist, the Exchange may provide for 
automatic execution of orders in accordance with such guarantees 
upon such terms and conditions as the Exchange shall determine. In 
either event, failure of a specialist to honor a promised guarantee 
shall be deemed a violation of Exchange rules.

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 give specialists on 
the Exchange the ability to provide order execution guarantees that are 
more favorable than those required under the BEST Rule\1\ through the 
Exchange's automated execution system (``MAX'').\2\ [[Page 17376]] The 
automatic execution of these orders sent over the MAX System would only 
occur if a specialist requests it, and then, only on those terms and 
conditions set forth by the Exchange.\3\

    \1\See Chicago Stock Exchange Guide, Article XX, Rule 37(a), 
(CCH)  1714.
    \2\The Exchange has indicated to the Commission that this 
proposed rule change will have the effect of an ``enabling rule'' 
whereby specialists may provide better guarantees than currently is 
required under the Rules through the Exchange's Midwest Automated 
Execution System (``MAX''). The Exchange expects modifications to 
the parameters of the automated execution system to be on a per 
stock basis and the specific execution programs that are necessary 
to implement these guarantees will be filed in the future under 
Section 19(b)(3)(A). Telephone conversation with Craig Long and 
David Rusoff, Foley & Lardner, and Julio Mojica, Susan Lee, and 
Jennifer Choi, SEC, on March 10, 1995. The Exchange has indicated 
that the number of parameters for the automated executions will be 
limited. The Exchange anticipates that the options would include: a 
system allowing thirty-second order exposure, the automated 
execution system within MAX in which a Specialist may voluntarily 
choose to participate on a stock by stock basis (``SuperMAX''), and 
the enhanced version of SuperMAX (``Enhanced SuperMAX''), which is 
available to CHX specialists as an addition or an alternative to 
SuperMAX. The Exchange also has stated that a specialist will be 
permitted to switch from one set of parameters to another once a 
month. Telephone conversation with David Rusoff, Foley & Lardner and 
Jennifer Choi, SEC, on March 20, 1995.
    \3\The Exchange has indicated that the ``terms and conditions'' 
provision will provide the Exchange with veto power over a 
specialists's particular request. Telephone conversation with Craig 
Long and David Rusoff, Foley & Lardner, and Julio Mojica, Susan Lee, 
and Jennifer Choi, SEC, on March 10, 1995.
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    The BEST Rule requires specialists to execute agency market orders 
of 2099 shares or less in Dual Trading System issues\4\ or NASDAQ/NMS 
Securities at the national best bid or best offer (``NBBO'')\5\ if 
certain conditions are satisfied. Orders greater than 2099 shares, 
however, are not subject to the rule. Under this proposed rule change, 
a specialist could, for example, increase the size of the guarantee, be 
more flexible in providing partial executions, or obligate itself to 
provide price improvement under certain circumstances.

    \4\The Dual Trading System of the Exchange allows the execution 
of both round-lot and odd-lot orders in certain issues assigned to 
specialists on the Exchange and listed on either the New York Stock 
Exchange or the American Stock Exchange.
    \5\The term national best bid or best offer is defined under SEC 
Rule 11Ac1-2 as the highest bid or lowest offer for a reported 
security made available by any reporting market center pursuant to 
Rule 11Ac1-1 or the highest bid or lowest offer for a security other 
than a reported security disseminated by an over-the-counter market 
maker in Level 2 or 3 of NASDAQ.
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    Although nothing in the proposed rule change requires a specialist 
to give more favorable guarantees, if such guarantees are provided 
through the MAX System, the specialist must honor the more favorable 
guarantee. Failure of a specialist to honor the more favorable 
guarantee will be deemed to be a violation of Exchange Rules.
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.

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 find 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 NW., 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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Section, 450 Fifth Street NW., 
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-95-08 and should be 
submitted by April 26, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8260 Filed 4-4-95; 8:45 am]
BILLING CODE 8010-01-M