[Federal Register Volume 61, Number 111 (Friday, June 7, 1996)]
[Notices]
[Pages 29156-29158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14400]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37265; File No. SR-CHX-96-13]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change and Amendment No. 1 and Notice of 
Filing and Order Granting Accelerated Approval of Amendment No. 2 by 
the Chicago Stock Exchange, Incorporated Relating to the Modification 
of the Hours of the Exchange's Primary Trading Session and the 
Establishment of a Post Primary Trading Session

May 31, 1996.

I. Introduction

    On April 9, 1996, the Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``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 modify the hours of the Exchange's Primary 
Trading Session and to establish a Post Primary Trading Session. On May 
10, 1996 the Exchange submitted to the Commission Amendment No. 1 to 
the proposed rule change.\3\ The proposed rule change, as amended by 
Amendment No. 1, was published for comment in Securities Exchange Act 
Release No. 37204 (May 13, 1996), 61 FR 24988 (May 17, 1996). On May 
29, 1996 the Exchange submitted Amendment No. 2 to the proposed rule 
change.\4\ This order

[[Page 29157]]

approves the proposed rule change, as amended by Amendment Nos. 1 and 
2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Ivette Lopez, Assistant Director, Division of Market Regulation, 
SEC, dated May 9, 1996 (``Amendment No. 1'').
    \4\ See Letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Ivette Lopez, Assistant Director, Division of Market Regulation, 
SEC, dated May 29, 1996 (``Amendment No. 2'') Amendment No. 2 amends 
Article XX, Rule 2 to clarify that this rule also applies to the 
Post Primary Trading Session and Interpretation and Policy .01 to 
this rule to correct an inaccurate cross-reference. In addition, 
Amendment No. 2 revises the proposed changes to Article IX, Rule 
10(b) to clarify that if a security's primary market is the Pacific 
Stock Exchange, Incorporated (``PSE''), the Primary Trading Session 
for that security shall end no later than 3:00 p.m. (CT). Amendment 
No. 2 also revises the proposed changes to Article IX, Rule 10(b) to 
remove the extension of the Primary Trading Session for CHX 
exclusive issues from 3:00 p.m. to 3:30 p.m. (CT) and to provide 
that CHX exclusive issues are eligible for the Post Primary Trading 
Session. Finally, Amendment No. 2 deletes a provision of proposed 
Article XX, Rule 37, Interpretation and Policy .05 that would have 
allowed a specialist to decline to accept, under certain 
circumstances, orders entered during the Post Primary Trading 
Session.
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II. Description

    Currently, the Exchange's Primary Trading Session runs from 8:30 
a.m. to 3:00 p.m. (CT), Monday through Friday. One purpose of the 
proposed rule change is to amend Article XX, Rule 10(b) to conform the 
Exchange's Primary Trading Session hours for each traded security to 
the trading hours during which the security is traded on its primary 
market.\5\ If a security's primary market is the CHX, the Primary 
Trading Session for such security will continue to run from 8:30 a.m. 
to 3:00 p.m. (CT).\6\
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    \5\ The proposed rule change provides that for a security whose 
primary market is the PSE, the Primary Trading Session for that 
security shall end no later than 3:00 p.m. (CT). See Amendment No. 
2, supra note 4.
    \6\ See Amendment No. 2, supra note 4. The proposal, as 
originally filed, would have changed the trading hours for 
securities whose primary market is the CHX to 8:30 a.m.-3:30 p.m. 
(CT). See Securities Exchange Act Release No. 37204 (May 13, 1996), 
61 FR 24988 (May 17, 1996).
    However, trading in the Chicago Basket, currently conducted on 
the Floor of the Exchange from 8:30 a.m. to 3:15 p.m. (CT), will be 
unaffected by the proposed rule change.
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    The proposed rule change would also add a Post Primary Trading 
Session (``PPS'') on the trading floor.\7\ The PPS for orders and 
securities designated as eligible for the PPS would be for one-half 
hour after the close of the regular trading session on the security's 
primary market.\8\ Securities in which the CHX is the primary market 
will be eligible for the PPS.
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    \7\ The CHX represents that ITS will be available for both 
inbound and outbound trades during the PPS to the extent that other 
market centers (i.e., the PSE and the Philadelphia Stock Exchange, 
Inc. (``Phlx'') are open for trading. The CHX also represents that 
the PPS will be surveilled in the same manner and using the same 
techniques as those used to surveil the Primary Trading Session. To 
facilitate the surveillance of the PPS, CHX's surveillance staff 
will remain on-site during the PPS and for any necessary additional 
time period after the close of the PPS. See Letter from David T. 
Rusoff, Attorney, Foley & Lardner, to Ivette Lopez, Assistant 
Director, Division of Market Regulation, SEC, dated May 9, 1996 
(``ITS/Surveillance Letter'').
    \8\ For purposes of the PPS, the Exchange considers the close of 
regular trading to occur at 3:00 p.m. (CT) with respect to 
securities whose primary market is the PSE. Telephone conversation 
between David T. Rusoff, Attorney, Foley & Lardner, and Jon Kroeper, 
Attorney, SEC, dated May 31, 1996.
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    Only orders designated as eligible for the PPS would be eligible 
for execution during the PPS.\9\ Market, limit and contingent order 
types currently acceptable would be accepted for PPS if so designated. 
In this regard, GTX orders would only be accepted if specifically 
designated as PPS-eligible. The Exchange's MAX System will not be 
available as an automated execution system or as an automated routing 
system during the PPS. As a result, order sending firms must contact a 
floor broker in order to send an order to the CHX for execution during 
the PPS.\10\ Because the PPS will be an extension of the Exchange's 
daily auction market, all the Exchange's rules applicable to floor 
trading during the Exchange's Primary Trading Session, as modified by 
proposed Interpretation and Policy .05 of Rule 37, Article XX, will 
continue to be applicable.\11\ For example, specialists will be 
required to quote markets and trading will occur based on real-time 
price and quote changes.
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    \9\ The Exchange will require order tickets of PPS-eligible 
orders to include an ``E'' designator, which will indicate that the 
order is eligible for execution during the PPS. See ITS/Surveillance 
Letter, supra note 7.
    \10\ The CHX has represented that it has held a number of 
meetings with its members in which it has explained the necessary 
steps members must take in order to make orders eligible for 
execution during the PPS. The CHX has represented further that it 
will distribute a Notice to Members that will state, among other 
things, that PPS orders may not be entered with a specialist prior 
to 3:00 p.m. (CT) and orders entered during the Primary Trading 
Session must be replaced after 3:00 p.m. (CT) with order tickets 
bearing the ``E'' designator in order to be eligible for the PPS. 
Telephone conversation between David T. Rusoff, Attorney, Foley & 
Lardner, and Jon Kroeper, Attorney, SEC, dated May 31, 1996.
    \11\ As part of the proposed rule change, the Exchange has moved 
existing Interpretation and Policies .01-.03 of Rule 37(a), Article 
XX, currently found at the end of subparagraph (a) of Rule 37, to 
the end of Rule 37, and renumbered existing Interpretation and 
Policy .01 of Rule 37 as Interpretation and Policy .04.
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    To accomplish the foregoing, the Exchange is amending Article XX, 
Rules 1 and 2 and Article XXI, Rule 1 to make it clear that these rules 
also apply to the PPS.\12\ The Exchange is also amending Interpretation 
and Policy .02 of Rule 37, Article XX to make it clear that although 
GTX orders are executable after the close the PPS (i.e., in the 
Exchange's Secondary Trading Session), they are executed based on 
trading that occurs in a security in a primary market's after-hours 
closing price trading session, at that closing price, and are not 
executable based on trading in, or the closing price established in, 
the PPS.\13\
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    \12\ See Amendment Nos. 1 and 2, supra notes 3 and 4.
    Article XX of the CHX Rules contains the Exchange's trading 
rules. Article XX, Rule 1 currently states that the rules contained 
in Article XX have general applicability to Exchange Contracts made 
on the Exchange during the Primary Trading Session, and, to the 
extent determined by the Exchange, to Exchange Contracts not made on 
the Exchange. Article XX, Rule 2 currently states that no member or 
member organization shall make any bid, offer or transaction upon 
the Floor of the Exchange, issue an ITS commitment from the Floor, 
or send an order in a Nasdaq National Market Security for execution 
via telephone to a Nasdaq System market maker other than during the 
Primary Trading Session, unless pursuant to the ITS Plan.
    Article XXI, Rule 1 currently requires each Exchange member to 
promptly advise the Exchange of each of his or her transactions that 
are executed on the Floor of the Exchange during the Primary Trading 
Session or through the Portfolio Trading System.
    \13\ Therefore, under the proposed rule change, as amended, and 
the rules of the other national securities exchanges, as of May 31, 
1996: the Primary Trading Session will run from 8:30 a.m. to 3:00 
p.m. (CT); the PPS will run from 3:00 p.m. to 3:30 p.m. (CT); and 
the Secondary Trading Session will run from 3:30 p.m. to 5:00 p.m. 
(CT).
    For a description of operation of the Exchange's Secondary 
Trading Session, see Securities Exchange Act Release No. 33991 (May 
2, 1994), 59 FR 23904 (May 9, 1994) (File No. SR-CHX-93-23).
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    In addition, the Exchange is amending Article IX, Rule 10(b) to 
provide that if trading on the Exchange is halted during the Primary 
Trading Session pursuant to Article XX, Rule 10A, and such trading halt 
is still in effect at the close of the Primary Trading Session, the PPS 
scheduled for that day will be canceled.\14\ Finally, Article XX, Rule 
2, Interpretation and Policy .01 is being amended in order to correct 
an inaccurate internal cross-reference.\15\
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    \14\ See Amendment No. 1, supra note 3.
    \15\ Currently, Interpretation and Policy .01 refers to the 
Exchange's ITS rules as being located in Article XX, Rule 36, 
whereas they are actually located in Article XX, Rule 39.
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    The Exchange requests the Commission to find good cause, pursuant 
to Section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the thirtieth day after publication in the Federal Register.

III. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the CHX's proposal to modify the 
definition of its Primary Trading Session and to establish a post-
primary auction market trading session extending to 3:30 p.m. (CT) 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).\16\ 
Specifically, the Commission finds that the proposed rule change 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, 
and, in general, to protect investors and the public interest.
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    \16\ 15 U.S.C. 78f(b).
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    The Commission believes that the CHX's modification of the 
definition of its Primary Trading Session to track the hours that each 
security is traded on its primary market is a more flexible

[[Page 29158]]

definition that the existing one in that it can readily accommodate 
future changes in the trading hours of the other national securities 
exchanges, without, at present, affecting a substantive change to the 
existing hours of trading in these securities on the Exchange.
    The Commission also believes that the initiation of the PPS does 
not raise any new regulatory concerns. Currently, auction market 
trading after 4:00 p.m. (ET) occurs on the Phlx until 4:15 p.m. (ET) 
and the PSE until 4:50 p.m. (ET).\17\ The CHX's PPS will operate in a 
substantially similar manner and enable the CHX to compete with both 
the Phlx and PSE for after-hours volume. Specifically, the CHX PPS will 
continue to provide full transparency by disseminating quotes through 
the Consolidated Quotation System and reporting trades to the 
consolidated tape. In addition, although the Exchange's MAX System will 
be unavailable for automated order routing or executions during the 
PPS, there will continue to be complete access to the CHX and the usual 
auction market trading rules of the Exchange will continue to 
apply.\18\ Moreover, in order to preserve the execution quality of 
market, limit, contingent (including GTX) orders placed on the CHX 
specialists' books during the Primary Trading Session, such orders will 
not automatically migrate to the PPS, but rather will do so only if the 
order is so designated (i.e., with an ``E'' indicator on the ticket) 
and entered with the specialist after 3:00 p.m. (CT).\19\
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    \17\ See Securities Exchange Act Release No. 35188 (January 3, 
1995), 60 FR 2422 (January 9, 1995) (SR-Phlx-94-46) (order approving 
establishment of Phlx PPS from 4:00 to 4:15 (ET)); Securities 
Exchange Act Release No. 29631 (August 30, 1991), 56 FR 46025 
(September 9, 1991) (SR-PSE-91-21) (order approving extension of PSE 
post-1 p.m. session from 1:30 to 1:50 p.m. (PT)).
    \18\ The Commission notes that the CHX has represented that 
trading during the PPS will be surveilled in the same manner and 
using the same techniques as those used to surveil the Primary 
Trading Session. See ITS/Surveillance Letter, supra note 7.
    \19\ The Commission notes the CHX's representation that it will 
distribute a Notice to Members setting forth the procedures to be 
followed to make orders eligible for the PPS. See supra note 10.
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    Furthermore, the Commission believes that the CHX's proposal to 
cancel the PPS for a particular day as a result of any trading halt 
during the Primary Trading Session pursuant to Article XX, Rule 10A 
that is still in effect at the close of the Primary Trading Session 
removes from its consideration any regulatory concerns that may have 
existed if this provision was not present.
    The Commission notes, however, that the only other national 
securities exchanges that will be operating an auction market after 
4:00 p.m. (ET) will be the Phlx and PSE. In this regard, the CHX has 
represented to the Commission that the ITS will be available between 
the three exchanges during their post-4:00 p.m. (ET) auction market 
sessions.\20\ Thus, ITS commitments will be able to be routed back and 
forth, just as during the regular hours of auction trading on the 
primary markets.
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    \20\ See ITS/Surveillance Letter, supra note 7.
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    Although the NYSE is operating its Off-Hours Trading facility and 
the Amex is operating its After-Hours Trading facility during this time 
period, these sessions are limited to accepting single stock orders 
priced at either the NYSE or Amex closing price, respectively, or 
effecting portfolio trades. Because the PPS trading session will not 
overlap the 5:00 p.m. (ET) executions in Crossing Session I of the 
NYSE's Off-Hours Trading facility or the Amex's After-Hours Trading 
Facility, the proposal being approved today does not raise market 
structure issues regarding the interaction between the PPS and these 
two after-hours trading facilities.
    Accordingly, the Commission does not believe that an extension of 
auction market trading on the CHX until 4:30 p.m. (ET) will have an 
adverse effect on the maintenance of fair and orderly markets or 
disadvantage public customers.
    The Commission finds good cause for approving the proposed rule 
change prior the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register. The Commission believes that 
accelerated approval of the proposal to modify the definition of the 
Exchange's Primary Trading Session is appropriate because the CHX's 
proposal does not alter, at present, the existing hours of the Primary 
Trading Session. Moreover, the Commission will retain the ability to 
consider the effects of any future change in the hours of the CHX's 
Primary Trading Session brought about by the modification of another 
exchange's trading hours through its review under Section 19(b) of the 
Act of any proposed rule that would precipitate such a change.
    The Commission believes that accelerated approval of the proposal 
to establish a PPS is appropriate because the CHX's proposal is 
substantively the same as the PPS currently operated by the Phlx, with 
the exception that the CHX's PPS remains open for an additional fifteen 
minutes.\21\ In this regard, the Commission does not believe that this 
difference is a significant one, as the same market situation that 
currently exists between 4:00 to 4:15 (ET) when only the Phlx and PSE 
are conducting auction market trading will prevail between 4:15 to 4:30 
p.m. (ET) when only the CHX and PSE will be conducting such trading.
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    \21\ The Commission notes that the proposal to establish the 
Phlx's PPS was noticed previously in the Federal Register for the 
full statutory period and the Commission did not receive any 
comments on it. See supra note 17.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2. 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, Amendment Nos. 1 and 2, and 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-96-13 and 
should be submitted by June 28, 1996.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change is hereby approved on an accelerated 
basis.

    \22\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-14400 Filed 6-6-96; 8:45 am]
BILLING CODE 8010-01-M