[Federal Register Volume 66, Number 43 (Monday, March 5, 2001)]
[Notices]
[Page 13361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5248]



[[Page 13361]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44000; File No. SR-CHX-00-27]


Self-Regulatory Organization; Order Granting Accelerated Approval 
of a Proposed Rule Change by the Chicago Stock Exchange, Incorporated 
Relating to Participation in Crossing Transactions Effected on the 
Exchange Floor

February 23, 2001.

I. Introduction

    On September 14, 2000, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with 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 relating to participation in 
crossing transactions effected on the exchange floor. The CHX amended 
the proposal on January 18, 2001.\3\ The Federal Register published the 
proposed rule change, as amended, for comment on February 2, 2001.\4\ 
The Commission received no comments on the proposal. This order 
approves the proposal 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 dated January 16, 2001, from Kathleen M. Boege, 
Associate General Counsel, CHX, to Alton S. Harvey, Office Head, 
Division of Market Regulation, Commission (``Amendment No. 1''). 
Amendment No. 1 requests pilot approval of the proposed rule change 
through July 9, 2001.
    \4\ Securities Exchange Act Release No. 43882 (January 24, 
2001), 66 FR 8819.
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II. Description of Proposal

    The Exchange proposes to amend Article XX, Rule 23 of the 
Exchange's rules relating to participation in crossing transactions in 
Nasdaq/National Market (``NNM'') securities effected on the floor of 
the Exchange. This proposal is currently operating, on a pilot basis 
through February 28, 2001, for Dual Trading System issues traded on the 
Exchange.\5\ This pilot was approved in connection with the securities 
industry's move to a decimal pricing environment. The proposed rule 
change would extend the pilot to cover crossing transactions in NNM 
securities.
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    \5\ Dual Trading System issues are issues that are listed on 
either the New York Stock Exchange or the American Stock Exchange. 
See Securities Exchange Act Release No. 43203 (August 24, 2000), 65 
FR 53067 (August 31, 2000) (approving SR-CHX-00-13 on a pilot basis 
through February 28, 2001). The proposed rule change deletes the 
provisions of Article XX, Rule 23 that govern cross transactions in 
NNM issues, and, thus, has the effect of also extending the pilot 
program in Dual Trading System issues until July 9, 2001.
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    Under current CHX Rule 23, if a floor broker presents a crossing 
transaction involving NNM issues, another member may participate, or 
``break up,'' the transaction, by offering (after presentation of the 
proposed crossing transaction) to better one side of the transaction by 
the minimum price variation. The floor broker is then effectively 
prevented from consummating the transaction as a ``clean cross.'' In 
instances where the minimum price variation is relatively small, it is 
very inexpensive for a member to break up crossing transactions in this 
matter.
    Under the proposed pilot program, a floor broker will be permitted 
to consummate cross transactions in NNM issues, as well as Dual Trading 
System issues, involving 5,000 shares or more, without interference by 
any specialist or market maker if, prior to presenting the cross 
transaction, the floor broker first requests a quote for the subject 
security.\6\ These requests will place the specialist and other market 
makers on notice that the floor broker is intending to ``cross'' within 
the bid-offer spread. The proposed rule change will operate on a pilot 
basis through July 9, 2001.
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    \6\ These updated quotes will not be directed solely to the 
floor broker. Anyone at the post may respond to the updated quotes.
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III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act and the rules and regulations under the Act 
applicable to a national securities exchange and, in particular, the 
requirements of section 6(b) of the Act.\7\ Specifically, the 
Commission finds that the proposed rule change is consistent with the 
section 6(b)(5) \8\ 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.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this rule change, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    The Commission believes that the proposed rule change strikes a 
reasonable balance between the ability of floor brokers on the Exchange 
to execute crossing transactions and the ability of specialists and 
market makers to provide price improvement. In addition, the Commission 
believes that requiring floor brokers to request a quote in a 
particular security before presenting the transaction to be crossed 
will provide specialists and market makers both sufficient notice that 
the cross is about to occur between the bid and offer spread and an 
opportunity to improve their quote. The Commission notes that floor 
brokers would still retain the ability to present both sides of the 
order at the post if the customers so desire.
    The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice thereof in the Federal Register. The 
proposed rule change is designed to minimize possible negative effects 
on crossing transactions of decimal pricing, which is scheduled to 
begin in NNM securities on March 12, 2001. In addition, the Commission 
notes that the proposed rule change is being approved on a pilot basis 
only, through July 9, 2001. In light of these factors, the Commission 
finds good cause to approve the proposed rule change on an accelerated 
basis.

IV. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-CHX-00-27), as amended, is approved 
through July 9, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5248 Filed 3-2-01; 8:45 am]
BILLING CODE 8010-01-M