Self-Regulatory Organizations; Chicago Stock Exchange, Inc., et al.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Changes Relating to an Extension of Pilot Program Which Provides Price Protection of Limit Orders Executable After the Close of Regular Trading Hours

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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33562; File Nos. SR-CHX-93-23; SR-BSE-93-18; SR-PSE-94-
1; SR-Phlx-94-7]

 

Self-Regulatory Organizations; Chicago Stock Exchange, Inc., et 
al.; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Changes Relating to an Extension of Pilot Program Which 
Provides Price Protection of Limit Orders Executable After the Close of 
Regular Trading Hours

February 1, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ the Chicago Stock Exchange, 
Inc. (``CHX''), Boston Stock Exchange, Inc. (``BSE''), Pacific Stock 
Exchange, Inc. (``PSE''), and Philadelphia Stock Exchange, Inc. 
(``Phlx'') (collectively, the ``Regional Exchanges'') have filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
changes to extend the effectiveness of their respective pilot programs 
relating to price protection of limit orders.\3\ The Exchanges have 
requested accelerated approval of their respective proposals. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\The CHX and BSE filed amendments to their respective proposed 
rule changes requesting that the Commission approve a three month 
extension of their pilot programs on an accelerated basis. See 
letter from David T. Rusoff, Attorney, Foley & Lardner, to Louis A. 
Randazzo, Attorney, Branch of Exchange Regulation, Commission, dated 
December 21, 1993; letter from Karen A. Aluise, Assistant Vice 
President BSE, to Louis A. Randazzo, Attorney, Branch of Exchange 
Regulation, Commission, dated December 21, 1993. In addition, the 
Regional Exchanges have filed for permanent approval, as have the 
New York Stock Exchange and the American Stock Exchange. See File 
Nos. SR-CHX-93-23; SR-BSE-93-24; SR-PSE-94-2; SR-Phlx-94-8; SR-NYSE-
93-50; and SR-Amex-93-15.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Regional Exchanges propose to extend their respective pilot 
programs relating to price protection of limit orders until April 30, 
1994. The rule changes provide primary market protection to certain 
limit orders trading at the limit price in a primary market's after-
hours trading session.\4\
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    \4\On June 13, 1991, the Commission approved, on a pilot basis 
File Nos. SR-MSE-91-11 ( in 1991, the CHX was named the Midwest 
Stock Exchange or MSE), SR-BSE-91-04, SR-PSE-91-21, and SR-Phlx-91-
26, which amended the Exchange's respective Rules relating to price 
protection of limit orders. See Securities Exchange Act Release No. 
29297 (June 13, 1991), 56 FR 28191 (June 19, 1991) (order approving 
File No. SR-MSE-91-11)(MSE Approval Order); Securities Exchange Act 
Release No. 29301 (June 13, 1991), 56 FR 28182 (June 19, 1991) (BSE 
Approval Order); Securities Exchange Act Release No. 29305 (June 13, 
1991), 56 FR 28208 (June 19, 1991) (PSE Approval Order); and 
Securities Exchange Act Release No. 29300 (June 13, 1991), 56 FR 
28212 (June 19, 1991) (Phlx Approval Order). At that time, the New 
York Stock Exchange (``NYSE'') had initiated its Off-Hours trading 
(``OHT'') sessions. The NYSE OHT facility extends the NYSE's trading 
hours beyond the 9:30 a.m. to 4 p.m. trading session to establish 
two trading sessions: Crossing Session I and Crossing Session II. 
Crossing Session I permits the execution of single-stock single-
sided closing price orders and crosses of single-stock closing price 
buy and sell orders. Crossing Session II allows the execution of 
crosses of multiple-stock aggregate-price buy and sell orders. See 
Securities Exchange Act Release No. 29237 (May 24, 1991), 56 FR 
24853 (May 31, 1991) (approving File Nos. SR-NYSE-90-52 and NYSE-90-
53). On August 2, 1991, The Commission approved a proposed rule 
change by the American Stock Exchange, Inc. (``Amex'') to establish 
a pilot extending its trading hours to establish an after-hours 
trading facility that would permit the execution of: (1) Single-
sided closing-price orders; and (2) crosses of closing-price buy and 
sell orders. See Securities Exchange Act Release No. 29515 (August 
2, 1991), 56 FR 37736 (August 8, 1991) (approving File No. SR-AMEX-
91-15). The Exchange's procedures provide primary market protection 
for customer GTX orders (good until cancelled, executable in the 
afternoon session) in securities listed both on the NYSE and on the 
Amex. The Commission approved extensions of the NYSE, Amex and CHX 
pilots, as well as pilots by the PSE, Phlx and BSE until January 31, 
1994. See Securities Exchange Act Release No. 32365 (May 25, 1993), 
58 FR 31560 (June 3, 1993) (order granting accelerated approval to 
File No.SAR-BSE-93-10); Securities Exchange Act Release No. 32363 
(May 25, 1993), 58 FR 31558 (June 3, 1993) (order granting 
accelerated approval to File No. SR-Amex-93-19); Securities Exchange 
Act Release No. 32368 (May 25, 1993), 58 FR 31563 (June 3, 1993), 
(order granting accelerated approval to File No. SR-MSE-93-6); 
Securities Exchange Act Release No. 32367 (May 25, 1993), 58 FR 
31570 (June 3, 1993) (order granting accelerated approval to File 
No. SR-PSE-93-6); Securities Exchange Act Release No. 32364 (May 25, 
1993), 58 FR 31574 (June 3, 1993) (order granting accelerated 
approval to File No. SR-Phlx-93-16) and Securities Exchange Act 
Release No. 32362 (May 25, 1993), 58 FR 31565( (June 3, 1993) (order 
granting accelerated approval to File No. SR-NYSE-93-23).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In their filings with the Commission, the self-regulatory 
organizations included statements concerning the purpose of and basis 
for the proposed rule change and discussed any comments they received 
on the proposed rule change. The text of these statements may be 
examined at the places specified in Item III below. The self-regulatory 
organizations have 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 Regional Exchanges are requesting a three month extension of 
their respective pilot programs relating to price protection of limit 
orders based on after-hours prints in a primary market. The pilot 
programs require Exchange specialists to provide primary market 
protection for those limit orders entered during an Exchange's primary 
trading session which are designated as executable after the close of 
the regular Exchange auction market trading session, known as ``GTX'' 
orders (``good until cancelled, executable in the afternoon session'').
    The Regional Exchanges have provided the Commission with updated 
reports describing their experience with the new rules.\5\ The 
Commission will be reviewing those reports and new reports during the 
three-month extension of the pilots.\6\
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    \5\See letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Diana Luka-Hopson, Branch Chief, Commission, dated September 30, 
1993; letter from Karen A. Aluise, Assistant Vice President, BSE, to 
Diana Luka-Hopson, Branch Chief, Commission, dated September 17, 
1993; letter from Michael D. Pierson, Seni0r Attorney, Market 
Regulation, PSE, to Diana Luka-Hopson, Branch Chief, Commission, 
dated January 6, 1994; letter from William W. Uchimoto, Vice 
President and General Counsel, Phlx, to Louis A. Randazzo, Attorney, 
Commission, dated January 13, 1994.
    \6\In its orders approving the pilot programs, the Commission 
requested that the Exchanges provide the Commission with specific 
data regarding the operation of their respective after-hours pilots. 
The Commission requested that the Exchanges report on, among other 
things, GTX executions on its trading floor to ensure that their 
specialists are not taking unfair advantage of information derived 
regarding which orders on their books are designated GTX and the 
priority among those orders. In addition, the Commission requested 
that the Exchanges submit a report to the Commission describing 
their experiences with the new rule during the pilot period. The 
Commission requested that the following information (broken down by 
month) be included in the reports: (1) Whether customers who have 
entered GTX orders experienced any problems when they attempted to 
cancel such orders; (2) whether the Exchange has experienced any 
difficulties in monitoring the activities of specialists with regard 
to determining their particular obligations to fill GTX orders; (3) 
the number, if any, of GTX orders executed after the close of the 
regular auction trading session pursuant to the new rule; (4) the 
number, if any, of GTX orders that remain unexecuted after the 
specialist has fulfilled his or her obligations in connection with 
the new rule; (5) the number and percentage of good until cancelled 
orders on the book that were designated ``GTX'' and thus eligible to 
be filled; (6) whether the marketplace has experienced any increased 
volatility during the last hour of the 9:30 a.m. to 4 p.m. trading 
sessions after the initiation of the new rule; (7) whether there 
were greater (wider) quote spreads during the last hour of the 9:30 
a.m.to 4 p.m. trading session after the initiation of the new rule; 
and (8) whether the Exchange or any specialist has given any special 
guarantees to execute GTX orders over and above the requirements of 
the new rule.
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2. Statutory Basis
    The proposed rule changes are consistent with Sections 6(b)(5) and 
11A of the Act in that they are designed to promote just and equitable 
principles of trade, perfect the mechanism of a free and open national 
market system, and, in general, further investor protection and the 
public interest in fair and orderly markets on national securities 
exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The exchanges believe that no burdens will be placed on competition 
as a result of the proposed rule changes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No comments were received on the proposed rule changes.

III. 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, DC 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 Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of the filing will also be available for inspection 
and copying at the principal offices of the CHX, BSE, PSE and Phlx. All 
submissions should refer to File Nos. SR-CHX-93-23, SR-BSE-93-18, SR-
PSE-1 and SR-Phlx-94-7, and should be submitted by March 1, 1994.

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

    The Commission finds that the Regional Exchanges' proposals to 
extend their respective pilot programs, until April 10, 1994, to 
provide price protection of limit orders executable after the close of 
regular trading hours is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Commission believes that the 
proposals are reasonably designed to promote just and equitable 
principles of trade, perfect the mechanism of a free and open market 
and a national market system, and, in general, further investor 
protection and the public interest in fair and orderly markets on 
national securities exchanges. For these reasons, as discussed in more 
detail below and in the original approval orders, the Commission finds 
that approval of the proposed rule changes, for a temporary period 
ending on April 30, 1994, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, with the requirements of Section 6 of the Act.\7\
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    \7\15 U.S.C. 78f (1988).
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    In the Commission's release approving the NYSE's OHT facility, the 
Commission noted the benefits that would accrue to investors through 
the development of an after-hours trading session.\8\ Although the 
Regional Exchanges' proposals did not establish after-hours sessions 
identical to that of the NYSE, the Commission believes that they 
provide a reasonable competitive response. By allowing GTX orders that 
would be executed on the NYSE to receive a similar fill on the 
Exchanges, the proposal is providing a mechanism for maintaining its 
own individual marketplace on a competitive level with the primary 
market.\9\
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    \8\See Securities Exchange Act Release No. 29237, supra note 4.
    \9\In addition to extending the after-hours GTX pilot programs, 
the Commission today is also approving proposals submitted by the 
NYSE and Amex to extend, through April 30, 1994, their respective 
pilot programs which provide for executions of securities during 
after-hours trading sessions. Each of these pilot programs were 
scheduled to expire on January 31, 1994. See File Nos. SR-NYSE-93-51 
(filed on December 23, 1993) and SR-Amex-93-15 (filed on April 21, 
1993).
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    In the original approval and extension orders, the Commission 
requested reports on the pilot programs, as well as weekly data.\10\ 
The Commission expects the Regional Exchanges to submit to the 
Commission by March 15, 1994, updated reports concerning pilot activity 
through February 28, 1994.\11\
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    \10\See original approval orders and extension orders, supra 
note 4.
    \11\See supra note 6 for the information required to be provided 
in the updated report.
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    The Commission continues to expect the Regional Exchanges, through 
use of their surveillance procedures, to monitor for, and report to the 
Commission, any patterns of manipulation or trading abuses or unusual 
trading activity resulting from these pilot programs. In addition, the 
Commission continues to request that the Exchanges keep the Commission 
apprised of any technical problems which may arise regarding the 
operation of the pilot programs, such as difficulties in order 
execution or order cancellation.
    The Commission believes that it is reasonable to extend the pilot 
programs until April 30, 1994, in order to provide the Commission with 
an opportunity to continue to review the reports submitted by the 
Exchanges. The Commission also will be considering the various requests 
for permanent approval of these programs during the three-month 
extensions.
    The Commission finds good cause for approving the proposed rule 
change prior to 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 is appropriate in 
order to allow the Exchanges' procedures to remain in place on an 
uninterrupted basis. This will permit the Exchanges to continue to 
compete with Crossing Session I of the NYSE's OHT facility, which in 
turn should benefit investors and promote competition among markets.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act\12\ that the CHX, BSE, PSE, and Phlx proposed rule changes (CHX-93-
23, BSE-93-18, PSE-94-1, and Phlx-94-7) are hereby approved on a pilot 
basis until April 30, 1994.

    \12\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2769 Filed 2-7-94; 8:45 am]
BILLING CODE 8010-01-M  

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