Self-Regulatory Organizations; Notice of Filing of Proposed Rule Changes by the American Stock Exchange, Inc., Boston Stock Exchange, Inc., Chicago Stock Exchange, Inc., Cincinnati Stock Exchange, Inc., National Association of Securities Dealers, Inc., New York Stock Exchange, Inc., and Pacific Stock Exchange, Inc., To Amend Each Exchange's Rules Concerning the Pre-Opening Application of the Intermarket Trading System

[Federal Register Volume 62, Number 35 (Friday, February 21, 1997)]
[Notices]
[Pages 8065-8067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4231]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38285; File Nos. SR-AMEX-97-07, SR-BSE-96-11, SR-CHX-
96-34, SR-CSE-97-03, SR-NASD-97-09, SR-NYSE-97-03, SR-PSE-97-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Changes by the American Stock Exchange, Inc., Boston Stock Exchange, 
Inc., Chicago Stock Exchange, Inc., Cincinnati Stock Exchange, Inc., 
National Association of Securities Dealers, Inc., New York Stock 
Exchange, Inc., and Pacific Stock Exchange, Inc., To Amend Each 
Exchange's Rules Concerning the Pre-Opening Application of the 
Intermarket Trading System

February 13, 1997.
    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 December 
10, 1996, December 19, 1996, January 29, 1997, January 31, 1997, 
February 10, 1997, February 10, 1997, and February 11, 1997, 
respectively, the Boston Stock Exchange Incorporated (``BSE''), the 
Chicago Stock Exchange, Incorporated

[[Page 8066]]

(``CHX''), the Cincinnati Stock Exchange, Incorporated (``CSE''), the 
New York Stock Exchange, Incorporated (``NYSE''), the American Stock 
Exchange, Incorporated (``AMEX''), the Pacific Stock Exchange, 
Incorporated (``PSE''), and the National Association of Securities 
Dealers, Incorporated (``NASD'') (each individually referred to herein 
as a ``Participant'' and two or more collectively referred to as 
``Participants'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule changes from interested persons.
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    \1\ The Commission is noticing these rule filings in one notice 
and will notice the proposed rule changes from the remaining self-
regulatory organizations as they are filed.
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

    The proposed amendments are to enhance the operation of the Pre-
Opening Application \2\ by effectively including circuit breakers as a 
trading halt situation that will trigger the Pre-Opening 
Application.\3\
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    \2\ The Participants filed substantially similar proposed rule 
changes to amend their respective ITS Rules regarding the ITS Pre-
Opening Application. The Commission notes that some of the proposed 
rule changes by the ITS Participants contain additional technical 
changes. In addition, the NASD is proposing to incorporate language 
into NASD Rule 5240 from the model Pre-Opening Application Rule 
contained as Exhibit A to the ITS Plan that was previously 
inadvertently omitted. Also, the PSE and CHX proposed amendments to 
their respective Pre-Opening Application rules to add a footnote 
from the model Pre-Opening Application Rule regarding the definition 
of when a market in a security is considered opened or re-opened, 
for purposes of pre-opening responses. The language of each proposed 
rule changes is on file at the Commission and at the principal 
offices of the various Participants. The file numbers for the rule 
filings are as follows: SR-AMEX-97-07; SR-BSE-96-11; SR-CHX-96-34; 
SR-CSE-97-03; SR-NASD-97-09; SR-NYSE-97-03; and SR-PSE-97-05.
    \3\ The respective Pre-Opening Application Rules that the 
Participants are proposing to amend are: AMEX, Rule 232; BSE, 
Chapter XXXI; CHX, Article XX, Rule 39; CSE, Chapter 14, Rules 14.1 
and 14.3; NASD, Rule 5210, 5240 and 5250; NYSE, Rule 15; and PSE, 
Rule 5.20.
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II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, the self-regulatory 
organizations included statements concerning the purpose of and basis 
for the proposed rule changes 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 IV 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 Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    The purpose of the proposed rule change is to enhance the operation 
of the ITS Pre-Opening Application. The Participants' ITS Pre-Opening 
Application rules contain basic definitions pertaining to ITS, 
prescribe the types of transactions that may be effected through ITS 
and the pricing of commitments to trade, and specify the procedures 
pertaining to the Pre-Opening Application, whereby an Exchange 
specialist (``specialist'') or a ITS/CAES market maker (``market 
maker'') in any ITS participant market who wishes to open his or her 
market in an ITS security may obtain any pre-opening interest in that 
security by other market makers registered in that security in other 
Participant markets.
    The current Pre-Opening Application prescribes that, if a 
specialist or a market maker anticipates that its opening transaction 
in the security the specialist or market maker trades through ITS will 
be at a price that represents a change from the security's previous 
day's consolidated closing price of more than the ``applicable price 
change,'' the specialist or market maker shall notify other Participant 
markets by sending a pre-opening notification through the ITS. The 
``applicable price changes'' are:

------------------------------------------------------------------------
                                               Applicable price change  
      Consolidated closing price \4\                 (more than)        
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Network A: \5\                                                          
  Under $15...............................  \1/8\ point.                
  $15 or over.............................  \1/4\ point.                
Network B:                                                              
  Under $5................................  \1/8\ point.                
  $5 or over..............................  \1/4\ point.                
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\4\ If the previous day's consolidated closing price of the security    
  exceeded $100 and the security does not underlie an individual stock  
  option contract listed and currently trading on an exchange, the      
  ``applicable price change'' is one point.                             
\5\ Network A is comprised of NYSE securities; Network B is comprised of
  AMEX securities.                                                      

Thereafter, the specialist or market maker shall not open the market in 
the security until not less than three minutes after the transmission 
of the pre-opening notification. Once a specialist or market maker has 
issued a pre-opening notification, other Participant markets may 
transmit ``pre-opening responses'' to the specialist or market maker 
through the ITS that contain ``obligations to trade.'' The specialist 
or market maker is then obligated to combine these obligations with 
orders it already holds in the security, and, on the basis of this 
aggregated information, decide upon the opening transaction in the 
security.
    The Pre-Opening Application also applies whenever an ``indication 
of interest'' is sent to the Consolidated Tape Association (``CTA'') 
Plan Processor prior to the opening of trading in the relevant security 
or prior to the reopening of trading in the relevant security following 
the declaration of a trading halt for certain defined reasons, even if 
the anticipated opening or re-opening price is not greater than the 
``applicable price change.'' The current Pre-Opening Application 
provides that the Pre-Opening Application applies when an indication of 
interest is disseminated following five defined trading halt 
situations; reopenings following order imbalance, order influx, 
equipment changeover, news pending and news dissemination, and for a 
delayed opening.
    The purpose of the proposed amendments to the Participants' 
respective rules, to which all the Participants have agreed, is to 
amend the Pre-Opening Application to provide that the Pre-Opening 
Application would be triggered whenever an ``indication of interest'' 
(i.e., an anticipated opening price range) is sent to the Consolidated 
Tape system prior to the opening or reopening of trading in the 
relevant security. Under the proposed change, the Pre-Opening 
Application would also be triggered when indications of interest are 
disseminated in situations other than those five defined trading halts, 
including the resumption of trading following the activation of market-
wide circuit breakers. In particular, the proposed amendment would 
delete the definition of ``Trading Halt,'' which is limited to the five 
defined trading halt situations mentioned above, and replace all 
references to ``Trading Halt'' with ``halt or suspension in trading.'' 
As a result, one standard procedure would then govern all trading halt 
situations and would include suspensions of trading pursuant to circuit 
breakers.\6\
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    \6\ In its proposed rule change, the NYSE notes that indications 
are also required pursuant to NYSE rules in other situations, 
including circuit breaker halts, when a stock's price will change 
the lesser of 10% or three points from the last sale, or five points 
for stocks over $100, unless the price change is less than one 
point. The NYSE notes that NYSE rules would continue to govern when 
NYSE specialists would be required to issue indications of interest. 
See NYSE filing SR-NYSE-97-03. Similarly, AMEX notes that in 
connection with a reopening following a ``circuit breaker'' halt, 
AMEX's rules require dissemination of an indication in the same 
circumstances as the NYSE. AMEX notes that its proposed amendments 
are intended to conform to the amendment to the ITS Plan agreed to 
by the Participants. See AMEX filing SR-AMEX-97-07.

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[[Page 8067]]

2. Statutory Basis
    These proposed amendments are consistent with sections 6(b)(5) and 
15A(b)(6) of the Act \7\ in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and to perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The amendment is also 
consistent with section 11A(a)(1)(D) of the Act \8\ which provides that 
the linking of all markets for qualified securities through 
communications and date processing facilities will foster efficiency, 
enhance competition, increase the information available to brokers, 
dealers, and investors, facilitate the offsetting of investors' orders, 
and contribute to the best execution of such orders. In particular, by 
enhancing the linkage among all ITS Participant Markets and promoting 
coordinated openings and reopenings in ITS Securities, the Participants 
believe the proposed rule changes are consistent with the Act.
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    \7\ 15 U.S.C. 78f(b)(6); 15 U.S.C. 78o-3(b)(6).
    \8\ 15 U.S.C. 78k-1(a)(1)(D).
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B. Self-Regulatory Organizations' Statement on Burden on Competition

    The Participants do not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organizations' Statement on Comments on the Proposed 
Rule Changes Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Changes 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, 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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Participants. All submissions should refer to File Nos. SR-AMEX-97-07, 
SR-BSE-96-11, SR-CHX-96-34, SR-CSE-97-03, SR-NASD-97-09, SR-NYSE-97-03, 
and SR-PSE-97-05 and should be submitted by March 14, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4231 Filed 2-20-97; 8:45 am]
BILLING CODE 8010-01-M