Self-Regulatory Organizations; Chicago Stock Exchange, Incorporated; Order Granting Approval to Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment Nos. 1 and 2 to Proposed Rule Change Establishing Rules Relating to Market-at-the-Close Orders

[Federal Register Volume 63, Number 223 (Thursday, November 19, 1998)]
[Notices]
[Pages 64299-64303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30950]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40655; File No. SR-CHX-97-19]


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval of Amendment 
Nos. 1 and 2 to Proposed Rule Change Establishing Rules Relating to 
Market-at-the-Close Orders

November 10, 1998.

I. Introduction

    On September 12, 1997, the Chicago Stock Exchange, Incorporated 
(``Exchange'' or ``CHX'') 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 to establish rules and procedures 
governing market-at-the-close (``MOC'') orders.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 39252 (Oct. 17, 1997), 62 FR 55444 (Oct. 24, 
1997). The Commission did not receive any comments on the proposal. The 
Exchange filed with the Commission Amendment No. 1 to the proposed rule 
change on November 3, 1997,\3\ and Amendment No. 2 on September 29, 
1998.\4\ This order approves the proposed rule change including, on an 
accelerated basis, Amendment Nos. 1 and 2.
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    \3\ Amendment No. 1 revised the proposed rule change by 
redefining a term used in the rule text. See Letter from Charles R. 
Haywood, Foley & Lardner, to Katherine England, Assistant Director, 
Division of Market Regulation, Commission, dated October 31, 1997 
(``Amendment No. 1'').
    \4\ Amendment No. 2 eliminates the proposed requirements that 
the Exchange publish an independent list of MOC order imbalances 
that occur on the Exchange. In addition, Amendment No. 2 revises the 
proposal to establish identical procedures for MOC orders entered on 
expiration and non-expiration days. Finally, Amendment No. 2 
provides that MOC orders may be entered on the Exchange after 2:40 
P.M., Central Standard Time, only if the specialist determines that 
such MOC order could have been entered on the primary market. See 
Letter from David T. Rusoff, Foley & Lardner, to Michael Loftus, 
Attorney, Division of Market Regulation, Commission, dated September 
28, 1998 (``Amendment No. 2'').
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II. Description of the Proposal

    The Exchange does not currently maintain formal rules governing the 
entry or execution of MOC orders on the Exchange.\5\ The Exchange 
therefore seeks to adopt Article XX, Exchange Rule 44, ``Market-at-the-
Close Orders,'' to establish formal procedures and better define the 
rights and obligations of Exchange members and customers with respect 
to MOC orders. As defined in the proposed rule change, the term ``MOC 
order'' means a market order which is to be executed in its entirety at 
the closing price on the primary market of the stock named in the 
order, and if not so executed, is to be treated as canceled.\6\
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    \5\ However, the Exchange does not prohibit the use of MOC 
orders. Generally, an Exchange specialist will voluntarily accept an 
MOC order if the specialist believes such order could be accepted on 
the New York Stock Exchange. Telephone conversation between David T. 
Rusoff, Attorney, Foley and Lardner; Daniel J. Liberti, Attorney, 
Exchange; and Michael L. Loftus, Attorney, Division of Market 
Regulation, Commission (October 16, 1997).
    \6\ The Exchange's proposed MOC rule and procedures would apply 
to all securities listed on the Exchange (whether by exclusive 
listing or dual listing) and all securities traded on the Exchange 
pursuant to unlisted trading privileges. Electronic mail message 
from David T. Tusoff, Attorney, Foley and Lardner, to Michael L. 
Loftus, Attorney, Division of Market Regulation, Commission 
(November 9, 1998).
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    The Exchange proposes to adopt procedures that mirror those used by 
the New York Stock Exchange (``NYSE'') and the American Stock Exchange 
(``Amex''). The similarity is intended to ensure that MOC orders sent 
to the Exchange will receive treatment comparable to MOC orders sent to 
the NYSE and the Amex. The Exchange has expressed concern that unless 
its MOC rules are functionally equivalent to those of the NYSE and the 
Amex, market participants may attempt to execute certain MOC orders on 
the Exchange that would otherwise be prohibited under the MOC rules of 
the NYSE and the Amex.
    In its original form, the Exchange's proposal contemplated 
procedures and requirements for MOC orders entered on expiration days 
(i.e., last trading day before monthly expiration of standardized 
contracts in derivative products and last trading day before expiration 
of quarterly index options) that differed from those for MOC orders 
entered on nonexpiration days. Amendment No. 2 eliminates the disparity 
and proposes a uniform version of the Exchange's MOC rules that would 
apply to all MOC orders irrespective of the date of entry.

[[Page 64300]]

    Under the amended proposal, no MOC order may be entered after 2:40 
P.M., Central Standard Time, in any stock. Floor brokers representing 
MOC orders must indicate their irrevocable MOC interest to the 
specialist by 2:40 P.M. After 2:40 P.M., MOC orders may generally be 
entered only if the specialist determines that such MOC order could 
have been entered on the primary market. In order for specialists to 
determine whether MOC orders could have been entered on the primary 
market, specialist must monitor the publication of MOC order imbalances 
on the primary market through third-party vendors. If a specialist 
accepts an MOC order after 2:40 P.M., the specialist is required to 
document evidence that such MOC order could have been entered on the 
primary market.
    Notwithstanding the above, the proposal prohibits the use of MOC 
orders entered after 2:40 P.M. for the liquidation of positions 
relating to a strategy involving any stock index options. The proposal 
further provides that no MOC order in any stock may be canceled or 
reduced in size after 2:40 P.M. Cancellations to correct a legitimate 
error, however, will continue to be permitted after 2:40 P.M.
    An Exchange specialist only will be obligated to accept and 
guarantee execution of those MOC orders that are of a size and type 
that a specialist would otherwise be required to accept and guarantee 
execution of, if the orders did not have an MOC designation.\7\
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    \7\ The execution parameters governing the Exchange's Guaranteed 
Execution System (``BEST System'') require a specialist to accept 
and guarantee execution on all agency orders in Dual Trading System 
Issues from 100 up to and including 2,099 shares. Therefore, an 
Exchange specialist likewise would be required to accept and 
guarantee execution of an MOC order from 100 up to and including 
2,099 shares. See Article XX, Exchange Rule 37(a)(1).
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    The proposed rule change specifies the manner in which an Exchange 
specialist is required to executive MOC orders. When there is an 
imbalance between the buy and sell MOC orders on the Exchange, the 
specialist shall, at the close of the Primary Trading Sessions \8\ on 
that day, execute the imbalance for its own account at the closing 
price on the primary market of the stock. The specialist shall then 
stop the remaining buy and sell MOC orders against each other and pair 
them off at the closing price on the primary market of the stock. The 
``pair off'' transaction shall be reported to the consolidated last 
sale reporting system as ``stopped stock.'' Where the aggregate size of 
the buy MOC orders on the Exchange equals the aggregate size of the 
sell MOC orders on the Exchange, the buy and sell MOC orders shall be 
stopped against each other and paired off at the closing price on the 
primary market of the stock. The transaction shall be reported to the 
consolidated last sale reporting system as ``stopped stock.''
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    \8\ The term ``Primary Trading Session'' is defined in Article 
IX, Exchange Rule 10(b), as being (i) the same hours the security is 
traded on its primary market, if the Exchange is not the primary 
market for such security (however, no later than 3:00 P.M. Central 
Standard Time for a security primarily listed on the Pacific 
Exchange), or (ii) from 8:30 A.M. to 3:00 P.M., Central Standard 
Time, Monday through Friday, if the Exchange is the primary market 
for such security.
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    Finally, the proposed rule change would include Interpretations and 
Policies, Section .01, ``G Orders,'' as part of the new Exchange Rule 
44. Under the provision, proprietary orders represented pursuant to 
Section 11(a)(1)(G) of the Act \9\ (``G Orders'') must be announced as 
such\10\ and yield priority, parity, and precedence to any order which 
is for the account of a person who is not a member, member 
organization, or associated person thereof. Market orders to sell short 
at-the-close represented as G Orders must yield priority, parity, and 
precedence to limit orders not represented pursuant to Section 
11(a)(1)(G) of the Act. For example, in executing paired-off MOC 
orders, a G Order to sell short at-the-market would yield to sell 
orders limited at the closing price that are not represented as G 
Orders. This will be the policy even if the G Order to sell short at-
the-market theoretically could have been executed at a better price 
(and still satisfy the short sale rule in terms of a ``plus'' or ``zero 
plus'' tick) had their not been a pair-off on the transaction. This 
would not be applicable if the order was a market order to sell 
``long'' or a market order to buy.
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    \9\ 15 U.S.C. 78k(a)(1)(G).
    \10\ In addition, the Exchange currently requires that orders to 
be executed pursuant to Section 11(a)(1)(G) of the Act and Rule 
11a1-1(T) must bear an identifying notation that will enable the 
executing member to disclose to other members that the order is 
subject to such provisions. See Article XX, Exchange Rule 24, 
``Record of Orders,'' Interpretations and Policies, .01.
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III. Discussion

    For the reasons discussed below, the Commission finds that the 
proposed rule change 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).\11\ Specifically, the Commission believes the proposed 
rule change is consistent with the Section 6(b)(5) requirements that 
the rules of an exchange market be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.\12\
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    \11\ 15 U.S.C. 78f(b).
    \12\ In approving the proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    MOC procedures were first developed for expiration days because 
many trading strategies that involve stock index derivatives require 
the unwinding of positions in the component stocks at the closing price 
on expiration days. The Commission recognizes, however, that 
institutional investors have developed an increasing number of 
composite-asset trading techniques and strategies that call for a 
single closing price on a daily basis, not just expiration days. As a 
result, there is a demonstrated interest in establishing greater price 
certainty at the close of trading each day.
    Moreover, the national securities exchanges and broker-dealers have 
developed products to facilitate the trading of portfolios of 
securities. The Exchange's proposal represents an effort to accommodate 
the increased use of index-related trading by customers and member 
firms, and provide additional flexibility in order execution. The 
proposal also constitutes an attempt to minimize the excess market 
volatility that may emanate from the liquidation of stock positions 
related to trading strategies involving index derivative products. The 
Commission believes, based in part on the experience of other exchange 
markets, that MOC procedures may help reduce market volatility and may 
result in more orderly markets at the close of trading, especially on 
expiration days.
    The proposal requires market participants to enter their MOC orders 
by 2:40 P.M., Central Standard Time, every trading day. In addition, 
floor brokers representing MOC orders must indicate their irrevocable 
MOC interest to the specialist by 2:40 P.M. every trading day. No MOC 
order in any stock may be canceled or reduced in size after 2:40 P.M. 
The Commission believes the 2:40 P.M. deadline for the entry of MOC 
orders on all trading days will allow Exchange specialists to make 
timely and reliable assessments of MOC order flow and evaluate the 
potential impact on closing prices. The Commission notes that because 
the MOC orders will be irrevocable, and because of other restrictions 
on MOC order entry after

[[Page 64301]]

2:40 P.M., MOC orders entered should reflect actual investor interest. 
In addition, because the MOC order entry deadline is twenty minutes in 
advance of the closing, the procedures should ameliorate the problem of 
significant shifts in MOC imbalances near the close of trading. The 
Commission therefore believes the 2:40 P.M. deadline for the entry of 
MOC orders should help effectuate more orderly closings on a daily 
basis and assist Exchange specialists in obtaining an accurate view of 
the buying and selling in MOC orders.
    The Exchange's proposal states that no MOC order may be entered on 
the Exchange after 2:40 P.M. in any stock unless the specialist 
determines that such MOC order could have been entered on the primary 
market (i.e., the NYSE or the Amex). Therefore, the MOC rules and 
procedures of the primary market will control a specialist's 
determination of whether an MOC order could be entered on the primary 
market. Consistent with the MOC rules and procedures of the primary 
markets, an MOC order generally may be entered on the Exchange after 
2:40 P.M., if the primary market has disseminated notice of an MOC 
order imbalance for that particular stock, and the MOC order to be 
entered on the Exchange would serve to offset that disseminated MOC 
order imbalance (e.g., the MOC order to be entered is on the contra-
side of the imbalance).
    Specifically, as soon as practicable after 3:40 P.M., Eastern 
Standard Time (2:40 P.M., Central Standard Time), every trading day, 
the NYSE (a ``primary market'') disseminates notice of MOC order 
imbalances of 50,000 shares or more in all NYSE-listed stocks.\13\ The 
NYSE also disseminates MOC order imbalances of less than 50,000 shares 
if permission is obtained from an NYSE Floor Official,\14\ or if the 
underlying stock was the subject of an informational imbalance 
dissemination made between 3:00 and 3:40 P.M., Eastern Standard 
Time.\15\ It should be noted that the MOC order imbalances disseminated 
by the NYSE include ``marketable'' limit-at-the-close (``LOC'') 
orders.\16\ The NYSE also requires that an additional dissemination be 
made at 3:50 P.M., Eastern Standard Time, for any stock which was the 
subject of an imbalance dissemination at 3:40 P.M. Specifically, if at 
3:50 P.M. the MOC order imbalance remains 50,000 shares or more, the 
3:50 P.M. update must include the size and side of the imbalance.\17\ 
If at 3:50 P.M. the MOC order imbalance is less than 50,000 shares, the 
3:50 P.M. update must include a ``no imbalance'' message, or 
alternatively the size and side of the imbalance may be disseminated 
with Floor Official approval.
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    \13\ See NYSE Rule 116, Supplementary Material .40, `` 
`Stopping' stock on market-at-the-close orders.'' NYSE Information 
Memo No. 98-20 (June 22, 1998) also provides information pertaining 
to MOC orders entered on the NYSE. The Commission recently approved 
revisions to the NYSE procedures that govern MOC orders. See 
Securities Exchange Act Release No. 40094 (June 15, 1998), 63 FR 
33975 (June 22, 1998).
    \14\ This provision permits, but does not require, the 
publication of an MOC order imbalance which, although less than 
50,000 shares, may be significantly greater than average daily 
volume in a particular stock.
    \15\ Between 3:00 and 3:40 P.M., imbalances of any size may be 
disseminated with Floor Official approval. These disseminations are 
informational only and do not limit MOC order entry before 3:40 P.M.
    \16\ This means that LOC orders to buy at a higher price than 
the last sale price would be included with the buy MOC orders, and 
LOC orders to sell at a lower price than the last sale price would 
be included with the sell MOC orders. LOC orders with a limit equal 
to the last sale price would not be included in the disseminated 
imbalance. LOC orders are entered for execution at the closing 
price, provided the closing price is at or within the limit 
specified.
    \17\ If the 3:50 P.M. imbalance dissemination reverses the 3:40 
P.M. imbalance dissemination (i.e., MOC order imbalance switches 
from buy side to sell side, and vice versa), only MOC orders which 
offset the 3:50 P.M. imbalance would be permitted to be entered 
thereafter.
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    In addition, as soon as practicable after 3:40 P.M., Eastern 
Standard Time (2:40 P.M., Central Standard Time), every trading day, 
the Amex (a ``primary market'') disseminates notice of MOC order 
imbalances of 25,000 shares or more in all Amex-listed stocks, other 
than those that trade in units of less than 100 shares.\18\ In certain 
instances, the Amex permits the dissemination of MOC order imbalances 
of less than 25,000 shares if permission is obtained from an Amex Floor 
Official.\19\ Unlike the MOC procedures of the NYSE, the MOC order 
imbalances disseminated by the Amex do not include marketable LOC 
orders, and the Amex does not disseminate a supplementary update at 
3:50 P.M.
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    \18\ See Amex Rule 109, `` `Stopping' Stock.'' The Commission 
approved amendments to the Amex rules and procedures governing MOC 
orders on June 24, 1998. See Securities Exchange Act Release No. 
40123 (June 24, 1998), 63 FR 36280 (July 2, 1998).
    \19\ The Amex permits the dissemination of MOC order imbalances 
of less than 25,000 shares if the specialist (i) anticipates that 
the execution price of the MOC orders on the book will exceed the 
price change parameters of Amex Rule 154, Commentary .08, or (ii) 
believes that an order imbalance should otherwise be planned.
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    To determine whether MOC orders may be entered on the primary 
market, the proposal requires specialists to monitor the publication of 
MOC order imbalances on the primary market through third-party vendors. 
For example, if through Bloomberg the NYSE disseminated notice of an 
MOC order imbalance of 100,000 shares for stock XYZ on the buy side, 
the Exchange specialist in stock XYZ could accept MOC orders on the 
sell side after 2:40 P.M., provided the MOC orders were for less than 
100,000 shares. The Commission believes it is reasonable for the 
Exchange to require its specialists to monitor MOC order imbalances 
through third party vendors (e.g., Bloomberg, Dow Jones, Reuters). An 
Exchange specialist may accept MOC orders on the contra-side of a 
disseminated MOC order imbalance only during a narrow period of time. 
Therefore, it is critical that Exchange specialists be immediately 
informed whether a particular stock is the subject of an MOC order 
imbalance. The Commission believes the proposal will ensure that 
Exchange specialists stay abreast of MOC order imbalances in a timely 
manner and accept MOC orders in conformance with the Exchange's rules. 
Furthermore, if an Exchange specialist does accept an MOC order after 
2:40 P.M., the specialist must document evidence indicating that such 
MOC order could have been entered on the primary market.
    While the Commission believes it is reasonable for the Exchange to 
restrict the entry of MOC orders after 2:40 P.M., the Commission also 
believes the Exchange's proposal makes adequate provision for the entry 
of certain corrective orders after the 2:40 P.M., deadline. In 
particular, the proposal allows specialists to accept the cancellation 
of an MOC order after 2:40 P.M. if the cancellation was done to correct 
a legitimate error. The Commission believes this measure will provide 
market participants with the flexibility necessary to rectify bona fide 
errors involving MOC orders.
    The Commission also believes it is reasonable for the Exchange to 
prohibit the use of MOC orders entered after 2:40 P.M. for the 
liquidation of positions relating to a strategy involving any stock 
index options. The proposal restricts the entry of MOC orders after 
2:40 P.M. to instances where there is an MOC order imbalance on the 
primary market. This restriction will help to ensure that the 2:40 P.M. 
deadline is concrete and enforceable and that only a limited class of 
orders will be excepted from the deadline. The Commission believes the 
Exchange has properly excluded from the excepted class any MOC order 
that relates to a strategy involving index options. The Commission 
notes that MOC procedures are principally

[[Page 64302]]

intended to reduce volatility at the close. The Commission believes the 
ban on the use of index options-related MOC orders after 2:40 P.M. will 
serve to reduce volatility at the close and in doing so will create 
greater price certainty.
    The Commission believes it is appropriate for the Exchange to 
require all proprietary MOC orders that are represented pursuant to 
Section 11(a)(1)(G) of the Act,\20\ including market orders to sell 
short at-the-close, to yield priority, parity, and precedence to any 
non-member MOC order. This requirement is consistent with Section 11(a) 
of the Act \21\ in that it will help ensure the primacy of non-member 
MOC orders. Furthermore, because G Orders must be marked to indicate 
their status and must be disclosed to the Exchange's trading floor, the 
Commission is confident that Exchange specialists will execute members' 
proprietary MOC orders in accordance with the priority principles set 
forth in Section 11(a) of the Act and the rules thereunder.
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    \20\ 15 U.S.C. 78k(a)(1)(G).
    \21\ 15 U.S.C. 78k(a).
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    As previously mentioned, Amendment No. 2 eliminates the requirement 
that the Exchange independently publish MOC order imbalances that occur 
on the Exchange. The Commission believes this revision is appropriate 
for several reasons. First, the public dissemination of multiple MOC 
order imbalances for the same stock by the primary market and the 
Exchange could prove confusing. Next, the modification remedies the 
anomalous situation that might arise if the Exchange's MOC order 
imbalance for a particular stock differed from the primary market's MOC 
order imbalance, and MOC orders could have been accepted on the 
Exchange after 2:40 P.M. but not the primary market, and vice versa. 
Finally, the Exchange has represented that a substantial MOC order 
imbalance (i.e., 50,000 shares or more) has never occurred on the 
Exchange. Furthermore, because Exchange specialists only are obligated 
to accept and guarantee execution of relatively small MOC orders (100-
2,099 shares), the specialist may decline to accept and guarantee 
execution of large MOC orders that would cause a substantial MOC order 
imbalance. The Commission believes that in the aggregate, these factors 
outweigh the benefits of publicly disseminating MOC order 
imbalances.\22\
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    \22\ The Commission previously has indicated its view that the 
dissemination of MOC order imbalances allows specialists to 
determine the buying and selling interest in MOC orders and, if 
there is a substantial imbalance on one side of the market, provides 
the investing public with timely and reliable notice of the 
imbalance and with an opportunity to make appropriate investment 
decisions in response. See e.g., Securities Exchange Act Release No. 
40123 (June 24, 1998), 63 FR 36280 (July 2, 1998).
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    The Exchange's proposal is substantially similar to the MOC rules 
currently in place at the NYSE,\23\ the Amex,\24\ and the Boston Stock 
Exchange (``BSE'').\25\ The similarity between the proposal and the MOC 
rules maintained by other national securities exchange will ensure that 
the Exchange does not become a haven for MOC orders that are prohibited 
on the other exchange markets. In addition, the standardization of 
rules will result in Exchange MOC orders being treated the same as MOC 
orders sent to the NYSE, Amex, and BSE.
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    \23\ See supra note 13.
    \24\ See supra note 18.
    \25\ See BSE Rules of Board, Chapter II, Section 22, 
``Procedures for Handling Market-On-Close (``MOC'') Orders.'' The 
Commission permanently approved the BSE's rules and procedures 
governing MOC orders on October 9, 1998. See Securities Exchange Act 
Release No. 40538 (Oct. 9, 1998), 63 FR 55661 (Oct. 16, 1998).
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    The Commission understands that in the highly competitive markets 
of today, it is possible that a regional exchange which trades NYSE- 
and Amex-listed stocks, but does not have comparable closing 
procedures, could be utilized by market participants to enter MOC 
orders prohibited on such primary markets. Although the Commission has 
no reason to believe that the Exchange has become a significant 
alternative market to enter otherwise prohibited MOC orders, the 
Commission agrees with the Exchange that if this possibility were 
realized, it could have a negative impact on the fairness and 
orderliness of the national market system. Accordingly, the Commission 
believes that it is reasonable for the Exchange to adopt procedures for 
the handling of MOC orders that mirror those of the NYSE, Amex, and 
BSE. The adoption of consistent rules and procedures will help ensure 
the equal treatment of MOC orders among exchange markets and, in the 
event of unusual market conditions, offer the Exchange the same 
benefits in terms of potentially reducing volatility.
    The Commission notes that prior to receiving parmanent approval for 
their MOC rules, the NYSE, Amex, and the BSE were required to first 
implement their MOC rules on a pilot basis. However, in consideration 
of the demonstrated benefits of MOC rules and procedures, the 
Commission believes there is no compelling reason to approve the 
Exchange's proposal on a pilot basis rather than permanently. The 
Commission also is confident that the Exchange will surveil the closing 
procedures to ensure against potential manipulations of the close 
through MOC transactions.
    Finally, the Commission believes the structure of proposed Exchange 
Rule 44 will enable members and other market participants to locate and 
apply the Exchange's MOC guidelines without difficulty. Some exchange 
markets maintain their MOC rules and procedures in several sources, 
including rule books and informational memos to members. In contrast to 
such a decentralized approach, the Exchange's proposal presents all 
relevant information in one comprehensive rule. Furthermore, because 
the MOC procedures for expiration days are the same as those for non-
expiration days, Exchange members and member organizations will follow 
identical procedures at the close on all trading days.
    The Commission finds good cause for approving proposed Amendment 
Nos. 1 and 2 prior to the thirtieth day after the date of publication 
of notice of filing thereof in the Federal Register. Amendment No. 1 
revised the proposed rule change by redefining a term used in the rule 
text. The modification was intended to ensure that the proposed rule 
change remained consistent with current exchange market practice and 
did not include incorrect and obsolete terminology. The Commission 
notes that the modification proposed by Amendment No. 1 has been 
superseded by the revisions proposed by Amendment No. 2 and that the 
approval of Amendment No. 1 therefore will have no import on the 
proposed rule change.
    Amendment No. 2 modifies the proposed rule change by eliminating 
the requirement that the Exchange independently publish MOC order 
imbalances that occur on the Exchange. Instead, the Exchange will rely 
on the primary market's dissemination of MOC order imbalances. 
Amendment No. 2 also specifies that Exchange specialists may accept MOC 
orders after 2:40 P.M. only if such orders could have been entered on 
the primary market. As a result, Amendment No. 2 addresses the 
anomalous situation that might arise if the Exchange's MOC order 
imbalance differed from the primary market's MOC order imbalance, and 
MOC orders could have been accepted on the Exchange after 2:40 P.M. but 
not the primary market, and vice versa. The Commission believes 
Amendment No. 2 makes the proposal consistent with the Exchange's goal 
of establishing MOC procedures that are uniform with those of the 
primary markets. Furthermore, the use

[[Page 64303]]

of the primary market's MOC order imbalance will simplify MOC 
procedures for market participants and specialists, and will eliminate 
possible mix-ups that might have occurred due to the dissemination of 
multiple MOC order imbalances for the same securities. Finally 
Amendment No. 2 revises the proposal to establish identical procedures 
for MOC orders entered on expiration and non-expiration days. The 
Commission believes the adoption of uniform MOC procedures that do not 
vary from day-to-day will create certainty among market participants 
and will eliminate the confusion that may have arisen from procedural 
requirements that differed for expiration and non-expiration days. 
Accordingly, the Commission believes there is good cause, consistent 
with Sections 6(b)(5) and 19(b) of the Act,\26\ to approve Amendment 
Nos. 1 and 2 to the proposed rule change on an accelerated basis.
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    \26\ 15 U.S.C. 78f(b)(5) and 15 U.S.C. 78s(b).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment Nos. 1 and 2 to the proposed rule 
change, including whether the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the Act. 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 submissions, 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 persons, 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 in 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-97-19 and 
should be submitted by December 21, 1998.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-CHX-97-19), as amended, is 
approved.

    \27\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-30950 Filed 11-18-98; 8:45 am]
BILLING CODE 8010-01-M