Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Stock Exchange, Inc. Relating to Utilization of Exempt Credit by Market Makers

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34256; File No. SR-CHX-94-07]

June 24, 1994.

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Chicago Stock Exchange, Inc. Relating to Utilization of

Exempt Credit by Market Makers

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on March 15, 1994, the

Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed with the

Securities and Exchange Commission (``Commission'' or ``SEC'') the

proposed rule change as described in Items I, II and III below, which

items have been prepared by the self-regulatory organization. The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\15 U.S.C. Sec. 78s(b)(1).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The CHX proposes to amend Interpretation and Policy .01 of Rule 17

of Article XXXIV of the Exchange's Rules. The text of the proposed rule

is as follows:

Additions italicized.

Article XXXIV

Rule 17

Interpretations and Policies

.01 Utilization of Exempt Credit. Exchange Members registered as

equity market makers are members registered as specialists for purposes

of the Securities Exchange Act of 1934 and as such are entitled to

obtain exempt credit for financing their market maker transactions.

Members and/or prospective members who are anticipating becoming

registered as equity market makers as well as those clearing firms who

are or will be carrying the accounts of market makers should be aware

of the following interpretation relative to the use of such credit:

1. Only those transactions initiated on the Exchange Floor qualify

as market transactions. This restriction prohibits the use of exempt

credit where market maker orders are routed to the Floor from locations

off the Floor.

2. Fifty per cent (50%) of the quarterly share volume which creates

or increases a position in a market maker account must result from

transactions which are either consummated on the Exchange or sent from

the Exchange Floor for execution in another market via ITS.

3. Only those positions which have been established as a direct

result of bona fide equity market maker activity qualify for exempt

credit treatment. This restriction precludes exempt credit financing

based on an equity market maker registration for positions resulting

from options exercises and assignments.

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it 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 organization

has 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 proposed rule change relates to the utilization of exempt

credit by market makers. Under current rules, in order for a market

maker to obtain exempt credit for the financing of its market maker

transactions, fifty percent (50%) of the quarterly share volume in its

market maker account must result from transactions consummated on the

Exchange.

The proposed rule change would amend this interpretation and policy

under the Exchange's rules so that the fifty percent (50%) volume test

also would include orders that, although initiated on the Exchange

Floor, are sent to another market for execution via the Intermarket

Trading System (``ITS''). The Exchange believes that when a market

maker initiates an order on the Exchange Floor and clears the post, the

market maker should not be penalized when there is no order against

which it can be executed or when the specialist does not accept the

order for placement in his book. As a result, if a market maker clears

the post, sends the order to another market via ITS and the order is

executed, under the proposed rules, that transaction would count

towards the fifty percent (50%) quarterly share volume requirement.

2. Statutory Basis

The proposed rule change is consistent with Section 6(b)(5) of the

Act in that it is designed to promote just and equitable principles of

trade, 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.

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

The Exchange does not believe that the proposed rule change will

impose a burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received From Members, Participants or Others

No comments where solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such other 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 consent, 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. Sec. 552, will be available for inspection and copying at

the Commission's Public Reference Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of the CHX. All

submissions should refer to File No. SR-CHX-94-07 and should be

submitted by July 21, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-15932 Filed 6-29-94; 8:45 am]

BILLING CODE 8010-01-M