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

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