Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the Chicago Stock Exchange, Incorporated Relating to Enhanced SuperMAX and Timed Enhanced SuperMAX

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37491; File No. SR-CHX-96-19]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by the Chicago

Stock Exchange, Incorporated Relating to Enhanced SuperMAX and Timed

Enhanced SuperMAX

July 29, 1996.

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 July 2,

1996, the Chicago Stock Exchange, Incorporated (``CHX'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'') the proposed rule change as described in Items I and

II below, which Items have been prepared by the CHX. The Commission is

publishing this notice to solicit comments on the proposed rule change

from interested persons and to grant accelerated approval of the

proposed rule change.

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

of the Proposed Rule Change

The Exchange is proposing to extend its Enhanced SuperMAX and Timed

Enhanced SuperMAX pilot program, described in subsections (e) and (f)

of Rule 37 of Article XX of the Exchange Rules, for five months, until

December 31, 1996, and the deadline for filing a report to the

Commission describing its experience with the pilot program, to August

31, 1996.

The text of the proposed rule change is available at the Office of

the Secretary, CHX, and at the Commission.

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 Exchange 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 CHX has prepared summaries, set forth in sections A,

B, and C below, of the most significant aspects of such statements.

[[Page 40691]]

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

Statutory Basis for, the Proposed Rule Change

1. Purpose

On May 22, 1996, the Commission approved a proposed rule change of

CHX that allows specialists on the Exchange, through the Exchange's MAX

system, to provide order execution guarantees that are more favorable

than those required under CHX Rule 37(a), Article XX.\1\ That approval

order contemplated that the CHX would file with the Commission specific

modifications to the parameters of MAX that are required to implement

various options available under this new rule.

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\1\ See Securities Exchange Act Release No. 35753 (May 22,

1995), 60 FR 28007 (May 26, 1995).

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On July 27, 1995, the Commission approved a proposed rule change of

the CHX that implemented two options to be available under this new

rule.\2\ These two new options, Enhanced SuperMAX and Timed Enhanced

SuperMAX, were approved on a pilot basis until July 31, 1996. The

Commission, in the Pilot Approval Order, requested that the CHX provide

a report to the Commission, by May 31, 1996, describing its experience

with the pilot program.

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\2\ See Securities Exchange Act Release No. 36027 (July 27,

1995), 60 FR 39465 (August 2, 1995) (``Pilot Approval Order'').

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The purpose of the proposed rule change is to request a five-month

extension of the pilot program, until December 31, 1996, and to request

an extension, until August 31, 1996, of the deadline for submitting the

monitoring report to the Commission. The Exchange requests the five-

month extension of the pilot program to give the CHX additional time to

prepare the report for submission to the Commission. The Exchange

requests additional time to prepare the monitoring report because of

the increased amount of staff time and resources that the Exchange

devoted in ensuring smooth transitions that were necessitated by the

Exchange's decision to withdraw from the clearance and settlement and

securities depository businesses.\3\ Now that this transition is

virtually complete, the Exchange can devote the necessary time and

resources needed to provide the Commission with the information

requested in the report.

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\3\ See Securities Exchange Act Release No. 36684 (January 5,

1996), 61 FR 1195 (January 17, 1996).

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As stated above, the two options available in the pilot program are

Enhanced SuperMAX and Timed Enhanced SuperMAX. Enhanced SuperMAX is

merely a reactivation of the Exchange's Enhanced SuperMAX program, a

program originally approved by the Commission on a pilot basis in

1991.\4\ Unlike the old pilot program, however, the new Enhanced

SuperMAX program is available starting at 8:45 a.m. instead of 9:00

a.m. This program differs from the Exchange's SuperMAX program in that

under this program, certain orders are ``stopped'' at the NBBO \5\ and

are executed with reference to the next primary market sale instead of

the previous primary market sale. Timed Enhanced SuperMAX is a slight

variation on the Enhanced SuperMAX program. It executes orders in the

same manner as the Enhanced SuperMAX program except that if there are

no executions in the primary market after the order has been stopped

for a designated time period, the order is executed at the stopped

price at the end of such period. Such period, known as a time out

period, is pre-selected by a specialist on a stock-by-stock basis based

on the size of the order, may be changed by a specialist no more

frequently than once a month and may be no less than 30 seconds.

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\4\ See Securities Exchange Act Release No. 30058 (December 10,

1991), 56 FR 65765 (December 18, 1991).

\5\ The term national best bid or offer (``NBBO'') is defined

under SEC Rule 11Ac1-2 as the highest bid or lowest offer for a

reported security made available by any reporting market center

pursuant to Rule 11Ac1-1 or the highest bid or lowest offer for a

security other than a reported security disseminated by an over-the-

counter market maker in Level 2 or 3 of Nasdaq.

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2. Basis

The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Act, in general, and furthers the objectives

of Section 6(b)(5) in particular, 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 CHX does not believe that the proposed rule change will impose

any inappropriate burden on competition.

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

Rule Change Received From Members, Participants or Others

No written comments were solicited or received with respect to the

proposed rule change.

III. Commission's Findings and Order Granting Accelerated Approval of

the Proposed Rule Change

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 Section 6(b)(5).\6\ More specifically, the Commission

continues to believe that the pricing and execution procedures of

Enhanced SuperMAX and Timed Enhanced SuperMAX are consistent with the

maintenance of fair and orderly auction markets on national securities

exchanges.

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\6\ 15 U.S.C. 78f.

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In the Pilot Approval Order,\7\ the Commission asked the Exchange

to monitor the operation of the systems and determine their

effectiveness and to submit a report to the Commission by May 31, 1996

describing its experience with the pilot program. Moreover, the

Commission requested that the Exchange assure the Commission that the

pilot program has no adverse effects on the quality of customer order

executions and determine whether specialists were choosing the

appropriate system for each of their stocks. The Exchange has

represented that it has not had available the necessary human resources

to gather the relevant data and prepare the monitoring report and,

therefore, requests an extension of the deadline for filing the report

until August 31, 1996, and an extension of the pilot program until

December 31, 1996.

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\7\ See supra, note 2.

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The Commission believes that the empirical data in the monitoring

report and the conclusions reached therein will be critical in

determining whether to further extend or permanently approve the

Enhanced SuperMAX and Timed Enhanced SuperMAX pilot program. Moreover,

extending the effectiveness of the pilot program until December 31,

1996 will provide the Commission with four months in which to carefully

and comprehensively evaluate the information provided by the Exchange.

Accordingly, the Commission believes that it is reasonable to extend

the Enhanced SuperMAX and Timed Enhanced SuperMAX pilot program until

December 31, 1996, and extend the deadline for filing the monitoring

report until August 31, 1996.

Any requests to modify this pilot program, to extend its

effectiveness, or to seek permanent approval for the pilot program

should be submitted to the

[[Page 40692]]

Commission by October 15, 1996 as a proposed rule change pursuant to

Section 19(b) of the Act.

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. This will permit the

pilot program to remain in effect until December 31, 1996 without

interruption. In addition, the Exchange has represented that no

problems have arisen and no complaints have been received concerning

the pilot program since its implementation.\8\ Accordingly, the

Commission believes it is consistent with Section 6(b)(5) of the Act to

approve the proposed rule change on an accelerated basis.

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\8\ Telephone conversation between David T. Rusoff, Esq., Foley

& Lardner, and James T. McHale, Attorney, Office of Market

Supervision, Division of Market Regulation, SEC on July 17, 1996.

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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 in the

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

Washington, DC. 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-96-19 and should be

submitted by August 26, 1996.

IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the

Act,\9\ that the proposed rule change (SR-CHX-96-19), extending the

pilot program until December 31, 1996 and extending the deadline for

filing the monitoring report to August 31, 1996, is hereby approved.

\9\ U.S.C. 78s(b)(2).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\10\

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\10\ CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-19763 Filed 8-2-96; 8:45 am]

BILLING CODE 8010-01-M