Self-Regulatory Organizations; Order Granting Approval To Proposed Rule Changes by the New York Stock Exchange, Inc., American Stock Exchange, Inc., and Chicago Board Options Exchange, Incorporated; and Order Granting Accelerated Approval To Proposed Rule Change by the Chicago Stock Exchange, Incorporated, and Boston Stock Exchange, Inc., and Notice of Filing and Order Granting Accelerated Approval To Proposed Rule Change by the Philadelphia Stock Exchange Inc., and Amendment No. 1 to the Proposed Rule Change by the Chicago Board Options Exchange, Incorporated, Relating to Amendments to Their Respective Market-Wide Circuit Breaker Provisions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38221; File No. SR-NYSE-96-38, SR-Amex-96-49, SR-CBOE-

96-78, SR-CHX-96-33, SR-BSE-96-12, and SR-Phlx-97-03]

Self-Regulatory Organizations; Order Granting Approval To

Proposed Rule Changes by the New York Stock Exchange, Inc., American

Stock Exchange, Inc., and Chicago Board Options Exchange, Incorporated;

and Order Granting Accelerated Approval To Proposed Rule Change by the

Chicago Stock Exchange, Incorporated, and Boston Stock Exchange, Inc.,

and Notice of Filing and Order Granting Accelerated Approval To

Proposed Rule Change by the Philadelphia Stock Exchange Inc., and

Amendment No. 1 to the Proposed Rule Change by the Chicago Board

Options Exchange, Incorporated, Relating to Amendments to Their

Respective Market-Wide Circuit Breaker Provisions

January 31, 1997.

I. Introduction

On December 11, 1996, the New York Stock Exchange, Inc. (``NYSE'');

on December 16, 1996, the American Stock Exchange, Inc., (``Amex''), on

December 18, 1996, the Chicago Board Options Exchange, Incorporated

(``CBOE''), and the Chicago Stock Exchange, Incorporated (``CHX''); on

December 31, 1996, the Boston Stock Exchange, Inc. (``BSE''); and on

January 6, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'')

respectively (each individually referred to herein as an ``Exchange''

and

[[Page 5872]]

two or more collectively referred to as ``Exchanges''), submitted to

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

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

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule changes

relating to certain market-wide circuit breaker provisions.

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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 changes were published for comment in Securities

Exchange Act Release Nos. 38047 (December 13, 1996), 61 FR 67087

(December 19, 1996) (NYSE); 38071 (December 20, 1996), 61 FR 68805

(December 30, 1996) (Amex); 38080 (December 23, 1996), 61 FR 69126

(December 31, 1996) (CBOE); 38130 (January 6, 1997), 62 FR 1938

(January 14, 1997) (CHX); and 38138 (January 8, 1997), 62 FR 2202

(January 15, 1997) (BSE). The BSE submitted to the Commission Amendment

No. 1 on January 7, 1997,\3\ and Amendment No. 2 on January 15,

1997.\4\ The CBOE submitted to Commission Amendment No. 1 on January

17, 1997.\5\ The Commission received one comment letter on the

proposals.\6\

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\3\ See Letter from Karen A. Aluise, Assistant Vice President,

BSE, to Holly Smith, Associate Director, Office of Market

Supervision (``OMS''), Division of Market Regulation (``Market

Regulation''), Commission, dated January 7, 1997 (``BSE Amendment

No. 1''), correcting a typographical error regarding the adjustment

of its second circuit breaker trigger level. See Securities Exchange

Act Release No. 38138 (January 8, 1997), 62 FR 2202.

\4\ See Letter from Thomas J. Frain, Staff Attorney, BSE, to

Chester A. McPherson, Staff Attorney, OMS, Market Regulation,

Commission, dated January 15, 1997 (``BSE Amendment No. 2''), making

clear that approval of its proposal superseded its existing circuit

breaker provisions.

\5\ See Letter from Arthur B. Reinstein, Senior Attorney, CBOE,

to Chester A. McPherson, Staff Attorney, OMS, Market Regulation,

Commission, dated January 17 1997 (``CBOE Amendment No. 1''),

revising its Rule 6.3B to delete references to specific moves in the

DJIA, and adopting a more general rule stating that circuit breakers

will be triggered on the CBOE whenever circuit breakers are

triggered on the NYSE.

\6\ See Letter from the Honorable Edward J. Markey, Member of

Congress, the United States House of Representatives, to Arthur

Levitt, Chairman, SEC, dated December 16, 1996 (``Markey Letter'').

For a description of the Markey Letter, see infra part III.

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This order approves the proposed rule changes. The proposals by

CHX, BSE, Phlx, and CBOE's Amendment No. 1 are being approved on an

accelerated basis.

II. Description of the Proposal

The Exchanges propose to amend their rules relating to ``Trading

Halts Due to Extraordinary Market Volatility--circuit breakers'' to

increase the trigger levels for circuit breakers that impose temporary

market-wide trading halts. The current circuit breakers are triggered

if the Dow Jones Industrial Average (``DJIA'') declines by 250 and 400

points, respectively, from its previous day's close. A decline by 250

or more points would result in a one-half hour trading halt, while a

decline of 400 or more points would cause trading to halt for an

additional hour. Now, the Exchanges propose establishing new thresholds

of 350 and 550 points in the DJIA before the respective one-half hour

and one hour circuit breakers are triggered.\7\ The Exchanges seek to

effect these changes on a one-year pilot basis. The futures exchanges

trading stock index futures have proposed analogous circuit breaker

proposals with the Commodity Futures Trading Commission (``CFTC'') to

halt trading in such contracts.\8\

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\7\ The National Association of Securities Dealers, Inc.

(``NASD''), Cincinnati Stock Exchange (``CSE''), and the Pacific

Stock Exchange, Incorporated (``PSE'') have general rules that

require them to halt trading during the intermarket circuit

breakers. See infra note 15. Consequently, they do not need to file

conforming rule changes because their circuit breaker halts will

automatically conform to the halt periods adopted by the other

exchanges. See Letters to Howard L. Kramer, Associate Director, OMS,

Market Regulation, Commission, from Adam W. Gurwitz, Director of

Legal Affairs, CSE, dated January 3, 1997; from David P. Semak, Vice

President, Regulation, PSE, dated January 14, 1997; and from Richard

Ketchum, Chief Operating Officer and Executive Vice President, NASD,

dated January 15, 1997.

\8\ See Letter to Howard L. Kramer, Associate Director, OMS,

Market Regulation, Commission, from Stephen A. Sherrod, Chief,

Financial Instruments Unit, CFTC, dated December 20, 1996. See also

Letters to Jean A. Webb, Secretary, CFTC, from Norman E. Mains,

Senior Vice President, Chief Economist and Director of Research,

Chicago Mercantile Exchange (``CME''), dated December 17, 1996; from

Richard T. Pombonyo, Managing Director, New York Futures Exchange,

Inc. (``NYFE''), dated December 16, 1996; and from Jeff C.

Borchardt, Senior Vice President, Kansas City Board of Trade

(``KCBT''), dated December 18, 1996. For example, the most actively

traded stock index futures contract is the Standard & Poor's 500

(``S&P 500'') stock index futures contract traded on the CME.

Currently, if the S&P 500 futures are limit offered at the 30-point

price limit and the securities markets have instituted the half-hour

trading halt, the S&P 500 futures also will halt trading. The same

procedure applies at the 50-point price limit for the S&P 500

futures for the one-hour trading halt. The CME is raising the

applicable price limits in the S&P 500 futures to 45 and 70 points

to correspond to the new 350/550 DJIA point triggers in the

securities markets. See infra note 27 for an additional explanation

of how the futures price limits relates to circuit breaker trading

halts.

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III. Summary of Comments

The Commission received one comment letter--the Markey Letter--on

the Exchanges' proposals.\9\ The Markey Letter, while acknowledging

``the need for the Commission and its staff to continually reexamine

the circuit breakers to determine their efficacy in light of changing

market conditions,'' also expressed concern that ``the sheer size of

the market movement which would occur before (the proposed) trading

halt(s) (were) activated could be extremely disturbing to investors and

could possibly disrupt the fair and orderly functioning of the

markets.'' \10\

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\9\ See supra note 6.

\10\ Id.

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The Markey Letter continued by stating ``that any changes to the

circuit breakers could contribute to a much higher level of market

volatility that might impair investor confidence or result in other

unforeseen consequences.'' Finally, the Markey Letter recommended that,

if the proposals are adopted, the Commission should consider

establishing ``speed bumps'' at the intervening levels in order to

reduce volatility before the actual trading halts are triggered.\11\

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\11\ Id. The Commission notes that the NYSE has indicated that

it does not intend to propose any changes at this time to its market

volatility procedures that would become effective before a 350 point

circuit breaker trigger could be reached. One of these sets of

procedures, provided in NYSE Rule 80A (known as the ``Collar

Rule''), places limits on index arbitrage program trading if the

DJIA rises or falls 50 points from the previous day's closing value.

The other set of procedures, known as NYSE's ``sidecar'' system,

routes program orders into separate electronic files for a brief

period if the futures contract on the S&P 500 stock index declines

to 12 points below its previous settlement value, a move that is

roughly equivalent to 100 points on the DJIA. With these ``speed

bump'' procedures in place on the NYSE, as well as other circuit

breakers at the derivative exchanges, the Commission does not

believe it is necessary at this time to develop additional

procedures to restrict trading prior to triggering of a circuit

breaker trading halt.

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IV. Discussion

After careful review of the Exchanges' proposed amendments to their

circuit breaker rules and the comment thereto, and for the reasons

discussed below, the Commission believes that the proposed rule changes

are consistent with the requirements of the Act and the rules and

regulations thereunder applicable to national securities exchanges,

and, in particular, with the requirements of Section 6(b).\12\

Specifically, the Commission believes the proposals are consistent with

the Section 6(b)(5) requirements that the rules of an exchange 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, to prevent fraudulent and manipulative acts,

and, in general, to protect investors and the public interest.\13\

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\12\ 15 U.S.C. 78f(b).

\13\ In approving these rules, the Commission has considered the

proposed rules' impact on efficiency, competition, and capital

formation. 15 U.S.C. Sec. 78c(f).

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In 1988, the Commission approved circuit breaker rule proposals by

the

[[Page 5873]]

Exchanges.\14\ The original circuit breaker rules provided that trading

would halt in all securities markets for one hour if the DJIA declined

by 250 points from its previous day's closing level and, thereafter,

trading would halt for an additional two hours if on that same day the

DJIA declined 400 points from its previous day's close. In July, 1996,

these periods were reduced to one-half hour for a 250 point move and

one hour for a 400 point move.\15\ The original circuit breaker

proposals were approved on a pilot basis, and have been extended on

that basis since then.\16\

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\14\ See Securities Exchange Act Release Nos. 26198 (October 19,

1988), 53 FR 41637 (Amex, CBOE, NASD, and NYSE); 26218 (October 26,

1988), 53 FR 44137 (CHX); 26357 (December 14, 1988), 53 FR 51182

(BSE); 26368 (December 16, 1988), 53 FR 51942 (PSE); 26386 (December

22, 1988), 53 FR 52904 (Phlx); and 26440 (January 10, 1989), 54 FR

1830 (CSE).

\15\ See Securities Exchange Act Release Nos. 37457 (July 19,

1996) 61 FR 39176 (NYSE); 37458 (July 19, 1996), 61 FR 39167 (Amex);

and 37459 (July 19, 1996), 61 FR 39172 (BSE, CBOE, CHX, and Phlx).

\16\ See supra note 14. The most recent extensions expire on

April 30, 1997 for the Amex, NYSE and Phlx, see Securities Exchange

Act Release No. 37890 (October 29, 1996) 61 FR 56983; and on October

31, 1997 for the BSE and CHX. See Securities Exchange Act Release

No. 36414 (October 25, 1995) 60 FR 55630. The NASD's policy

statement expires on December 31, 1997. See Securities Exchange Act

Release No. 36563 (December 7, 1995), 60 FR 64084. The Commission

approved on a permanent basis the proposals by the CBOE, PSE, and

CSE. See Securities Exchange Act Release Nos. 26198 (October 19,

1988), 53 FR 41637 (CBOE); 26368 (December 16, 1988), 53 FR 51942

(PSE); and 26440 (January 10, 1989) 54 FR 1830 (CSE).

---------------------------------------------------------------------------

These market-wide circuit breakers were intended to provide market

participants with an opportunity to reestablish an equilibrium between

buying and selling interest by offering a temporary ``time-out'' period

to become aware of and respond to a sudden, potentially destabilizing

market decline. In approving the initial proposals, the Commission

noted that an Interim Report of the Working Group on Financial Markets

(``Working Group'') had recommended that in periods of rapid market

decline that threaten to create panic conditions, trading halts and

reopening procedures should be coordinated within the financial

marketplace.\17\

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\17\ The Working Group on Financial Markets was established by

the President in March 1988 in response to the 1987 market break. It

consisted of the Under Secretary for Finance of the Department of

the Treasury and the Chairmen of the Commission, the Commodity

Futures Trading Commission, and the Board of Governors of the

Federal Reserve System. Its mandate was to determine the extent to

which coordinated regulatory action was necessary to strengthen the

nation's financial markets.

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Specifically, the Working Group recommended that all U.S. markets

for equity and equity-related products--stocks, individual stock

options, stock index options, and stock index futures--halt trading

during such periods of market volatility.\18\ These recommendations, in

part, were in response to the events of October 19, 1987, when the DJIA

declined over 22.6%. The futures exchanges also adopted analogous

trading halts to provide coordinated means to address potentially

destabilizing market volatility.\19\

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\18\ Id.

\19\ See Letter from Todd E. Petzel, Vice President, Financial

Research, CME, to Jean A. Webb, Secretary, CFTC, dated September 1,

1988. See also Letters to Jean A. Webb, Secretary, CFTC, from Paul

J. Draths, Vice President and Secretary, Chicago Board of Trade

(``CBT''), dated July 29, 1988; Michael Braude, President, KCBT,

dated August 10, 1988; and Milton M. Stein, Vice President,

Regulation and Surveillance, NYFE, dated September 2, 1988.

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As noted above, in July of 1996, the Commission approved proposals

by the Exchanges to amend their circuit breaker rules to shorten the

amount of time that trading is halted on the Exchanges when the DJIA

has declined by 250 or 400 points.\20\ Also, at that time, the

Commission approved the elimination of references in the Exchanges'

rules to the use of abbreviated reopening procedures following the

implementation of circuit breakers.\21\ In granting its approval of the

shortened period for trading halts pursuant to circuit breakers, the

Commission noted that advances in technology and increases in the

operational capacity of the markets and heightened participants'

ability to become aware of and respond to significant price movements

within a much shortened period of time.

---------------------------------------------------------------------------

\20\ See supra note 15.

\21\ Id.

---------------------------------------------------------------------------

The Commission's approval of the July 1996 proposals constituted

the first significant modification to the circuit breaker provisions

since their adoption. In response to the July 1996 proposals, the

Commission received four comment letters expressing general concern

about the circuit breakers trigger levels, and raising a number of

associated issues, including the belief that the trigger levels should

be raised to reflect the growth in the market values since circuit

breakers were initially adopted.\22\ In approving the July 1996

proposals, the Commission recognized the commentators' issue regarding

the appropriateness of the 250/400 trigger levels in a rising market

and encouraged the Exchanges and members of the industry to continue

evaluating the trigger levels for trading halts in light of the

changing circumstances of the market since 1988.

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\22\ See Letter from William R. Rothe, Chairman, and John L.

Watson III, President, Security Traders Association, to Jonathan G.

Katz, Secretary, SEC, dated May 10, 1996 (``STA Letter''); Letter

from Peter W. Jenkins, Chairman, and Holly A. Stark, Vice Chairman,

Securities Traders Association's Institutional Committee, to

Jonathan G. Katz, Secretary, SEC, dated May 7, 1996 (``STA

Institutional Committee Letter''); Letter from Joseph R. Hardiman,

President, NASD, to Jonathan G. Katz, Secretary, SEC, dated May 23,

1996 (``NASD Letter''); Letter from Paul Schott Stevens, Senior Vice

President and General Counsel, Investment Company Institute, to

Jonathan G. Katz, Secretary, SEC, dated May 23, 1996 (``ICI

Letter'').

---------------------------------------------------------------------------

Likewise, when the circuit breakers pilot programs were extended in

October 1996, the Commission again, while reaffirming the utility of

circuit breakers and the purposes they serve during periods of large,

rapid market declines, expressed concern about whether the existing

circuit breakers levels of 250 and 400 points in the DJIA (then

reflecting a decline of approximately 4.1% and 6.6%) warranted market-

wide halts.\23\ Accordingly, the Commission recommended that the

industry study these levels with a view of reaching a consensus on the

size of increases in current trigger levels required to ensure that

cross-market trading halts are imposed only during market declines of

historic proportions. Further, the Commission indicated that the

markets should submit their proposals for new trigger levels by

February 3, 1997.

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\23\ These percentages are based on the DJIA close of 6094.23 on

October 18, 1996.

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The current proposals by the Exchanges to expand the circuit

breaker trigger levels to 350 and 550 points in the DJIA reflect the

Exchanges' response to the Commission's recommendations. In their

respective filings, the Exchanges noted that the proposed new levels of

350 and 550 points would represent approximately a 5.4% and 8.5%

decline in the DJIA, respectively, reflecting significant market

declines that they believe serve as appropriate levels to trigger a

brief trading halt.\24\

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\24\ In arriving at these percentages (5.4% and 8.5%), the

Exchanges estimated the DJIA to be approximately 6500.

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The Exchanges' proposals are contingent on other markets adopting

similar proposals.\25\ In this regard, the Commission notes that all of

the existing U.S. stock and options exchanges, as well as the NASD,

have either submitted revised circuit breaker pilot programs or have

agreed to comply with the provisions of such programs.\26\

[[Page 5874]]

The futures exchanges are also adopting analogous trading halts to

maintain the existing coordinated means to address potentially

destabilizing market volatility.\27\ Thus, the Commission believes the

contingency is satisfied.

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\25\ The Commission notes that the BSE and Phlx did not

explicitly include this contingency in their filings.

\26\ See supra part II. The NASD, CSE, and PSE have reaffirmed

their policy statements to halt trading whenever circuit breakers

are triggered.

\27\ If the ratio of 8-to-1 is used (8 DJIA points to 1 S&P 500

index point), then the CME's proposed price limits of 45 and 70

points correspond approximately to the 350 and 550 points circuit

breaker trigger levels proposed by the equity Exchanges. The

Commission notes that on a percentage basis, however, the 45-point

limit on the CME would reflect a slightly greater percentage decline

in the S&P 500 index than would the 350-point decline in the DJIA.

The same is true for the 70-point limit in the S&P 500 futures and

the 550-point circuit breaker trigger in the DJIA. While this poses

a slight possibility that trading on the futures exchanges may not

halt at the same time as trading on the stock exchanges, experience

indicates that futures generally fall faster than stocks during

periods of severe market declines and thus the futures price limits

are more likely to be triggered ahead of the circuit breakers.

Consequently, the CME's proposed limits appear to be in line with

the trigger levels in the securities markets.

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In evaluating the new levels proposed by the Exchanges, the

Commission notes that, when the circuit breaker rules were adopted in

1988, the 250-point and 400-point triggers represented one-day declines

of 12% and 19%, respectively, in the DJIA. At current market levels,

these triggers represent declines of approximately 3.7% and 6.0%,

respectively.\28\ The Commission believes that the maintenance of the

trigger levels at 250 and 400 points for eight years, while the market

has risen substantially, has acted to effectuate a significant de facto

diminution of the price movement that would cause a market-wide trading

halt.\29\ Accordingly, the Commission has substantial doubt as to

whether a 3.7% decline in the DJIA warrants a marketwide halt.

---------------------------------------------------------------------------

\28\ These figures are based on the DJIA close of 6696.48 on

January 24, 1997.

\29\ The Commission also notes the concern raised in the Markey

Letter that the 550 points circuit breaker would be greater than the

508 points decline experienced during the October 1987 crash.

However, relative to the DJIA of October 1987, a 508 points decline

is approximately a 22.63% decline, whereas, relative to the DJIA of

January 1992, a 550 points decline is the equivalent of a 8.2%

decline.

---------------------------------------------------------------------------

In support of this conclusion, the Commission notes the market

decline of March 8, 1996, when the DJIA fell as much as 217 points

(3.85%) on an intra-day basis. This decline represented the largest

intra-day point decline since the adoption of circuit breakers. The

Commission's consultations with market officials indicated that, even

though volume was extremely heavy during the price decline on March 8,

trading appears to have been orderly. There was no evidence of the

types of systemic stress, as were present in the 1987 market break,

warranting the one-hour market-wide trading halt that would have been

imposed if the DJIA had reached the 250-point circuit breaker trigger.

In considering the Exchanges' current proposals to modify the

circuit breaker trigger levels, the Commission also has taken into

account the guidelines expressed by the Working Group when originally

proposing the circuit breaker procedures in 1988. At that time, the

Working Group indicated that pre-determined, coordinated, cross-market

trading halts should be implemented so as to address market declines

that threaten to result in ad hoc and potentially destabilizing market

closings. The Working Group's report stressed that the circuit breaker

trigger levels should be ``broad enough to be tripped only on rare

occasions, but * * * sufficient to support the ability of the payment

and credit systems to keep pace with extraordinary large market

declines.'' Consequently, the Working Group recommended that the first

market-wide trading halt be imposed only when the DJIA had declined by

250 points and that the second halt be imposed when the decline had

reached a total of 400 points, levels that represented extraordinary

declines of approximately 12% and 19%, respectively, in 1988.

The Working Group's report also cautioned that the circuit breaker

trigger levels should be reviewed by market regulators periodically to

adjust the point-decline triggers to ensure that market-wide halts

would be imposed only after extraordinary market declines. The Working

Group envisioned in 1988 that the circuit breaker levels would be

reevaluated periodically and adjusted to reflect market levels.\30\ In

recent consultations, the Working Group has supported the Commission's

determination that it is time to raise the current circuit breaker

triggers.

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\30\ See supra note 17.

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Consequently, the Commission is approving the adoption of the new

350/550 trigger levels. The DJIA has tripled in value since circuit

breaker trading halts were adopted in 1988. This rise in the market

necessitates increases in the circuit breaker trigger levels so as to

prevent their unnecessary application. The existing levels of 250/400

(approximately 3.7% and 6.0%) are far below the percentage originally

adopted (approximately 12% and 19%). While the 350/550 levels on a

percentage basis are below the percentages represented by 250/400

points in 1988, the Commission believes that increasing the trigger

levels better reflects the state of the market than current levels. The

trigger levels should reflect an extraordinary decline under current

market conditions. The 350/550 trigger levels more accurately meet this

standard than the 250/400 point triggers.

The Commission recognizes that the Exchanges have been cautious in

their efforts to raise the circuit breaker triggers and that the

proposed new triggers of 350/550 points represent approximately a 40%

increase in trigger levels. Nevertheless, the Commission believes that

the Exchanges' determinations regarding the new trigger levels

represent a substantial improvement over the current trigger levels and

reduce the Commission's concerns that the market-wide circuit breaker

trading halts should not be triggered except during extraordinary

market declines.

As has been done in the past, the Commission is approving these

changes on a pilot basis. In addition, the Commission finds good cause

for approving the proposals by the CHX, BSE, Phlx, and CBOE's Amendment

No. 1 prior to the thirtieth day after the date of publication of

notice of filing thereof in the Federal Register. These proposals are

analogous to the circuit breaker proposals published in the Federal

Register, for the full statutory period, by the NYSE, Amex, and

CBOE.\31\ The Commission believes that it is important that the

Exchanges' circuit breaker procedures be approved simultaneously to

preserve the existence of uniform market-wide circuit breaker

provisions. Accordingly, the Commission believes that granting

accelerated approval of the proposals and the amendments thereto is

appropriate and consistent with Sections 6(b)(5) and 19(b)(2) of the

Act.

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\31\ See supra part I.

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The proposals being approved today effectively supersede and

replace the existing circuit breaker pilot provisions of the respective

Exchanges.\32\ The Commission is approving each of the Exchanges'

revised circuit breaker rules for a one-year period becoming effective

on February 1, 1997, and remaining in force until January 31, 1988.\33\

The

[[Page 5875]]

Commission expects the markets to continually reevaluate the circuit

breaker trigger levels in order to prevent imposing cross-market

trading halts that are not justified by the overall magnitude of a

market decline. Accordingly, the Commission will work with the markets

to develop procedures for reevaluating the circuit breaker triggers on

at least an annual basis. In this connection, the Commission requests

that within ten months of the date of this order the markets submit

their respective recommendations for the trigger levels that will be

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used upon expiration of the 350/550 levels one year from this order.

\32\ The AMEX, CHX, and Phlx have submitted letters clarifying

certain potential ambiguity contained in the originally filed

proposals, by making clear that the proposals approved today

supersede each Exchanges' existing circuit breaker provisions. See

Letters to Michael A. Walinskas, Senior Special Counsel, Market

Regulation Commission, from Michael Cavalier, Associate General

Counsel, Legal and Regulatory Policy, Amex, dated January 16, 1997;

from David T. Rusoff, Esq., Foley & Lardner, CHX, dated January 16,

1997; and from Philip H. Becker, Senior Vice President, Chief

Regulatory Officer, Phlx, dated January 17, 1997.

\33\ The CBOE, in its Amendment No. 1, revised the language to

its circuit breaker rule, deleting language that referred to the

applicable DJIA trigger levels. Instead, the CBOE proposes the

adoption of new language that would impose circuit breaker trading

halts on the CBOE whenever such halts are in effect on the NYSE. See

supra note 5. The Commission notes that because the CBOE has

determined to adopt this piggyback approach, and their circuit

breaker rule is currently approved on a permanent basis, it should

generally not be necessary for the CBOE to file conforming rule

changes to revise specific circuit breaker trigger levels after the

adoption of its current proposal.

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V. Solicitation of Comments

Interested persons are invited to submit written data, views, and

arguments concerning BSE Amendment No. 2, SR-Phlx-97-03, and CBOE

Amendment No. 1. 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

submission, all subsequent amendments, all written statements with

respect to the proposed rule changes that are filed with the

Commission, and all written communications relating to the proposed

rule changes 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 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 Exchanges.

All submissions should refer to BSE Amendment No. 2, SR-Phlx-97-03, and

CBOE Amendment No. 1 and should be submitted by February 28, 1997.

VI. Conclusion

For the reasons discussed above, the Commission believes the

proposals by the Exchanges to amend their circuit breaker trigger

levels are consistent with Section 6(b)(5) of the Act.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,

\34\ that the

proposed rule changes (SR-NYSE-96-38, SR-Amex-96-49, SR-BSE-96-12, SR-

CBOE-96-78, SR-CHX-96-33, and SR-Phlx-97-03) are hereby approved to

become effective on February 1, 1997 and will remain in force until

January 31, 1998.

\34\ 15 U.S.C. 78s(b)(2).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\35\

\35\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-3032 Filed 2-6-97; 8:45 am]

BILLING CODE 8010-01-M