[Federal Register Volume 59, Number 234 (Wednesday, December 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30028]
[[Page Unknown]]
[Federal Register: December 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35030; FIle No. SR-CHX-93-19]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Approving Proposed Rule Change Creating the Chicago Match System
November 30, 1994.
I. Introduction
On August 6, 1993, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') 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\ a proposed rule change to establish rules for an
institutional trading system, the Chicago Match,\3\ that integrates an
electronic order match system with a facility for brokering trades.
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\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\Among other things, Amendment No. 1 changed the name of this
proposed system from ``Match Market Exchange'' to ``Chicago Match.''
See letter from David T. Rusoff, Attorney, Foley & Lardner, to
Cheryl Dunfee, Attorney, SEC. dated August 18, 1993.
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On August 19, 1993, the CHX submitted to the Commission Amendment
No. 1 to the proposed rule change.\4\ On April 4, 1994, the CHX
submitted to the Commission Amendment No. 2 to the proposed rule
change.\5\ On June 7, 1994, the CHX submitted to the Commission
Amendment No. 3 to the proposed rule change.\6\ On July 11, 1994, the
CHX submitted to the Commission Amendment No. 4 to the proposed rule
change.\7\ The Commission published all of these amendments for comment
on August 5, 1994.\8\ On July 27, 1994, the CHX submitted to the
Commission amendment No. 5 to the proposed rule change.\9\ By letter
dated September 15, 1994, the CHX submitted Amendment No. 6 to the
proposed rule change, which addressed trading halts.\10\ Finally, on
September 20, 1994, the CHX submitted to the Commission amendment No. 7
to the proposed rule change to clarify the language concerning the
priority of the CHX quote in the Chicago Match.\11\ These amendments
made a variety of non-substantive, clarifying changes to the proposal
and are incorporated into the discussion below.
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\4\See note 3 supra.
\5\See letter from David T. Rusoff, Attorney, Foley & Lardner,
to Sandra Sciole, Special Counsel, SEC, dated March 29, 1994.
\6\See Letter from David T. Rusoff, Attorney, Foley & Lardner to
Sharon M. Lawson, Assistant Director, SEC, dated June 7, 1994.
\7\See Amendment No. 4 to SR-CHX-93-19, dated July 7, 1994.
\8\See Securities Exchange Act Release No. 34469 (August 1,
1994), 59 FR 40073.
\9\See Amendment No. 5 to SR-CHX-93-19, dated July 27, 1994.
Amendment No. 5 contained a restatement of the Chicago Match rules
and, in addition, a non-substantive amendment.
\10\See letter from George T. Simon, Foley & Lardner, to Sharon
Lawson, Assistant Director, SEC, dated September 15, 1994.
\11\See letter from George T. Simon, Foley & Lardner, to Sharon
Lawson, Assistant Director, SEC, dated September 20, 1994.
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The Commission received two comment letters from the New York Stock
Exchange (``NYSE'') on this proposal\12\ and two letters from the CHX
supporting its proposal and addressing the NYSE's comments.\13\ This
order approves the proposed rule change, including all the amendments.
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\12\See letters from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, dated May 2,
1994 and August 15, 1994.
\13\See letter from George T. Simon, Foley & Lardner, to
Jonathan G. Katz, Secretary, SEC, dated June 7, 1994, and letter
from George T. Simon, Foley & Lardner, to Sharon Lawson, Assistant
Director, SEC, dated July 25, 1994.
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II. Overview of Proposal
A. General Description
Chicago Match is an electronic order matching system that will
cross orders entered by users during regular trading hours for
securities that are listed on the CHX or for which the CHX has unlisted
trading privileges. The match will occur once a day at mid-day. Users
may be CHX members or non-members, and will likely include
institutional customers, broker-dealers, and Chicago Match market
makers. Users will be able to enter orders directly into Chicago Match
through personal computers and modems. A CHX member must be responsible
for controlling and clearing the orders entered by non-members.\14\
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\14\When a non-member is given access to the Chicago Match it
must enter into several agreements to ensure that a member has
responsibility and control over the non-member's activities. In
addition, non-member users of the Chicago Match will be required to
have $10 million for investment purposes. See discussion infra.
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The Chicago Match will electronically match users' orders in an
allocation procedure described below. If an electronic match occurs,
the trade will be priced at the market price\15\ at a random time
within a pre-determined ten minute period and will be executed at that
time. If a match does not occur, users will still have the opportunity
to find the other side of their orders through participating
brokers.\16\
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\15\The market price is equal to the mid-point between the
Consolidated Best Bid and Offer.
\16\Users may take advantage of the ``near match'' function
discussed infra.
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The Chicago Match will primarily operate off the Exchange floor,
but CHX market makers may enter guarantees through their regular
terminals on the Exchange floor. Other users will be able to place buy
and sell orders directly and anonymously into the electronic system
through off-floor terminals. Quotations from the CHX trading floor will
automatically be fed into the Chicago Match on a real time basis.\17\
The system will not otherwise directly interact with the Exchange's
regular auction process.
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\17\Quotations will be updated until the time of the match.
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All Chicago Match users will enter into a user agreement\18\ with
the Exchange to be bound by the Exchange's rules governing the Chicago
Match. Prior to the time a non-member user enters an order into the
system, it will be required to submit to the Exchange the name of the
Midwest Clearing Corporation (``MCC'') member through which the user
will clear its trades and provide the Exchange with a copy of a ``Give-
Up Agreement'' with such member. CHX clearing members will clear
Chicago Match transactions through their existing clearing
arrangements.\19\
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\18\The user agreement will provide, inter alia, that the user
has entered into a ``Give-Up Agreement'' with a CHX clearing member
or already clears through the Midwest Clearing Corp.; that the CHX
clearing member agrees to be jointly or severally liable for all
actions of the user; that the user agrees to be bound by the
policies of the Board of Governors of the Exchange that are
applicable to Chicago Match; and that the Exchange reserves the
right to terminate the user's access to the Chicago Match.
\19\The clearing agreements set the user's daily credit limits.
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Prior to the cross, users will enter the following information for
each order:\20\
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\20\Users will be able to enter orders from the time the
Exchange opens for trading until the match time.
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stock ticker symbol;
number of shares to be bought or sold;
capacity (buy, sell or sell short);
limit price (optional);
minimum trade size (optional);
excluded category of contra parties;
names of individual excluded users (optional);\21\
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\21\An excluded user is defined under CHX Rule 2(l) as a user
whose order cannot be matched with another user because the match
might result in a prohibited transaction as that term is defined in
the Employee Retirement Income Security Act of 1974, as amended
(``ERISA''), 29 U.S.C. Secs. 1001--1461 (1988). This function will
not be available immediately.
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liquidity fee or credit (optional);
linked order conditions (optional);
near match range and near match broker (optional);
order visibility; and
clearing firm.
At any time up until the cross, users can review, edit or cancel
their orders.
B. Market Maker Guarantees
In addition to orders entered by users, Chicago Match will include
guarantees by Chicago Match market makers. Theses market makers will be
Exchange members who register with the Exchange to be Chicago Match
market makers. As such, they will be obligated to guarantee a minimum
execution size to all users of the system. The minimum size of the
guarantee will be ten thousand shares for the two hundred securities
listed or admitted to unlisted trading privileges on the Exchange with
the highest consolidated trading volume, five thousand shares for the
one hundred securities with the next highest trading volume and two
thousand shares for all other securities.\22\ Market maker guarantees
automatically will be entered into the Chicago Match at the start of
the time for order entry.
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\22\See proposed CHX Article XXXVII, Rule 2(g).
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C. Priority and Liquidity Fees and Credits
Chicago Match permits the use of liquidity fees and liquidity
credits to determine the level of priority for order matching. In the
Chicago Match, the size of the liquidity fee or liquidity credit
determines the level of priority for order matching. Those users that
are willing to pay the highest liquidity fee will have the highest
execution priority (except for orders that are a part of the CHX quote,
which have the highest priority of all orders). Those users desiring to
be paid for providing liquidity will have the lowest priority.
Liquidity fees and credits will only be paid when an order with a
liquidity fee is matched with an order with a liquidity credit. When a
match occurs, a liquidity fee that is equal to the size of the
liquidity credit will be paid. In all other cases, no liquidity fees
will be paid. Users enter liquidity fees and credits when they enter
orders. The Chicago Match will include a default liquidity fee or
credit to be associated with a specific Chicago Match guarantee by a
CHX market maker.\23\ Chicago Match market makers can improve this
liquidity fee or credit and increase the size of their guarantee before
the cross takes place.
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\23\The term ``default liquidity fee or credit'' refers to the
liquidity fee or liquidity credit associated with buy and sell
orders in each security in which a Chicago Match market maker is
registered, which are automatically entered into the Chicago Match.
The size of each such Chicago Match Market Maker Order shall be
equal to the Default Size, which is the minimum guarantee the market
maker must provide. (See proposed Article XXXVII, Rules 2(g) and
6(C).)
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The Chicago Match will limit the size of liquidity fees and
liquidity credits entered by users. If a liquidity fee is greater than
\1/2\ of the spread of the Consolidated Best Bid and Offer for the
particular security at cross time it will be reduced to \1/2\ of the
spread at cross time. For example, if \1/2\ of the spread is 6\1/4\
cents, and an order with a liquidity fee of 10 cents is entered, the
maximum liquidity fee that order can pay will be 6\1/4\ cents.
Liquidity credits, however, will be treated differently than liquidity
fees. The Chicago Match will not permit liquidity credits to be entered
in an amount greater than \1/2\ of the spread of the Consolidated Best
Bid and Offer. For example, if the spread of the Consolidated Best Bid
and Offer at cross time was \1/2\ (50 cents), the maximum liquidity
credit allowed would be 25 cents. If an order was entered with a
liquidity credit greater than 25 cents, the user would have the option
of either having the liquidity credit reduced to half of the spread or
having the order excluded from the match.
D. Order Execution
The CHX's publicly disseminated bid or offer will be entered into
Chicago Match as an order.\24\ Once entered, these orders will have the
highest priority for execution.\25\
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\24\Quotations will be updated until the time of the order
matching.
\25\These orders will be entered with a liquidity credit equal
to \1/2\ of the spread of the consolidated best bid and offer. These
orders will be entitled to full execution ahead of the other orders
within the group that have the same liquidity credit.
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All matched orders will be executed at a random time within a
predetermined ten minute window period at the market price at such
time. The Chicago Match will calculate the market price as the mid-
point between the Consolidated Best Bid and Offer regardless of the
size of the spread. For example, if the Consolidated Best Bid and Best
Offer of stock X was 20-20\1/8\, the cross price would be 20\1/16\.
Limited price orders, orders with a liquidity fee or credit entered
in cents, and orders that are entered with a liquidity fee or credit
relative to the Consolidated Best Bid or Offer or as a computed
quantity (in addition to liquidity fees or credits entered in cents)
will be eligible to be displayed over the system. The Exchange will
assign numeric values to these orders based on the then current
Consolidated Best Bid and Offer. The Exchange anticipates that
initially it will update displayed information at least every fifteen
minutes.\26\
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\26\In particular, the numerical values of orders entered
relative to the Consolidated Bid and Offer will need to be updated
as the market price changes prior to the match.
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Chicago Match users also may enter linked orders, which are defined
as orders whose execution are conditioned on the execution (or non-
execution) of one or more orders. For example, a user may only want to
sell stock X if he can buy stock Z. A user would than link his sell
order of stock X to his buy order of stock Z. When the match occurs,
the user's order to sell stock X will only be executed if the user's
order to buy stock Z is also executed. Otherwise, both orders will
remain unmatched. The Exchange believes that permitting the linking of
orders, and permitting orders that specify a limit price, will give
money managers greater cash management capabilities. The CHX states
that this flexibility will increase the effective match rate of the
system relative to that of other crossing systems.
Immediately prior to the match, all orders for a particular
security first will be sorted into groups and then each group will be
prioritized for execution. Except for orders that are part of CHX's
quote, which will receive the highest priority for execution, a group
will consist of either all buy orders or all sell orders in a security
that have the same liquidity fee or credit. Groups will be prioritized
by liquidity fee or credit. Groups will be matched starting with the
group of buy orders with the highest priority. This group will be
matched with the group of sell orders with the highest priority. If the
aggregate size of all orders in both groups is the same, all orders in
both groups will be matched. If the aggregate size of all orders in
both groups is not the same, orders in the group with the smaller
aggregate size will be allocated among orders in the group with the
larger size on a pro-rata basis, except that orders that are
represented as part of the CHX quote will be entitled to complete
execution before the remaining orders are allocated on a pro rata
basis. If this results in any order receiving an odd lot or a mixed lot
(e.g., 265 shares), the amount of shares that order receives shall be
rounded down to the nearest round lot (e.g., 200 shares). All the odd
lots for a particular group shall be aggregated and then allocated to
the largest order in the group. If, after matching orders in a buy
group with orders in a sell group, unmatched orders remain in the group
of buy orders, Chicago Match will continue to process of matching this
group with successively lower priority groups of sell orders until all
of the orders in the group of buy orders are either matched or are
unable to be matched.
After completion of the match described above, Chicago Match will
continue to process of matching groups and orders within those groups,
in accordance with the rules described above, starting with
successively lower priority buy order groups until no more matches can
be made. Once all of the matches are made, Chicago Match will determine
whether any matched orders are conditional orders and if so, whether
their conditions are fully satisfied.
A user may enter conditional orders specified in proposed Rule 6(e)
of Article XXXVII of the CHX Rules.\27\ The possible conditions
include, inter alia, a limit price, linked order condition, minimum
size, and/or names of excluded users.\28\ In the event that certain
conditions are not fully satisfied, Chicago Match will remove that
order (and any other orders whose conditions are not fully satisfied).
Chicago Match will then erase the match for all orders in that security
and will restart the matching process excluding all conditional orders
whose conditions are not fully satisfied in the last matching process.
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\27\The Chicago Match rules provide that conditional orders can
be displayed orders. There will not be any notation on the displayed
order screen to indicate which, if any, displayed order is also a
conditional order.
\28\Pursuant to proposed Rule 6(e)(8) of Article XXXVIII of the
CHX Rules a user may enter the name of an ``excluded user'' only if
a match with such user could result in a ``prohibited transaction''
as that term is defined in ERISA. The Exchange states that proposed
CHX Rule 6(e)(7) of Article XXXVII also permits a user to exclude an
entire category of contra parties such as market makers or
specialists.
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E. Near Match Procedures and Floor Broker Participation
The Chicago Match will allow users to send orders that are not
executed in the match to a broker in the event of a ``near match.'' A
``near match'' occurs when a buyer and seller in the system did not
match merely because their required liquidity fees and credits
differed.\29\ In the event of a ``near match,'' the user will receive
an administrative message over the system asking whether the user wants
a predetermined broker to negotiate a trade with another user that has
entered similar ``near match'' parameters. If both parties of the near
match wish to negotiate, then the broker (or brokers) will receive a
negotiate message.\30\ Users enter their specific ``near match''
parameters when they sign on to the system.
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\29\The term ``near match'' refers to two orders for a
particular security in which the number of shares of each order
equals or exceeds the minimum size specified by the other order and
the liquidity credit required by one side is greater than the
liquidity fee offered by the other side. Each user will set its own
``near match'' parameters when it signs on to the system. An
individual user's ``near match'' parameters allow users to decide
under what circumstances it should be contacted by a broker to
negotiate a trade which did not match because of varying liquidity
fees and credits.
\30\The Exchange states that because the broker or brokers do
not learn anything about the order unless both parties to the near
match have given their approval, the users of the Chicago Match
retain complete control during this process.
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In addition, the Chicago Match provides another function similar to
the ``near match'' function. The system allows floor brokers to enter a
message that, after the daily match, will tell the users of unexecuted
orders in a particular stock of an indication of continuing interest in
buying or selling that stock.\31\ A user would then be free to contact
the floor broker to negotiate a trade. Users will have the ability to
prevent indications from appearing on their screens.\32\
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\31\``Indications of interest'' would be entered by floor
brokers before the cross. The floor broker's ``indication'' would
not constitute an order entered into Chicago Match but it would
merely indicate that a particular broker may be interested in
negotiating a trade in a particular security.
\32\If the user does not screen out ``indications of interest,''
they would be made known to those users whose orders were not
executed during the matching process.
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F. Fees
Users other than Chicago Match market makers will have the option
of having their orders displayed to other users of the system. If a
non-market maker user elects to have its order displayed, the order
will be displayed under certain circumstances.\33\ Orders entered by
Chicago Match market makers and orders that are part of CHX's quote
will not be charged a transaction fee. Users who display orders will be
charged \1/2\ cent per share, and all other users will pay 2 cents per
share. The Exchange fee is separate from any liquidity fees and
credits.
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\33\See proposed Rule 8(b) of Article XXXVI dealing with
display-eligible orders. Non-Display eligible orders are charged
transaction fees four times the fee charged display eligible orders.
See discussion infra.
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Chicago Match market makers will be paid \1/8\ of a cent per share,
per order, when they do not participate in a cross in their issue so
long as the liquidity parameter entered by the Chicago Match market
maker is within a pre-determined range.\34\ This \1/8\ of a cent per
share fee will be paid by the Exchange out of the \1/2\ cent or 2 cent
user fee it will receive from users of the Chicago Match. The Exchange
believes that this will provide the Chicago Match market maker with an
incentive to provide guarantees.\35\
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\34\This range will be determined by the CHX. The Chicago Match
Rules provide that the CHX will pay the market maker responsible for
the order with the highest priority liquidity fee or credit $.00125
per share for each order executed in Chicago Match, other than
orders entered from the specialist's book and other than orders of
other Chicago Match market makers. See proposed Rule 15(c) of
Article XXXVII.
\35\In the event that there is more than one market maker in an
issue, that \1/8\ of a cent per share fee will be paid to the
Chicago Match market maker that enters the highest liquidity fee or
lowest liquidity credit. If more than one Chicago Match market
enters the same fee or credit, such fee will be pro-rated. An
additional exchange fee will be imposed on all users equal to the
liquidity fee to be paid with respect to a particular order, and an
exchange credit will occur that is equal to the liquidity credit to
be received. The clearing broker will collect all fees from
institutions and submit the appropriate amounts to the MCC. In turn,
MCC will pay the appropriate amounts to clearing brokers for
forwarding to institutions.
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G. Reporting
Those orders that have been executed in the cross will be
transmitted in a timely manner by Chicago Match to the Exchange for
recordation and reporting to the Consolidated Tape. The CHX will report
trades to the Consolidated Tape or Nasdaq, with one trade report for
each stock executed in the Chicago Match. That trade report will
include the total number of shares executed in that stock and a price
equal to the cross price plus (or minus) the volume weighted average of
liquidity fees paid (or liquidity credit received) for that stock.
Trades will then be cleared by the designated clearing firm. After
receiving an execution report, users will be able to reallocate trades
to different clearing brokers, if desired. Immediately after the cross,
users will be notified if their orders have been executed. If an order
was not executed, the user may receive a ``near match'' administrative
message, described above.
H. Trading Halts
The Chicago Match rules provides that in the event of a halt in
trading pursuant to CHX Article IX, Rule 10A (trading halts due to
extraordinary market volatility),\36\ the Exchange may delay the cross
time until trading is permitted under that rule.\37\
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\36\CHX Article IX, Rule 10A.
\37\Trading in the Chicago Match will, under all circumstances,
be halted in accordance with the provisions of CHX Article IX, Rule
10A.
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I. Short Sales
In order to ensure that an order to sell short will have no market
impact, no order to sell short will be permitted to be executed if it
includes a liquidity fee. Liquidity credits, however, will be
allowed.\38\
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\38\Rules 3b-3 and 10a-1 under the Act govern short-sale
activities. The CHX requested short-sale relief which was granted
separately by the Division of Market Regulation by way of exemptive
letter from Brandon Becker, Director, Division of Market Regulation,
SEC, to George T. Simon, dated November 30, 1994, (``Exemptive
Letter'').
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J. Surveillance
To protect against any potentially manipulative activity, the
Exchange will, among other surveillance procedures, monitor quote
changes prior to the match and shortly thereafter to identify unusual
trading activity. In addition, by varying the cross time each day, the
Chicago Match was designed to make it inherently more difficult to
manipulate the Consolidated Best Bid and Offer in order to receive a
more favorable execution.
III. Comments and the CHX Response to Comments
A. The NYSE's First Comment Letter
The Commission received two comment letters on the proposal from
the NYSE recommending that the Commission disapprove the creation of
Chicago Match. The first NYSE comment letter, submitted before
publication of the amendments to the CHX proposal, summarizes the
Chicago Match, raises concerns about investors' orders, and discusses
why the NYSE believes the CHX proposal is inconsistent with the
requirements of the Exchange Act regarding the national market system's
(``NMS'') disclosure and market integration requirements.\39\ The NYSE
asserts that the Chicago Match would be a facility of the CHX, a
national securities exchange, and as such, the Commission cannot
approve the proposal unless it concludes that the Chicago Match is
consistent with Sections 6 and 11A of the Exchange Act.\40\ The NYSE
asserts that the Chicago Match is not a passive order crossing system
but rather a private auction being conducted outside existing exchange
facilities that are designed to protect investors.
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\39\Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, dated May 2,
1994 (``NYSE Letter No. 1'').
\40\Section 6 of the Exchange Act governs the activities of
national securities exchanges and it sets conditions for
registration as a national securities exchange. Section 11A of the
Exchange Act governs the national market system for securities and
securities information processors. 15 U.S.C. Sec. 78(f) and (k)
(1988).
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The NYSE also believes that the CHX is attempting to operate a form
of ``proprietary trading system'' (``PTS'') or exempt exchange. The
NYSE states that the Commission has limited the operation of PTSs and
refused to allow national securities exchanges to operate them. The
NYSE asserts that if the Commission decides to approve the Chicago
Match and applies the standards applicable to exempt exchanges and
PTSs, it should do so only after a formal review of its PTS policy. The
NYSE further asserts that if such review results in a change of
Commission policy, the Commission should announce that all national
securities exchanges are free to offer private systems outside existing
NMS regulations.
The NYSE expressed concern that the Chicago Match's failure to
report the true price to the Consolidated Tape Association (``CTA'')
would mislead investors. The NYSE asserts that the true price of the
executions includes liquidity charges.\41\ The NYSE disputes the CHX's
characterization of the liquidity charges as ``fees,'' asserting that
when one investor's payment is simply passed through to the investor on
the other side of the trade, the payment is actually a part of the
price of the security purchased. Thus, the NYSE asserts that the
liquidity charges should be included in the price of the
transaction.\42\
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\41\The NYSE's comment is based on the original CHX filing,
which would have effected trades at a single price based on the
current inside quotation. The CHX would have reported this price to
the CTA for dissemination to the investing public.
\42\The NYSE further asserts that the CHX has acknowledged that
the liquidity charges or fees are actually a part of the price in
its Chicago Match marketing material.
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The NYSE states that the proposal raises two transparency concerns.
First, the NYSE asserts that Exchange Act Rule 11Aa3-1\43\ requires all
exchanges to file a transaction reporting plan for securities traded
through its facilities. Such plan must provide for the collection and
dissemination of ``transaction reports'' that contain, inter alia, the
price associated with a transaction in a security. The NYSE essentially
argues that the original proposal left open the possibility of
liquidity fees not being reported as a part of the price, thus
violating Rule 11Aa3-1.
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\43\17 CFR 240.11Aa3-1 (1994).
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Second, the NYSE asserts that the CHX is proposing a private
auction market outside of the NMS quotation facilities. The NYSE states
that the Chicago Match raises market structure issues similar to the
issues it claims are raised by the ``Selectnet'' System operated by the
National Association of Securities Dealers (``NASD'').\44\ The NYSE
asserts that both Selectnet and Chicago Match are inappropriately
driven by orders that are hidden from public view and that do not have
the opportunity to interact with trading interest from other markets.
The NYSE further asserts that the presence of the ``near match''
function emphasizes that the proposal is merely a hidden auction market
conducted outside of the NMS because the ``near match'' function allows
the participants to have a broker negotiate the transaction outside of
the auction process. The NYSE concludes that, while the Commission has
sanctioned this result in the case of PTSs, there is no precedent for
allowing a national stock exchange to operate such a ``hidden
auction.''
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\44\The NYSE states that it previously commented on the
``Selectnet'' system by way of a Letter from Janes E. Buck,
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, dated October
30, 1992.
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The NYSE letter also asserts that the Chicago Match violates
Exchange Act Rule 11Ac1-1 (the ``Firm Quote Rule'' or ``Quote
Rule'').\45\ The NYSE states that, like the Selectnet trading interest,
Chicago Match orders that are displayed to other Chicago Match
participants are bids and offers under the Commission's rules because
``bid'' and ``offer'' are defined as the ``prices communicated by an
exchange member * * * to any broker or dealer, or to any customer, at
which he is willing to buy or sell one or more round lots of a reported
security.''\46\ The NYSE states that Chicago Match users are bidding
for and offering stock in accordance with the definition in Rule 11Ac1-
1 and because the trading interest is firm, the CHX must take these
quotations into account in calculating the best bid and offer that it
provides to the Consolidated Quote System (``CQS'').\47\
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\45\17 CFR 240.11Ac1-1 (1994).
\46\NYSE Letter No. 1, citing Exchange Act Section 6(c)(1).
\47\The NYSE states that paragraph (b)(1)(i) of the Firm Quote
Rule requires an exchange to collect, process and make available to
quotation vendors the best bid and best offer ``communication on the
floor of the exchange . . . by any responsible broker or dealer.''
The NYSE also states that paragraph (a)(3)(i) of that rule defines a
responsible broker or dealer basically as any member of the
exchange.
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The NYSE believes that the original proposal would lead to a
failure to protect displayed limit orders. The NYSE states that the
Intermarket Trading System (``ITS'') has rules discouraging trade
throughs, i.e., the trading of a stock in one market at a price
inferior to that in another market. Similarly, the ITS ``Block Policy''
provides price protection for quotations at the quoted price when a
Block Policy transaction prints at inferior prices. The NYSE states
that the Chicago Match proposal violates these price protection rules.
The NYSE further asserts that the Chicago Match would ``formally
bifurcate the retail and institutional markets, allowing large
institutional investors to trade outside the current market, without
providing price protection for publicly-displayed retail customer limit
orders.''\48\
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\48\NYSE Letter No. 1 at 6.
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The NYSE asserts that the initial proposal\49\ would allow the
Chicago Match to accept short sales and would therefore operate in
violation of Exchange Act Rule 10a-1 (``Short Sale Rule''), which
prohibits a short sale at a price below the last different reported
price. The NYSE asserts that the system would allow the seller to sell
stock at a price that is actually below the price reported to the tape.
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\49\As of the time of filing of Amendment No. 1.
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Finally, the NYSE argues that the Chicago Match should not be able
to trade securities that are neither listed on the Exchange nor traded
pursuant to unlisted trading privileges (``UTP'').\50\ The NYSE states
that pursuant to Sections 5, 6 and 12 of the Act, an exchange can trade
only securities that are registered under the Act (or exempt from
registration), and then only if the securities are listed on the
exchange or if the exchange receives UTP.
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\50\The NYSE states that, ``there appear to be no limits on the
securities to be included in the Chicago Match. These could be (i)
securities listed on another exchange for which the CHX does not
have UTP; (ii) Nasdaq securities that are outside the Commission's
over-the-counter UTP pilot, or (iii) securities that are not
registered under the Exchange Act, such as non-U.S. securities
exempt from registration under Exchange Act Rule 12q3-2(b), or even
non-U.S. securities that should be registered under the Exchange Act
and which are neither registered nor exempt from registration. NYSE
Letter No. 1 at 7.
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B. The NYSE's Second Comment Letter
The NYSE filed a second comment letter with the Commission\51\
after publication of the first four amendments to the proposed Chicago
Match rules.\52\ The second letter states that the proposed amendments
fail to address the problems associated with Chicago Match. The NYSE
continues to believe that the Chicago Match will conduct an auction
based on hidden liquidity charges. The NYSE states that the proposal
presents transparency concerns and would allow CHX specialists to trade
ahead of customers.
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\51\Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, dated August
15, 1994 (``NYSE Letter No. 2'').
\52\See note 8, supra.
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First, the NYSE believes that the reporting methodology/plan
proposed by the CHX continues to violate the Commission's rules and the
CTA plan. Because the final Chicago Match proposal fails to require a
report of the price at which the transaction would be executed, the
NYSE states that the Chicago Match actually would provide inaccurate
trading information, thereby violating the reliability of the tape.
Second, the NYSE letter asserts that the Chicago Match will allow
specialists to trade ahead of customer orders. The NYSE argues that,
because of liquidity credits, a specialist quote that is entered into
the Chicago Match may be able to have priority over customer orders
entered into the system.
C. The CHX's Responses
In June of 1994, the CHX submitted a letter to the Commission
responding to the NYSE's first comment letter.\53\ The CHX states that
the NYSE requests that the Commission disapprove the Chicago Match
because it is different from floor based trading systems existing on
traditional exchanges. The CHX believes that this fact alone should not
warrant Commission disapproval of the Chicago Match. The CHX states
that, to the contrary, the ``National Market System envisions the
emergence of different trading vehicles and systems in response to
market developments.''\54\
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\53\Letter from George T. Simon, Foley & Lardner, to Jonathan G.
Katz, Secretary, SEC, dated June 7, 1994. The CHX also amended its
filing, and submitted a second letter giving greater detail about
the institutional access issue. Letter from George T. Simon, Foley &
Lardner, to Sharon Lawson, Assistant Director, SEC, dated July 25,
1994. The substance of this second letter is incorporated into the
Discussion section, supra.
\54\Id. at 1. the CHX also points out that all other national
securities exchanges were invited to participate in the Chicago
Match but none requested to participate.
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The CHX asserts that the Chicago Match is not a hidden market but
is designed to bring together buying and selling interest on
traditional exchanges with institutional trading interest that has
preferred to do business on a more anonymous basis. The CHX also
asserts that, unlike a PTS, the Chicago Match is a part of a registered
securities exchange and, therefore, is subject to full Commission
regulation, and unlike a PTS, the Chicago Match is integrated with the
CHX trading floor.
The CHX disputes assertions that the Chicago Match actually
sponsors hidden quotations that must be disseminated through CQS. The
CHX asserts that buying and selling interest in the Chicago Match does
not constitute bids or offers within the meaning of the Firm Quote
Rule. The CHX states that in order to constitute a bid or offer within
the purview of the Firm Quote Rule, an order must be disseminated at a
specific price. The CHX states that none of the indications in the
Chicago Match are at a specific price; rather the execution price is a
function of the Consolidated Best Bid and Offer at the randomly
selected execution time. As such, the indications are not required to
be disseminated pursuant to the Firm Quote Rule. The CHX asserts that,
similarly, the CQS facilities that were designed by the NYSE are
incapable of processing indications without prices. Thus, even if CQS
wanted to disseminate Chicago Match indications, it could not do so.
The CHX response letter states that, without resolving the issue of
whether liquidity fees are a part of the execution price or not, these
fees are reported in cents and thus not reportable on the Consolidated
Tape.\55\ This point, however, has been largely addressed because, as
previously noted, the CHX has finalized its tape reporting process to
include reporting of an average weight of liquidity fees. The cross
price plus or minus the average liquidity fee or liquidity credit for
each stock stated in up to 1/256ths will be reported to the
Consolidated Tape or Nasdaq. In addition, the maximum liquidity fee or
liquidity credit is limited to \1/2\ of the spread of the Consolidated
Best Bid and Offer at cross time, regardless of the size of the spread.
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\55\The CHX response letter stated that it amended its rules to
require liquidity fees to be reported as administrative messages on
the Consolidated Tape.
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The CHX amended its proposal to address the NYSE's concern that
trades executed in the Chicago Match could trade through another
market's published quotations if liquidity fees are deemed to be a part
of the price. The amendment will change the cross price of the match to
the mid-point between the Consolidated Best Bid and Offer regardless of
the size of the spread and limit the maximum size of liquidity fees and
liquidity credits. If a liquidity fee is greater than \1/2\ of the
spread of the Consolidated Best Bid and Offer at cross time, it will be
reduced to \1/2\ of the spread at cross time. The Chicago Match will
not permit liquidity credits to be received in an amount greater than
\1/2\ of the spread of the Consolidated Best Bid and Offer. The CHX
states that these changes will eliminate the possibility of trading
through another market's published quotations.
The CHX states that it disagrees with the NYSE's assertions that
the Chicago Match's plan to permit paired orders will violate Section
12 of the Act. The CHX further states that, while it disagrees with the
NYSE's view on this, it has filed amendments to its rules to preclude
orders from being entered in securities not traded on the CHX.\56\
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\56\Amendment No. 3 would amend Rule 3 to provide that only
exchange contracts in securities that are listed or admitted to
unlisted trading privileges on the Exchange may be entered into the
Chicago Match.
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Finally, the CHX disagrees with the NYSE's concern that short sale
orders will be displayed through the system and thereby influence the
market. The CHX states that short sale orders are currently displayed
on every market whenever a short sale offer is the best offer in the
market. The CHX further states that the Short Sale Rule has never
prohibited the dissemination of quotations reflecting offers to sell
short.
The CHX also disputes the NYSE's general argument that short sales
through the Chicago Match should be prohibited. The CHX states that the
Chicago Match is a passive trading system that is derivatively priced.
As such, trades executed through the system cannot impact the market by
exerting downward pressure on prices.
IV. Discussion
After careful consideration of the comments received, as well as
applicable statutory provisions, the Commission believes that the
proposed Chicago Match is consistent with the Act, and in particular,
Sections 6(b)(4), 6(b)(5), and 11A of the Act. Separately, the Division
of Market Regulation has granted the CHX exemptions for the Chicago
Match from the Short Sale Rule, the Firm Quote Rule, and Rule 11Ac3-
3.\57\
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\57\See Exemptive Letter, supra note 38.
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The Commission believes that the Chicago Match is consistent with
Section 11A(a)(1)(B) of the Act which states that new data processing
and communications techniques create the opportunity for more efficient
and effective market operations. The Chicago Match employs significant
new information technology and an automated system that adds to the
existing trading facilities of the CHX. As a result, the Chicago Match
will serve as an innovative adjunction to the CHX's existing market
structure.
The Commission historically has encouraged the creation of new
electronic trading systems such as the Chicago Match that may
contribute to increased execution alternatives available to investors.
At the same time, it is important to ensure that new exchange trading
systems are consistent with the investor protection and fair and
orderly market standards contained in the Act. The Commission believes
that the Chicago Match achieves this objective.
The Chicago Match represents a blending of some of the attributes
of off-exchange trading systems with the market making and brokerage
features of the CHX trading floor. In addition, it will blend the
features of a unitary call market with the continuous auction of the
CHX floor. The operation of such a hybrid system will differ in
important respects from the traditional trading floor design. The
Commission disagrees with assertions that these differences would cause
the Chicago Match to violate Exchange Act provisions. While the
proposal does involve regulatory issues regarding transparency,
institutional access, and regulatory structure, for the reasons
discussed below, the amended proposal adequately addresses these issues
and is consistent with the maintenance of free and open markets and
investor protection in accordance with Section 6(b)(5) of the Act.\58\
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\58\15 U.S.C. Sec. 78(f)(5) (1988).
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First, the Commission believes that, contrary to the NYSE's
assertions, the Chicago Match is properly regulated as a facility of an
exchange and not as a proprietary trading system.\59\ The Chicago Match
will use exchange equipment, including software and lines as well as
exchange personnel, to run the system. The Chicago Match will also
include CHX market maker participation as well as CHX's Midwest
Clearing Corporation to clear trades. Therefore, the Chicago Match will
be using the CHX's premises, property, and services for effecting and
reporting Chicago Match transactions and, thus, will be using the
facilities of an exchange as defined in Section 3(a)(2) of the Act.\60\
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\59\Section 3(a)(2) provides that the term ``facility'' when
used with respect to an exchange includes its premises, tangible or
intangible property whether on the premises or not, any right to the
use of such premises or property or any service thereof for the
purpose of effecting or reporting a transaction on an exchange
(including, among other things, any system of communications to or
from the exchange, by ticker or otherwise, maintained by or with the
consent of the exchange), and any right of the exchange to the use
of any property or service.
\60\An opposite conclusion could lead to the situation where an
exchange creates a separate trading system to avoid exchange
regulation by directing its core operations to the ``separate''
system.
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Regulating the Chicago Match as a ``facility'' of the CHX is
consistent with the approach the Commission has followed in similar
cases. For example, the NYSE's off-hours trading system is regulated as
a facility of the NYSE and not as a separately operated PTS.\61\
Indeed, if another exchange wanted to operate a similar system to
Chicago Match, it would also be permissible as a facility of that
exchange.
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\61\Because the Chicago Match will be operated as a facility of
an exchange, the Commission does not need to resolve issues relating
to the regulation of PTSs in order to address the CHX proposal.
---------------------------------------------------------------------------
Second, the Chicago Match adequately displays orders and reports
prices. The NYSE, in its comment letters, expressed concern that the
Chicago Match transaction prices reported to the Consolidated Tape will
be inaccurate due to the use of liquidity fees and credits, and
therefore, Chicago Match would violate Rule 11Aa3-1 under the Act. Rule
11Aa3-1 provides for the collection and dissemination of ``transaction
reports'' that contain, among other things, the price associated with a
transaction in a security. The Commission disagrees with the NYSE's
concern and instead believes that, as amended, the Chicago Match is
consistent with rules regarding the dissemination of quotations and
reporting of transactions. The amended Chicago Match rules require the
CHX to report one trade for each stock executed in the Chicago Match.
This report will include the total number of shares executed in that
stock and a price equal to the cross price plus (or minus) the volume
weighted average of liquidity fees paid (or liquidity credits received)
for that stock. This approach will provide public disclosure of
liquidity fees by including them, albeit in averaged form, in the price
reported to the tape. The Commission believes that this method informs
market participants of the value of the security including any
liquidity fees or credits. The Commission further notes that the block
market currently reports in average prices. The Commission feels that
this reporting will provide investors with adequate transaction price
information in compliance with Rule 11Aa3-1 of the Act.\62\
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\62\The CHX has informed the Division that Chicago Match trades
can be reported in up to 1/256ths, thereby allowing for greater
accuracy in this system of volume weighted trade reporting.
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In addition, the NYSE asserts that the Commission should not allow
the CHX to operate Chicago Match because the bids and offers on the
system are hidden from view, thereby violating the Firm Quote Rule. The
NYSE asserts that Chicago Match orders that are displayed to other
Chicago Match participants are bids and offers under Rule 11Ac1-1 of
the Act and, therefore, should be taken into account when the CHX is
calculating the best bid and offer that it provides to the CQS. The
Commission disagrees with this assertion.
While it is true that the Firm Quote Rule requires exchanges to
collect bids, offers, quotation sizes and aggregate quotation sizes
from ``responsible brokers or dealers,'' as defined in the Act,\63\ for
each reported security or each security admitted to unlisted trading
privileges and make them available to quotation vendors, the Commission
does not believe that the provisions of this rule apply to the Chicago
Match. First, users of Chicago Match may not always be ``responsible
broker-dealers.'' Second, the Firm Quote Rule contemplates bids and
offers at specific prices. The execution prices in the Chicago Match,
however, are a function of the Consolidated Best Bid and Offer at a
randomly selected time in the future that is unknown to the users at
the time the orders are entered. Because the execution price also may
vary with the addition of liquidity fees and credits, prices are
essentially unspecified. Third, the Firm Quote Rule contemplates
dissemination throughout the trading day of bids and offer quotations
with respect to reported securities traded on the trading floor. This
will not occur with the Chicago Match, were orders can be entered and
changed without being subject to execution until a single cross time.
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\63\Rule 11Ac1-1 defines a ``responsible broker or dealer,''
when used with respect to bids or offers communicated on the floor
of an exchange, as ``any member of such exchange who communicates to
another member on the floor of such exchange, at the location (or
locations) designated by such exchange for trading in a reported
security, a bid or offer for such reported security, as either
principal or agent.'' The Rule provides, however, that if two or
more members of an exchange have communicated on the floor bids or
offers at the same price, each member is a ``responsible broker or
dealer'' with respect to that bid or offer, subject to the rules of
priority and precedence then in effect on the exchange. Furthermore,
if a member represents as agent another member's bid or offer, only
the member representing the bid or offer on the floor will be
considered the ``responsible broker or dealer.''
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The Commission also believes that the near match function does not
involve a hidden auction market, but rather is simply a service
provided to cross participants that fail to achieve execution in the
match. This service is no different than a broker negotiating a trade
in the crowd on an exchange floor or off an exchange. In the near match
function, willing participants will have the option to have a near
match broker call them to negotiate an order. There is no further
participation at this point with CHX or the Chicago Match.\64\
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\64\Users who have entered orders which are not executed can
also receive indications of interest from CHX floor brokers and may
choose independently to contact a floor broker to negotiate a trade.
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Third, the CHX has addressed issues relating to its order execution
priority. The NYSE expressed concern that trades executed in the
Chicago Match could trade through other markets' published quotations
if liquidity fees or credits are deemed a part of the price. The
Commission believes that the amended Chicago Match rules address this
issue. As amended, the Chicago Match rules will limit the maximum size
of liquidity fees or credits to one half of the best bid-offer spread
at the time of execution. Therefore, even if the liquidity fees and
credits are counted as a part of the execution price, no market's
quotation will be traded through.
The Commission also disagrees with the NYSE's assertions that by
granting the CHX quote priority the Chicago Match will allow
specialists to trade ahead of customer orders. The NYSE's concern
arises in the case where the specialist enters a proprietary quote. In
this instance, it is possible that a specialist could be trading ahead
of a separately-entered customer order. The Commission believes that
this possibility is not a significant concern in this context for two
reasons. First, a specialist could not trade ahead of customer orders
that he was holding, but only orders that brokers or other customers
separately entered into the system. Second, a customer has the choice
to enter an order by sending it to the CHX floor (in which case it will
be displayed) so that his order will be a part of the specialist's
quotation if the customer is concerned about the possibility of a
specialist trading ahead of his order.
Fourth, the Commission believes that the Chicago Match, as finally
amended, will not raise significant short-sale issues under Rule 10a-1
of the Act.\65\ The Division has granted the Chicago Match, as amended,
an exemption from this rule\66\ because the orders that are eligible to
be entered into the Chicago Match are not susceptible to the abusive
practices that the rule was designed to prevent. The final Chicago
Match rules do not allow short sellers to enter a liquidity fee, and
thus any order to sell short is less likely to be used for manipulative
purposes. Moreover, the current Chicago Match rules provide for order
execution at midpoints between the spread, and therefore Chicago Match
transactions will not change the inside market price. In addition, the
Chicago Match pricing system is strictly derivative in nature and thus
we believe it is unlikely to lend itself to short-sale abuses.
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\65\Paragraph (a) of Rule 10a-1 covers transactions in any
security registered on a national securities exchange, if trades in
such security are reported in the consolidated transaction reporting
system. A short sale of a reported security listed on a national
securities exchange may not be effected at a price either: (1) below
the last reported price of a transaction reported in the
consolidated transaction reporting system (``minus tick''), or (2)
at the last reported price if that price is lower than the last
reported difference price (``zero-minus tick'').
\66\A short sale is defined in Rule 3b-3 under the Act as any
sale of a security that the seller does not own or any sale that is
consummated by delivery of a security borrowed by, or for the
account of, the seller. Rule 3b-3 further provides that a person
shall be deemed to own a security only to the extent that the person
has a net long position in that security.
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Fifth, the Commission believes that the Chicago Match has adequate
controls over non-member access. The Act contemplates that transactions
on a national securities exchange would be conducted by ``members.''
Section 3(a)(3)(A) of the Act refers to transactions being conducted by
various categories of exchange ``members.'' Section 6(c)(1) of the Act
states that national securities exchanges shall deny membership to any
person who is not a registered broker or dealer or any natural person
who is not, or is not associated with, a registered broker or
dealer.\67\ The Chicago Match, however, allows non-members to enter
orders into the system if a CHX member is responsible for controlling
and clearing these orders.
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\67\Section 3(a)(3)(A) of the Act also defines members as
natural persons permitted to effect transactions on the floor of the
exchange without the services of another person acting as a broker
(i.e., an exchange member such as a registered trader).
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The Commission believes that the Chicago Match does not violate the
Act by allowing some limited non-member access to its system. First, a
non-member entering orders may only do so after arranging with a CHX
member to be legally responsible for the orders the non-member enters
into the Chicago Match. The non-member must notify the CHX of this
arrangement with the CHX member.
In addition, each non-member must enter into a Non-Member User's
Agreement with the CHX wherein the non-member agrees to be bound by the
applicable rules of the Exchange. The CHX asserts that the Non-Member
User's Agreement, by its express terms, gives the Exchange control over
non-member users. This agreement states that the CHX has ``the right to
terminate the user's use of, and access to, the Chicago Match, without
prior notice for any reason * * * or no reason whatsoever.'' The CHX
states that this authority to remove the non-member user's Chicago
Match terminal will allow the Exchange to act quickly to react to any
problems with a non-member user.
Finally, the CHX asserts that there will be supervision over non-
members through the use of the clearing agreement.\68\ This agreement
provides that the clearing member agrees to clear all trades for the
non-member users up to a specified dollar amount. Each user's maximum
user threshold will be programmed into the Chicago Match to prevent the
non-member user from exceeding its threshold. Orders that exceed the
programmed threshold will be rejected and will not be included in the
match. Clearing members will review daily reports of trades in the
system which will allow for the early detection and correction of
problems.\69\
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\68\See letter from George T. Simon, Attorney, Foley & Lardner,
to Sharon Lawson, Assistant Director, SEC, dated July 25, 1994.
\69\The CHX also states that the clearing member can terminate
the non-member user's access to the Chicago Match by terminating the
give-up agreement at will and this would cause the CHX to
immediately terminate the non-member user's access to Chicago Match.
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The Commission agrees with the CHX's assertions that non-member use
of the Chicago Match can be analogized to non-member access to the
NYSE's Designated Order Turnaround System (the revised system is now
referred to as ``SuperDot'').\70\ The NYSE's SuperDot System allows
computer terminals to be placed with the customers of members who may
then send their orders directly\71\ to the NYSE for processing.
SuperDot requires NYSE members to monitor customers' electronic orders
and to provide the exchange with an acknowledgment statement indicating
their responsibility for orders.\72\ The Commission believes that: (1)
the requirement that Chicago Match users gain access only through an
arrangement with a CHX member, which has legal responsibilities as to
all user activities described above; (2) the Chicago Match's clearing
thresholds for non-members; (3) the ability to immediately terminate a
user's access to Chicago Match; and (4) the fact that CHX matches
currently will occur only once a day,\73\ all serve to assure
sufficient control by CHX members over the activities of non-members to
satisfy the requirements of the Act.
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\70\The SuperDot System is an electronic order-routing system
that enables NYSE members and their customers to quickly transmit
market and limit orders in all NYSE-listed securities directly to
the specialist post where the securities are traded, or to the
member firm's booth. After the order has been executed in the
auction market, a report of execution is returned directly to the
member firm office over the same electronic circuit that brought the
order to the trading floor, and the execution is submitted directly
to the comparison system.
\71\Customers must obtain the electronic means to access
SuperDot through a broker-dealer member. In some cases, the member's
participation in the subsequent transmission of orders is limited to
providing this access.
\72\NYSE Information Memo Number 89-6, January 25, 1989.
\73\The CHX has indicated that it may wish to add more matches,
upon Commission approval. The CHX would have to submit a proposal
pursuant to Section 19(b) of the Act to add additional matches
during the trading day.
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Finally, the Commission believes that the Chicago Match is
consistent with Section 6(b)(4) of the Act which requires the equitable
allocation of reasonable dues and fees among members and persons using
exchange facilities. The differentiation of fees between displayed and
non-displayed orders is reasonable in that it is intended to encourage
the display of orders. Likewise, the payment of fees to market makers
is reasonably intended to provide incentives for market makers to
provide liquidity to the system and increase the match rate.
V. Conclusion
In summary, the Commission believes that the CHX has presented a
proposal that satisfies the standards under the Act relating to
national securities exchanges. In analyzing the CHX proposal, the
Commission recognizes that the Chicago Match is a mixture that brings
together features of a call market with the market making capabilities
of the CHX floor. Obviously, such systems represent certain challenges
in fitting into the traditional regulatory mold envisioned for an
exchange system under the Act. For the reasons discussed above,
however, we believe that the CHX has adequately addressed the
transparency, institutional access, and auction market trading
concerns. The combination of the limited nature of the proposal as a
once-a-day call market, the integration of the CHX quote into the
match, the limitations designed to prevent trade throughs of the
Consolidated Best Bid and Offer, the reporting of trades to the tape
including average weighted liquidity fees and credits, the limitations
of access through agreements with a CHX clearing member, and the fee
structure to encourage the display of orders during the match, all lead
the Commission to conclude that the proposal is consistent with the
Act.
It is therefore ordered, Pursuant to Section 19(b)(2) of the
Act,\74\ that the proposed rule change (SR-CHX-93-19) be, and hereby is
approved.
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\74\15 U.S.C. 78s(b)(2) (1988).
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30028 Filed 12-6-94; 8:45 am]
BILLING CODE 8010-01-M