[Federal Register Volume 60, Number 130 (Friday, July 7, 1995)] [Notices] [Pages 35445-35446] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 95-16654] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-35922; File No. 10-100] Exempted Exchanges; AZX, Inc.; Amendment to Application for Exemption From Registration as an Exchange Under Section 5 of the Securities Exchange Act of 1934; Request for Comments June 30, 1995. I. Introduction AZX, Inc., formerly known as Wunsch Auction Systems, Inc., operates the Arizona Stock Exchange (``AZX''), a computerized, single-price auction system that facilitates trading of registered equity securities by broker-dealers and institutions. AZX's single-price auctions are conducted outside the regular trading hours of the New York Stock Exchange (``NYSE''), at 5:00 p.m. (ET) each trading day. AZX operates pursuant to the terms and conditions of a Commission order (``exemption order'') granting AZX a ``limited volume'' exemption from registration as a national securities exchange,\1\ and a staff no-action letter with respect to the non-registration of AZX as a broker-dealer, clearing agency, transfer agent, and exclusive securities information processor.\2\ In the exemption order, the Commission cited AZX's off hours operation as one of the factors that justified a prediction that AZX would have a limited volume of trading.\3\ \1\ Securities Exchange Act Release No. 28899 (February 20, 1991), 56 FR 8377. \2\ Letter regarding Wunsch Action Systems, Inc. (February 28, 1991) (``no-action letter''). The no-action letter also provided AZX's original crossing broker, Bankers Trust Brokerage Corporation (``BTBC'') with relief with respect to non-registration as an exchange, clearing agency, transfer agent, and exclusive securities information processor. BTBC was replaced as AZX's crossing broker by Investment Technology Group, Inc. (``ITG, Inc.'') in February 1995. \3\ The other factors cited by the Commission in the exemption order that justified a prediction of limited volume were the relative infrequency of the auctions and the absence of participation by broker-dealers with market-making obligations. 56 FR 8377, 8380. --------------------------------------------------------------------------- On June 2, 1995, AZX, Inc. filed with the Commission, pursuant to Rule 6a-1 under the Act,\4\ an amendment to its application for exemption from registration as a national securities exchange. In its amendment, AZX, Inc. proposes to operate AZX during regular trading hours.\5\ Under the proposal, AZX would conduct one additional daily auction, at a yet-to-be chosen fixed time between 9:45 and 10:00 a.m. (ET), in Nasdaq National Market securities.\6\ AZX initially plans to trade only 15 of the approximately 4,140 Nasdaq National Market securities, but will expand as demand warrants. \4\ 17 CFR 240.6a-1. \5\ ``Regular trading hours'' refers to the time period in which the NYSE permits trading--9:30 a.m. to 4:00 p.m. (ET) each trading day. \6\ Nasdaq National Market securities were formerly known as ``Nasdaq/MNS'' securities. --------------------------------------------------------------------------- The Commission is soliciting public comment on whether it is appropriate to amend the exemption order to reflect AZX's proposed morning trading session in Nasdaq National Market securities. II. The Morning Trading Session AZX's proposed morning auction is identical to AZX's current evening auction in terms of its: (1) Participation criteria; (2) means of access to the system; (3) classification and visibility of orders; (4) algorithm for discovering the price at which orders will be executed (the ``equilibrium'' or ``auction'' price); (5) confirmation, clearance and settlement of matched transactions; and (6) commission structure. The proposed morning trading auction will differ in terms of:Eligible securities. Securities eligible to be traded in the morning auction will be limited to Nasdaq National Market securities. Both Nasdaq National Market and exchange-listed [[Page 35446]] securities are eligible for trading in the evening auction. Time period for order entry. The time period during which a participant may enter a limit order for auction trading will be limited to the period from 9:00 a.m. to ``auction end'' time--a minimum of 45 minutes and a maximum of one hour. Participants in the evening auction may enter orders within a two-hour period (from 3:00 p.m. to 5:00 p.m.) prior to the auction end time. Price increments for entered orders. Order must be entered in \1/8\ point price increments, and are limited to ``odd'' sixteenths (i.e., \1/16\, \3/16\. \5/16\ etc). By contrast, participants in the evening auction enter orders in increments of \1/ 16\ point, and those orders may fall both on even sixteenths and odd sixteenths.\7\ \7\ The purpose of the minimum \1/8\ increment is to encourage early entry of Open Book orders, by protecting those orders from being out-bid or -offered by small amounts, such as sixteenths, at the end of the auction. The purpose of requiring the minimum increments to fall on odd sixteenths is to allow a participant to enter an order at the midpoint of the standard spread in the Nasdaq market, so that a participant may potentially trade at a price that is within that standard spread. --------------------------------------------------------------------------- Transaction reporting. ITG, Inc. will report transactions executed in the morning auction to the Nasdaq transaction reporting system. This is unlike the current after-hours auction, in which completed transactions are not reported to any consolidated transaction reporting system.\8\ \8\ AZX currently reports completed transactions to the NASD by facsimile transmission at the end of each auction. The transmissions include the name of the security traded, the volume sold, and the equilibrium price. --------------------------------------------------------------------------- III. Solicitation of Comment The Commission is soliciting public comment on whether to amend the AZX exemption order to reflect the proposed trading session during regular trading hours in Nasdaq National Market securities. Interested persons should submit six copies of their comment letter to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. Copies of all submissions Commission will be available for inspection and copying in the Commission's Public Reference Room, 450 Fifth Street NW., Washington, DC. All submissions should refer to the file number in the caption above and should be submitted by July 28, 1995. By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. 95-16654 Filed 7-6-95; 8:45 am] BILLING CODE 8010-01-M