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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Stock Exchange, Inc. Relating to the Definition of Pre-Opening Orders in Dual Trading System Issues

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Start Preamble March 22, 2000.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),[1] and Rule 19b-4 thereunder,[2] notice hereby is given that on January 3, 2000, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Exchange Proposes to amend Exchange Article XX, Rule 37(a)(4) governing the handling of pre-opening orders to define what constitutes a pre-opening order for purposes of that rule. The text of the proposed rule change follows, additions are italicized.

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Chicago Stock Exchange Rules

Article XX

Rule 37. Guaranteed Execution System and Midwest Automated Execution System

(a) Guaranteed Executions.

4. Preopenings. Preopening orders in Dual trading System issues must be accepted and filled at the primary market opening trade price. In trading halt situations occurring in the primary market, orders will be executed based upon the reopening price. Preopening orders in Nasdaq/NM securities must be accepted and filled at the Exchange opening trade price. In trading halt situations, orders will be executed based on the Exchange reopening price. For purposes of this rule, a pre-opening order in a Dual trading System issue is an order received prior to a primary market trade and prior to a primary market quote in the subject security.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received regarding the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change is to explicitly define pre-opening orders in Dual Trading System Issues.[3] Specifically, the proposed rule change will define pre-opening orders in Dual Trading System Issues as orders that are received before a primary market opens a subject security based on a print [4] or based on a quote.

The reason for the rule change stems from the wording of Exchange Article XX, Rule 37(a)(4); specifically, the requirement that pre-opening orders in Dual trading System Issues be accepted and filled at the primary market opening. Under this rule, orders received at the CHX before the first primary market print in a subject security are customarily filled at that first print price. The rule has always been applied in that manner because prints are the most common way of effecting the opening in a security. As such, it has been the practice at the CHX to treat orders received before the first primary market print as pre-opening orders. Nevertheless, on occasion a primary market will open a security by disseminating a quote without a corresponding print. When a security is opened in this fashion, subsequently received orders are, in fact, not pre-opening order.

However, because Rule 37(a)(4) does not explicitly define what constitutes a pre-opening order, the customary practice of treating all orders received before the first primary market print, including those received before the first primary market print but after the primary market opening quote, as recently been the cause of some confusion and unintended execution guarantees. Therefore, while the Exchange remains committed to ensuring that pre-opening orders sent to the CHX receive the same opening price execution on the CHX that they would have received had they been sent to a primary market, it believes it necessary to make clear what constitutes a pre-opening order. In doing so, the Exchange believes that both the CHX specialist community and their customers will benefit by eliminating any confusion that may exist regarding the execution responsibilities of specialists and expectations of customers.

As such, the proposed rule change will clarify that orders received after a primary market opens a security on a quote are not pre-opening orders for purposes of Rule 37(a)(4). Specifically, the proposed rule change provides that a pre-opening order in a Dual trading System Issue is an order received prior to a primary market trade and prior to a primary market quote in a subject security. Thus, under the proposed rule, an order received at the CHX after a primary market opens a security on a quote will not be entitled to be filled based on a subsequent primary market print.

2. Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) [5] of the Act because it is 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 and, in general, to protect investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such other period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) by order approve the proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington DC 20549-0609. Copies of the submissions, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying at the Commission's Public Reference Room. Copies of such filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CHX-99-31 and should be submitted by April 19, 2000.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[6]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  Dual Trading System Issues are issues that are traded on the CHX, either through listing on the CHX or pursuant to unlisted trading privileges, and are also listed on either the New York Stock Exchange or American Stock Exchange.

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4.  A print is defined as an executed trade. Telephone call between Dan Liberti, Vice President, Market Regulation, CHX and Kelly Riley, Attorney, Division of Market Regulation, SEC, on February 24, 2000.

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[FR Doc. 00-7729 Filed 3-28-00; 8:45 am]

BILLING CODE 8010-01-M