[Federal Register: March 9, 1999 (Volume 64, Number 45)] [Notices] [Page 11527-11528] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr09mr99-133] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-41120; File No. SR-CSE-98-04] Self-Regulatory Organizations; Cincinnati Stock Exchange, Inc.; Order Approving Proposed Rule Change to Reduce its Public Agency Guarantee Size February 26, 1999. I. Introduction On October 26, 1998 \1\ the Cincinnati Stock Exchange, Inc. (``CSE'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to reduce the CSE public agency guarantee size. Notice of the proposal appeared in the Federal Register on January 7, 1999.\4\ The Commission received no comments on the proposal. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ The Exchange initially filed this proposal on October 26, 1998. However, on November 12, 1998, the Exchange filed Amendment No. 1 the substance of which was incorporated into the notice. \2\ 15 U.S.C. 78s(b)(1). \3\ 17 CFR 240.19b-4. \4\ Securities Exchange Act Release No. 40843 (December 28, 1998), 64 FR 1048. --------------------------------------------------------------------------- II. Description of Proposal The Exchange proposed to amend the public agency guarantee in CSE Rules 11.9(c)(v) and (n). CSE Rules 11.9(c)(v) and (n) provide an execution guarantee for public agency market and marketable limit orders. Currently, public agency orders up to the size of the lesser of the national best bid or offer (``NBBO'') or 2099 shares are guaranteed. No portion of an order larger than 2099 shares is subject to the guarantee. The Exchange proposed to lower the maximum order size of its public agency guarantee. The proposed rule change would lower the size of the public agency guarantee to the lesser of the NBBO or 1099 shares. The public agency guarantee would otherwise remain unchanged. The Exchange believes that its specialists are exposed to adverse risk in a more volatile trading environment due to higher volume levels and the National Market System change to quoting and trading securities in increments less than 1/8th of a dollar. The Exchange believes that lowering the public agency guarantee will lower the risk its specialists currently experience to a reasonable level. Additionally, the Exchange represents that lowering the public agency guarantee from 2099 to 1099 shares should not significantly impact customers since the majority of customer orders are less than 1000 shares.\5\ --------------------------------------------------------------------------- \5\ Telephone conversation between David Colker, President, CSE, and John Roeser, Attorney, Division of Market Regulation, SEC on February 25, 1999. --------------------------------------------------------------------------- III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange \6\ and, in particular, the requirements of Section 6.\7\ The Commission believes that the proposal is consistent with the provisions of Section 6(b)(5), in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system. The Commission believes that the proposal should reduce the risk experienced by the Exchange's specialists without significantly affecting the proper execution of public agency orders. Thus, the Commission concludes that the proposal will strike an appropriate balance between the risk incurred by the Exchange's specialists during a volatile trading environment and the policy to ensure the best possible execution of orders for public investors. Therefore, the Commission believes that lowering the size of the [[Page 11528]] public agency guarantee to the lesser of the NBBO or 1099 shares is reasonable and consistent with the Act. --------------------------------------------------------------------------- \6\ In approving this rule, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). \7\ 15 U.S.C. 78f. --------------------------------------------------------------------------- IV. Conclusion For the foregoing reasons, the Commission believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, with Section 6(b)(5).\8\ --------------------------------------------------------------------------- \8\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\9\ that the proposed rule change (SR-CSE-98-04) is approved. \9\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\10\ --------------------------------------------------------------------------- \10\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-5720 Filed 3-8-99; 8:45 am] BILLING CODE 8010-01-M