January 14, 1997
R. Steven Wunsch, President
AZX, Inc.
20
Exchange Place, 31st Floor
New York, NY 10005
Re: Arizona
Stock Exchange
Dear Mr. Wunsch:
In your letter, dated
December 6, 1996 ("letter"), you request that the Division of Market Regulation
("Division") confirm that the Arizona Stock Exchange ("AZX") is not
an "electronic communications network" ("ECN") as defined in the recently
adopted amendments to the Quote Rule. n1 AZX operates subject to a limited
volume exemption from registration as a national securities exchange under the
Securities Exchange Act of 1934. n2
n1 Rule 11Ac1-1 under the Securities
Exchange Act of 1934, 17 CFR 240.11Ac1-1. See Securities
Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290.
n2 Securities Exchange Act Release No.
28899 (February 20, 1991), 56 FR 8377.
The amended Quote Rule defines the term
ECN as "any electronic system that widely disseminates to third parties orders
entered therein by an exchange market maker or OTC market maker, and permits
such orders to be executed against in whole or in part." n3 Excluded from
[*2] the
definition of ECN is "any system that crosses multiple orders at one or more
specified times at a single price set by the ECN (by algorithm or by any
derivative pricing mechanism) and does not allow orders to be crossed or
executed against directly by participants outside of such times." n4
n3
Rule 11Ac1-1(a)(8), 17 CFR 240.11Ac1-1(a)(8).
n4 Rule 11Ac1-1(a)(8)(i),
17 CFR 240.11Ac1-1(a)(8)(i).
In your letter, you represent that AZX is a
call market exchange that conducts auctions at certain fixed times, sets one
price for multiple orders in each eligible security at those fixed times, and is
not available for trading at times other than those fixed times. Accordingly,
you state that AZX is covered by the exclusion noted above from the definition
of ECN as set forth in the amended Quote Rule, and thus should not be considered
an ECN.
On the basis of the representations contained in your letter,
the Division confirms that AZX is not an ECN as defined in the amended Quote
Rule. This position is based solely on the representations you have made and is
strictly limited to the current operation of AZX as described in your letter.
Any different facts or conditions, including [*3] but not limited to, modifications or
revisions to, or expansion of services provided by, AZX, might require a
different response. This position is subject to changes in current law,
regulation, and interpretations; any change may require the Division to
reevaluate and withdraw or modify this position.
Sincerely,
Richard R. Lindsey
Director
AZX INC
20
Exchange Place, 31st Floor . New York, New York 10005 . 212/514-8890, FAX
212/514-8847
December 6, 1996
Holly Smith
Associate Director
Division of Market Regulation
U.S. Securities
& Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Ms Smith:
As you suggested on the telephone,
this letter requests that you confirm that AZX, Inc ("AZX") is not an electronic
communications network ("ECN") as described in Release No. 34-37619, which
promulgated certain new order execution obligations for Nasdaq market makers and
exchange specialists. Under the new rules, market makers and specialists who use
ECNs must either change their quotes on public quotation systems to reflect
orders placed in ECNs, or be sure that any ECN to which they send an order is
itself able to reflect that order on the public quotation system.
AZX is a call market exchange
that conducts auctions at certain fixed times. Our system sets one price for
multiple orders in each security at those fixed times and is not available for
trading at other times. Because call market orders are not live except at the
instant an auction ends, they could not be displayed or available for trading an
the same basis as the continuously available orders contemplated in the new
rules. We believe it is appropriate, therefore, that AZX not be considered an
ECN and are pleased, as it says in the Release, that "the definition
specifically excludes any system that crosses multiple orders at one or more
specified times at a single price set by the system and that does not allow
orders to be crossed or executed against directly by participants outside of
such times."
We look forward to answering any questions you may
have about our system, and would appreciate it if you would confirm to us that
AZX is excluded from the ECN definition.
Sincerely,
Steve Wunsch
President