[Federal Register Volume 63, Number 198 (Wednesday, October 14, 1998)]
[Notices]
[Pages 55163-55165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27414]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40520; File No. SR-CHX-98-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc. Relating to Membership Dues and Fees

October 5, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 29,1998, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
items I, II, and III below, which Items have been prepared by CHX. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    CHX proposes to amend its membership dues and fees schedule, 
effective with the September billing statements. The changes are as 
follows:

Membership Dues and Fees

Additions are in italics; deletions [bracketed]
    (d) Transaction Fee Schedule
    (3) Monthly maximums for fees incurred in (2) above


(i) Maximum monthly transaction fees for
 orders sent via MAX....................          $7,000
(ii) Maximum monthly transaction fee for
 firms without a floor broker or market
 maker presence on the floor............       [$65,000]         $78,000
(iii) Maximum monthly transaction fee
 for firms with a floor broker or market
 maker presence on the floor............       [$45,000]         $54,000
(iv) Maximum monthly transaction fees
 shall not exceed the lesser of that
 specified in (ii) or (iii) above, or
 [$.45] $.40 per 100 average monthly
 gross round lot shares.................

    The above transaction fees shall not apply to transactions in Tape 
B eligible issues which are executed through MAX.
* * * * *
    (u) Floor Broker Credits
    Total Monthly fees owed by a floor broker to the Exchange will be 
reduced (but to no less than zero) by the application of the following 
Earned Credit.
    Earned Credit = Average Daily Billable Shares  x  Average Rate per 
Billable Share  x  Credit Percentage.
    In calculating the above Earned Credit, the following definitions 
shall apply:
    ``Average Daily Billable Shares'' means, for a given month, (i) 
Total Billable Shares in Month divided by (ii) Total Trading Days in 
Month.
    ``Total Billable Shares in Month'' means, for a given month, the 
total number of shares executed on the Exchange by the floor broker for 
which the Exchange received a transaction fee. Any share executed for 
which the Exchange did not receive a transaction fee shall not be 
considered a billable share.
    ``Total Trading Days in Month'' means, for a given month, the 
number of business days that the Exchange was open for business during 
the month. Days in which the Exchange closes early, due to a holiday or 
otherwise, shall nonetheless be considered a day that the Exchange is 
open for business.
    ``Average Rate per Billable Share'' means, for a given month, (i) 
the total dollar amount of transaction fees received by the Exchange 
for trades executed on the Exchange by the floor broker divided by (ii) 
Total Billable Shares in Month.
    ``Credit Percentage'' means the applicable percentage taken from 
the following table:

----------------------------------------------------------------------------------------------------------------
                                                                       Average Daily Billable Shares
                                                         -------------------------------------------------------
                                                                                                       500,000
                                                            0-49,999      50,000-       100,000-      Shares or
                                                             Shares       99,999     499,999 Shares    Greater
--------------------------------------------------------------------------Shares--------------------------------
                                 Less than $.0040.......          20%           30%            40%           50%
  Average Rate per Billable      $.0040-$.0055..........          30%           45%            60%           75%
 Share
                                 Greater than $.0055....          40%           60%            80%          100%
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CHX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. CHX 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 amend CHX's 
membership dues and fees schedule to (i) change the maximum monthly 
transaction fee caps

[[Page 55164]]

for both firms with and without a market maker or floor broker presence 
on the floor and (ii) provide a credit to floor brokers that can be 
used to reduce the floor broker's monthly Exchange bill.
    Maximum Monthly Transaction Fees. One purpose of the proposed rule 
change is to change the current maximum monthly transaction fee caps. 
Currently, transaction fees are calculated on a sliding scale depending 
on the size of the order, with a maximum of $100 per side. To encourage 
additional order flow, the current fee schedule provides for maximum 
monthly caps on transaction fees incurred by members. Currently, these 
caps include a cap of $65,000 for firms without a market maker or floor 
broker presence on the floor and $45,000 for firms with either a floor 
broker or market maker presence on the floor.\3\ Under the current fee 
schedule, these two caps are subject to adjustment if the transaction 
fees for a firm's average monthly gross round lot shares exceeds $.45 
per 100. In such a case, the maximum transaction fee is reduced to $.45 
per 100 average monthly gross round lot shares.
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    \3\ The fee schedule also includes a cap of $7,000 for orders 
sent through MAX. This fee cap is not being changed in this filing.
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    The Exchange proposes to increase the current $65,000 cap to 
$78,000 and the current $45,000 cap to $54,000, while reducing the 
level at which the adjustment occurs from the current $.45 per 100 
average monthly gross round lot shares to $.40 per 100 average monthly 
gross round lot shares. This change accommodates the increase in 
aggregate total volume of trades executed on the Exchange (with higher 
resulting aggregate transaction fees) while ensuring that transaction 
fees, on a per share basis, remain competitive.
    Floor Broker Credit. Another purpose of the proposed rule change is 
to amend the CHX fee schedule to provide a credit to floor brokers, 
calculated on a sliding scale according to the formula described below, 
that acknowledges the floor broker's role in obtaining revenue for the 
Exchange. This credit, to be called an Earned Credit, can be used to 
reduce the floor broker's monthly Exchange bill (but will never result 
in a bill that is less than zero). A floor broker's Exchange bill 
currently includes dues and other fees assessed by the Exchange as well 
as rebills and SEC fees. Most of these dues and fees are fixed, 
regardless of the amount of revenue that the floor broker generates for 
the Exchange. A floor broker generates revenue for the Exchange by 
bringing business to the Exchange that results in CHX transaction fees.
    The Earned Credit both recognizes the existence of externally 
generated revenue as an offset to Exchange fixed expenses and the role 
of the floor broker in obtaining this revenue. The Earned Credit is 
calculated by using a formula that takes into account (i) the daily 
average number of shares (not trades) executed, during a given month, 
on the Exchange by a floor broker for which the Exchange received a 
transaction fee (the ``Average Daily Billable Shares''), (ii) the daily 
average amount (calculated on a per share basis) of such transaction 
fee (the ``Average Rate per Billable Share''), and (iii) a sliding 
percentage amount calculated from a matrix that uses (i) and (ii) above 
(the ``Credit Percentage''). The precise definitions for these terms, 
and the matrix used for the Credit Percentage, is in the text of the 
proposed rule change set forth above. Under the proposal, the maximum 
Earned Credit in a given month would be, in essence, equal to 100% of 
the transaction fee revenue generated by orders executed by the floor 
broker for one average day in the month.
    The application of the Earned Credit can be demonstrated by the 
following example. Suppose a floor broker executed 10 trades of 2500 
shares each and one trade of 30,000 shares for August 1998. The 
Exchange would first determine the number of billable shares per trade, 
i.e., the number of shares in each trade for which the Exchange 
received a transaction fee. Assuming the member paying the transaction 
fee in each case has not hit its monthly cap, for each of the 2500 
share trades, the Exchange receives transaction fees from 2000 out of 
the 2500 shares. (Under the current transaction fee schedule, the first 
500 shares are free). In addition, for the 30,000 share trade, the 
Exchange receives transaction fees from 21,375 shares. (Under the 
current fee schedule, the first 500 shares are free. The Exchange then 
receives a transaction fee (of varying amounts) for the next 21,375 
shares and no transaction fee for any additional shares (because of the 
cap of $100 per side).)
    The exchange would then add all of the billable shares per trade 
together for a given month to determine the Total Billable Shares per 
Month (as defined in the fee schedule). This would be 20,000 shares 
(2000 shares times 10 trades) plus 21,375 shares, for a total of 41,375 
shares.
    The Exchange would then take (i) the Total Billable Shares per 
Month and divide that by (ii) the Total Trading Days in Month, to 
determine the Average Daily Billable Shares. This equals 1970, which 
represents 41,375 (total number of billable shares) divided by 21 (the 
number of trading days in August 1998).
    Once the Exchange determined the Average Daily Billable Shares, the 
Exchange would then calculate the Average Rate per Billable share. The 
Exchange would first calculate the total dollar amount of transaction 
fees received by the Exchange for trades executed on the Exchange by 
the floor broker during a month using the Exchange's transaction fee 
schedule. In the above example, this would be $15 per trade for each of 
the 2500 share trades ($.0 multiplied by the first 500 shares and 
$.0075 multiplied by next 2000 shares) and $100 for the 30,000 share 
trade ($.0 multiplied by the first 500 shares, $.0075 multiplied by the 
next 2000 shares, $00.5 multiplied by the next 7500 shares and $.004 
multiplied by the next 11,875 shares and $.0 for the remaining 8125 
shares (because of the $100. cap per side)). Thus, the total dollar 
amount of transaction fees received by the Exchange for trades executed 
by the floor broker during the month of August 1998 would equal $250 
($15 multiplied by ten trades, plus $100). The Average Rate per 
Billable Share would be $250 divided by 41,375 (the total billable 
shares), for an average of $.006.
    Using the $.006 (average rate per billable share) and the 1970 
(average daily billable shares), the applicable Credit Percentage (as 
defined in the fee schedule) for the floor broker would be 40% which is 
taken from the Credit Percentage matrix.
    Finally, the Exchange would determine the Earned Credit by 
multiplying $.006 by 1970 by 40%, which would give the floor broker an 
Earned Credit of $4.73 which can be used by the floor broker to reduce 
his monthly Exchange bill.
    The Exchange's Finance Committee has determined that after the 
preposed changes in the fee structure, the Exchange will have ample 
capital and resources to continue to fulfill its prescribed duties in 
its capacity as a self-regulatory organization and as a registered 
national securities exchange.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) \4\ of the Act because it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.
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    \4\ 15 U.S.C. 78f(b)(4).

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[[Page 55165]]

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    The foregoing rule change establishes or changes a due, fee, or 
other charge imposed by the Exchange and, therefore, has become 
effective pursuant to Section 19(b)(3)(A)(ii) \5\ and subparagraph 
(e)(2) of Rule 19b-4 thereunder.\6\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.\7\
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    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-4(e)(2).
    \7\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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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. Copies 
of the submission, 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 filing also will be 
available for inspection and copying at the principal office of CHX. 
All submissions should refer to File No. SR-CHX-98-22 and should be 
submitted by November 4, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27414 Filed 10-13-98; 8:45 am]
BILLING CODE 8010-01-M