[Federal Register Volume 64, Number 119 (Tuesday, June 22, 1999)]
[Notices]
[Pages 33331-33333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15845]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41526; File No. SR-CHX-99-02]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 to the 
Proposed Rule Change by the Chicago Stock Exchange, Incorporated 
Relating to Membership Dues and Fees

June 15, 1999.
    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 May 10, 1999, the Chicago Stock Exchange, Incorporated (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On May 
28, 1999, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange has designated this proposal as one 
establishing or changing a due, fee, or other charge imposed by the CHX 
under section 19(b)(3)(A)(ii) of the Act,\4\ which render the proposal 
effective upon filing with the Commission.\5\ The Commission is 
publishing this notice to solicit

[[Page 33332]]

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.
    \3\ Letter from Kathleen M. Boege (``Boege''), Associate General 
Counsel, Exchange to Joseph Morra (``Morra''), Attorney, Division of 
Market Regulation (``Division''), SEC, dated May 26, 1999 
(``Amendment No. 1''). Amendment No. 1 corrected Section II(C) of 
the proposal, to acknowledge that the Exchange solicited input from 
firms that serve as CHX specialists for Nasdaq issues that are 
traded on the CHX pursuant to unlisted trading privileges, and that 
there was unanimous consent to the proposal by those firms. 
Amendment No. 1 was filed on May 28, 1999, following several 
interchanges between Division staff and Exchange staff. The 
Commission processed Amendment No. 1 on the same day. Consequently, 
the proposal is deemed to have been filed as of May 28, 1999.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ The filing date of this proposed rule change is May 28, 
1999. see supra footnote 3.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its membership dues and fees 
schedule, effective with the May billing statements. The text of the 
proposed change is below. Additions are in italics; deletions are in 
brackets.
Membership Dues and Fees
* * * * *
(e) Equipment/Technology/Space Charges
* * * * *

Technical Equipment (per
 month)
                             Four Screen Rich Units........      $250.00
                             Three Screen Rich Units.......      $208.35
                             Two Screen Rich Units.........      $166.65
                             Max Floor Broker Terminals....       $37.95
                             Floor Broker Printer..........       $49.95
                             Specialist Back Post MAX             $37.95
                              Terminals.
                             OTC/UTP Equipment.............  ...........
                             Pentium 450 PC................      $100.00
                             Two 21'' CRTs.................      $110.00
                             Two 15'' flat-panel monitors..      $140.00
                             Two 18'' flat-panel monitors..      $250.00
                             [Specialist] Printer (Listed         $49.95
                              or OTC/UTP Specialist).
Tools of the Trade Access      Each specialist firm shall be billed on a
                               monthly basis, based on usage by each of
                                the firm's OTC/UTP co-specialists, for
                               actual Tools of the Trade access charges
                                that become due in accordance with the
                                   Exchange's license agreement with
                                      Financial Systemware, Inc.
Server and Network
 Infrastructure Charges
Tools of the Trade and           All Server and Network Infrastructure
 Nasdaq Connection Charges      Charges and all Tools of the Trade and
                              Nasdaq Connection Charges (i.e., the costs
                                 of providing access to and use of the
                               Exchange's Nasdaq and Tools of the Trade
                                servers to facilitate OTC/UTP trading)
                                shall be located pro rata on a monthly
                               basis among all specialist firms engaged
                              in OTC/UTP trading, based on the number of
                                 OTC/UTP co-specialists at each firm.
(b) Not applicable.
(c) Not applicable.
 

* * * * *

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 on 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 amend the Exchange's 
schedule of membership dues and fees to pass on to Exchange specialists 
engaged in trading certain securities on an over-the-counter basis 
pursuant to unlisted trading privileges (collectively, the ``OTC/UTP'' 
specialists) those costs associated with providing new technology and 
dedicated equipment to the Exchange's OTC/UTP community.
    The CHX maintains that due to the recent explosive growth in OTC/
UTP trading at the Exchange and the corresponding increase in related 
technological demands, the Exchange has had to augment its existing CHX 
computer equipment and network infrastructure, solely to accommodate 
the Exchange's OTC/UTP specialists. Because the rapid expansion of the 
OTC/UTP program has necessitated, and will continue to demand, 
significant expenditures of the Exchange's capital and personnel 
resources, the Exchange's Finance Committee has determined that the 
Exchange should not continue to absorb all of the costs incurred by the 
Exchange in connection with the OTC/UTP program. Accordingly, the 
Exchange proposes to commence rebilling OTC/UTP specialists for these 
costs.
    The CHX rules expressly authorize the Exchange to ``* * * fix and 
impose other charges or fees to be paid to the Exchange by members and 
member organizations * * * for the use of equipment or facilities * * 
*.'' \6\ Proceeding under this authority, Exchange management developed 
a proposed fee schedule, identifying the costs that will be passed on 
to OTC/UTP specialists. The proposed fee schedule was discussed with 
specialist firms that will be affected thereby; none of these firms 
(nor any individual co-specialist) opposed the Exchange's proposal. In 
light of this consensus, the CHX Finance Committee approved the 
proposed amendment at its April 13, 1999 meeting and the CHX Board of 
Governors concurred at its April 15, 1999 meeting.
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    \6\ Article XIV, Rule 7(a).
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    As reflected in the proposed text set forth above, the costs that 
the Exchange seeks to pass on to OTC/UTP co-specialists consist of 
three principal categories. Each category is comprised of costs that 
are incurred by the Exchange solely on account of the OTC/UTP program. 
Accordingly, the Exchange believes that it is appropriate to limit 
pass-through of these costs to OTC/UTP co-specialists on a pro rata 
basis. The first category, ``Server and Network Infrastructure 
Charges'' and ``Tools of the Trade and Nasdaq Connection Charges'' 
consists of the costs (including ongoing maintenance and service costs) 
relating to the Exchanges' new Nasdaq and Tools of the Trade \7\ 
servers. The second

[[Page 33333]]

category, ``Technical Equipment'' assesses the OTC/UTP co-specialist 
with the cost of computer equipment, monitors and printers dedicated to 
an OTC/UTP co-specialist's own trading environment. Finally, the 
``Tools of the Trade Access'' category provides for direct rebilling of 
actual access charges incurred by the Exchange when a co-specialist 
uses Tools of the Trade for the particular issues traded by the co-
specialist.
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    \7\ Tools of the Trade is a proprietary software enhancement 
licensed to CHX by Financial Systemware, Inc. This software operates 
as an overlay on existing OTC/UTP systems and provides for increased 
functionality and enhanced capacity with respect to automated 
quotation display and trade execution.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act \8\ in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.
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    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that no burden will be placed on competition 
as a result of the proposed rule change.

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

    The CHX held a meeting on March 29, 1999, which was attended by the 
principals of all UTP Specialist Firms, at which time CHX management 
outlined the proposed fee structure contained in this proposal, and the 
rationale for imposition of such fees. There was unanimous consent of 
the UTP Specialist Firms to the imposition of the proposed fees. 
Subsequently, the proposal was approved unanimously by the CHX 
committee (referred to as the OTC Committee) responsible for matters 
having an impact on unlisted trading at the Exchange.\9\
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    \9\ See Amendment No. 1.
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The proposed rule change, as amended, has become effective pursuant 
to Section 19(b)(3)(A)(ii) of the Act \10\ and subparagraph (f)(2) of 
Rule 19b-4 thereunder,\11\ because it involves a due, fee, or other 
charge. At any time within 60 days of the filing of the proposed rule 
change (May 28, 1999), 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ In reviewing this proposal, the Commission has considered 
its 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 proposal 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 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 in the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to file number SR-CHX-99-02, and should be 
submitted by July 12, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 99-15845 Filed 6-21-99; 8:45 am]
BILLING CODE 8010-01-M