[Federal Register Volume 65, Number 31 (Tuesday, February 15, 2000)]
[Notices]
[Pages 7581-7582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3436]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 3-42403; File No. SR-CHX-99-0]


Self-Regulatory Organizations; Chicago Stock Exchange , Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Access to 
an After-Hours Trading Session

February 7, 2000.

I. Introduction

    On August 2, 1999, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder 
\2\ a proposed rule change relating to access to an after-hours trading 
session (``E-Session''). On September 28, 1999, the Exchange filed an 
amendment to the proposed rule change, proposing several technical 
amendments to the filing, including substituting the term ``E-Session'' 
for the term ``night trading'' and deleting all references to market 
makers.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Ellen J. Neely, Vice President and General 
Counsel, CHX, to Alton S. Harvey, Chief, Office of Market Watch, 
Division of Market Regulation, SEC, September 27, 1999 (``Amendment 
No. 1'').
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on October 7, 1999.\4\ No comments were received 
on the proposal. This order approves the proposed rule change, as 
amended.
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    \4\ See Securities Exchange Act Release No. 41968 (September 30, 
1999), 64 FR 54701.
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II. Description of the Proposal

    The Exchange proposes to provide rules that govern access to the 
CHX trading floor (and related trading privileges) during an E-Session 
that operates after the Primary Trading Session and Post Primary 
Trading Session.\5\
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    \5\ At the time the CHX filed the proposal, the Commission had 
not yet approved CHX's proposal implementing an E-Session (SR-CHX-
99-16). The Commission granted approval of SR-CHX-99-66 on October 
13, 1999. See Securities Exchange Act Release No. 42004 (October 13, 
1999) 64 FR 56548 (October 20, 1999). Consequently, upon approval of 
the current proposal, these rules will be immediately applicable to 
the E-Session.
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    Under the proposed rules, a person or entity may access the E-
Session through his or its own existing Exchange membership or by 
leasing the rights to a membership. The rights and privileges that can 
be leased for the E-Session will be limited to access rights to the 
trading floor during the E-Session in the capacity of a floor broker or 
co-specialist only (``E-Session trading privileges''). To lease the E-
Session trading privileges of a membership, a person or entity would be 
required to register with and be approved by the Exchange as a member 
or member organization under the Exchange's Constitution and Rules. The 
lessee would not be entitled to sublease the privileges and rights and 
would not be able to vote such interest.\6\ Further, the lessee of the 
E-Session trading privilege will be required to provide proof of an 
agreement with a registered clearing firm that is approved by the 
Exchange and provide evidence that such clearing firm will guarantee 
the lessee's obligations for any and all losses incurred through his or 
its lease of the E-Session trading privileges. The lessee will be 
required to execute a lease agreement, which would be required to be 
approved by the Exchange.
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    \6\ The voting right would be retained by the person who is 
designated as the Voting Designee on the seat.
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    With respect to lessors, the proposed rules would require that the 
lessor be either: (i) An Approved Lessor, as defined in Article I.A. of 
the Exchange rules; (ii) a member or member organization that leases 
its membership privileges to a lessee for the Primary Trading Session; 
or (iii) a member or member organization that owns a membership and 
uses the membership for his or its own purposes during the Primary 
Trading Session.
    Finally, the proposed rules would permit the Exchange to terminate 
the E-Session trading privileges upon 30 days written notice if the 
Exchange determines that it is in the best interest of the Exchange.

III. Discussion

    The Commission has reviewed carefully the CHX's proposed rule 
change and finds, for the reasons set forth below, that the proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange,\7\ 
and in particular, with the requirements of section 6(b).\8\ In 
particular, the Commission finds the proposal, which sets forth access 
to the

[[Page 7582]]

CHX's E-Session, is consistent with the Section 6(b)(5) \9\ 
requirements in that it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, and, 
in general, to protect investors and the public.
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    \7\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital information. 15 
U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, the Exchange will allow a person or entity to 
access the E-Session through his or its own existing Exchange 
membership, or by leasing the rights to a membership, and will limit 
the rights and privileges that can be leased for the E-Session to 
access rights to the trading floor during the E-Session as a floor 
broker or co-specialist only. Additionally, lessees will be required to 
register with and be approved by the Exchange as a member or member 
organization under the Exchange's Constitution and Rules, and will not 
be entitled to sublease the privileges and rights, nor will they be 
allowed to vote their interest. The Commission believes that the 
proposed limitations on access to the E-Session, coupled with the 
proposed restrictions on the rights of E-Session lessees, should 
prevent fraudulent and manipulative acts, by allowing the CHX to 
closely monitor the E-Session.
    Additionally, the CHX proposes to require lessees to provide proof 
of an agreement with a registered clearing firm that is approved by the 
Exchange, and provide evidence that such clearing firm will guarantee 
the lessee's obligations for any and all losses incurred through his or 
its lease of the E-Session trading privileges. The Commission finds 
that this provision is consistent with section 6(b)(5) of the Act \10\ 
because these requirements should help to ensure that investors are 
adequately protected with regard to the clearing of trades, and that 
the Exchange has some recourse should the lessee fail to perform any 
other contractual obligations.
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    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange has also proposed that the lessee be considered a 
``member'' or ``member organization'' for purposes of federal 
securities laws, and the Exchange's Certificate of Incorporation, 
Constitution and Rules, except in certain circumstances set forth in 
the rules. The Commission finds that this requirement is consistent 
with section 6(b)(5) of the Act \11\ in that it should help to ensure 
that lessees participating in the E-Session are subject to the same 
standards and requirements as are participants in the Primary Trading 
Session and the Post Primary Trading Session. This proposed requirement 
also should help to ensure that participants in all three trading 
sessions are treated equally.
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    \11\ 15 U.S.C. 78f(b)(5).
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    Finally, the Commission believes that the proposed provision which 
permits the Exchange to terminate the E-Session trading privileges if 
the Exchange determines that it is in the best interests of the 
Exchange, is consistent with section 6(b)(5) of the Act \12\ in that it 
is designed to specifically allow the Exchange, if necessary, to take 
action to protect investors.
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    \12\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    IT IS THEREFORE ORDERED, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change, as amended (SR-CHX-99-08), is 
approved.

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \1\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-3436 Filed 2-14-00; 8:45 am]
BILLING CODE 8010-01-M