[Federal Register Volume 67, Number 16 (Thursday, January 24, 2002)]
[Notices]
[Pages 3517-3519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1702]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45282; File No. SR-CHX-2001-30]


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

January 15, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given that 
on December 21, 2001, the Chicago Stock Exchange, Inc. (``CHX'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
the CHX has prepared. The Commission is publishing this notice to 
solicit comments on the

[[Page 3518]]

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

    The CHX proposes to amend its membership dues and fees schedule, 
effective through June 30, 2002, to provide for continued assessment of 
a marketing fee in instances where transactions in a subject issue meet 
certain criteria described below. The text of the proposed rule change 
is available at the CHX and at the Commission.

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 CHX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received regarding the proposed rule change. 
The text of these statements may be examined at the places specified in 
Item IV below. The 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 CHX proposes to change its fee schedule to provide for 
assessment of a marketing fee of $.01 per share applicable to ``Subject 
Transactions''\3\ in ``Subject Issues'' \4\ occurring on or before June 
30, 2002. The marketing fee would not be assessed if the specialist 
trading the Subject Issue elected to forego collection of the marketing 
fee.
    The CHX currently imposes a marketing fee under a provision of the 
CHX fee schedule that, by its term, would expire on December 31, 
2001.\5\ Under the system in place until December 31, 2001, the CHX 
calculates, bills, and collects the marketing fee and then remits the 
proceeds to the specialist firm that trades the Subject issue. The 
specialist firm then distributes the funds to order-sending firms in 
accordance with its payment for order flow arrangements relating to the 
Subject Issue, or in certain instances, to market makers who have 
contributed to market share growth. The CHX has also issued quarterly 
refunds of unspent marketing fee proceeds to market makers, floor 
brokers, and specialists, on a pro rata basis, for amounts in excess of 
$1,000.
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    \3\ ``Subject Transaction'' means (a) any trade with a customer, 
whether the contra party is a specialist or a market maker, where 
the order is delivered to the CHX via the MAX system or where 
compensation is paid to induce the routing of the order to the CHX; 
or (b) any trade between a specialist and a market maker in which 
the market maker is exercising rights under the market maker 
entitlement rules.
    \4\ ``Subject Issue'' means any issue which constitutes an 
exchange-traded fund (``ETF'') and meets the following two criteria: 
(a) average daily share volume in the issue exceeds 150,000 shares 
each month during a consecutive two month period; and (9b) market 
maker share participation in the same issue exceeds 5% for each 
month during the same two-month period.
    \5\ See Securities Exchange Act Release No. 44646 (August 2, 
2001), 66 FR 41641 (August 8, 2001) (SR-CHX-2001-10).
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    The CHX is currently proposing to: (a) Extend the marketing fee 
provision until June 30, 2002; (b) modify the definition of Subject 
Issue to exclude issues other than ETFs' (c) revise the definition of 
Subject Transaction to include any trade with a customer where the 
order is delivered to the CHX via the MAX system; and (d) revise 
procedures to preclude assessment of the marketing fee against 
specialists in the case of transactions where market makers are 
exercising their entitlement rights under CHX rules.
    The CHX states that the continued imposition of the marketing fee 
is intended to allocate equitably the financial burden of seeking order 
flow for Subject Issues. Prior to the establishment of the current fees 
program, according to the CHX, a CHX specialist trading a particular 
Subject Issue was the sole bearer of the often substantial costs 
associated with attracting order flow to the CHX, as well as any 
licensing fees that the licensor of the product imposes.\6\ The CHX 
also notes that, prior to the implementation of the current program, 
CHX market makers that participated in transactions in Subject Issues 
did not share any of these costs.
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    \6\ Under the proposed rule change, the marketing fee would be 
assessed only against ETF products, which almost always have an 
associated licensing fee.
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    By extending the current payment for order flow program, the 
proposed rule change would continue to allow a specialist trading a 
Subject Issue to impose the marketing fee in instances where the 
specialist believes that it would be appropriate to allocate the 
financial burden of trading the Subject Issue among all those who trade 
it, including the specialist and market makers. The CHX believes that 
the proposed rule change will continue to provide specialist trading 
Subject Issues with sufficient incentive to continued their efforts to 
attract additional order flow and increase market share.
2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
section 6(b)(4) of the Act\7\ in that it would provide for the 
equitable allocation of reasonable dues, fees and other charges among 
its members.
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    \7\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The CHX does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    The CHX neither solicited nor received written comments with 
respect to the proposed rule change.
    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the CHX, it has become effective 
pursuant to section 19(b)(3)(A) of the Act\8\ and Rule 19b-4(f)(2) 
thereunder.\9\ At any time within 60 days after the filing of the 
proposed rule change, the Commission may summarily abrogate the 
proposed 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 purpose of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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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

[[Page 3519]]

Room. Copies of the filing will also be available for inspection and 
copying at the principal office of the CHX. All submissions should 
refer to File No. SR-CHX-2001-30 and should be submitted by February 
14, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-1702 Filed 1-23-02; 8:45 am]
BILLING CODE 8010-01-M