[Federal Register Volume 67, Number 43 (Tuesday, March 5, 2002)]
[Notices]
[Pages 10028-10029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5144]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45478; File No. SR-CHX-2002-04]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated To Provide for Rebilling of Costs Related to Member Firm 
Connectivity With the MAX System

February 26, 2002.
    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 February 1, 2002, 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. 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,\3\ which renders the proposal effective 
upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 (``Schedule'') to provide for rebilling of certain costs 
relating to member firm connectivity with the Exchange's automatic 
execution system. The text of the proposed rule change is below. 
Proposed new language is in italics.
Membership Dues and Fees
* * * * *
H. Equipment, Information Services and Technology Charges
    MAX Connection Charges  If the Exchange incurs direct costs 
relating to a member firm's connection to the MAX System, including 
costs associated with installation of equipment, telecommunication 
lines, telecommunication services and maintenance charges, such costs 
will be rebilled to the member firm at cost, provided, however, that 
the Exchange will not seek reimbursement of those connection-related 
costs deemed reasonable and necessary by the Exchange if the member 
firm to which the costs are allocable has routed an average of not less 
than 100,000 trades per month to the Exchange via the MAX System, 
during the 6 months preceding the billing date.
* * * * *

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 CHX proposes to amend the Schedule to provide for rebilling of 
costs incurred by the Exchange relating to member firm connectivity 
with the MAX System.\4\ The Exchange currently pays such costs with 
respect to several high-volume order sending firms although it has no 
stated policy regarding where it will absorb such costs.
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    \4\ The CHX Midwest Automated Execution system, commonly 
referred to as the ``MAX System,'' is the principal system by which 
orders are routed to the CHX and executed automatically.
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    To provide high-volume order sending firms with continued incentive 
to route orders to the Exchange, consistent with their best execution 
obligations, the proposed rule change includes a provision by which the 
Exchange would waive its right to reimbursement of MAX connectivity 
charges if an order sending firm had routed an average of 100,000 
trades per month to the CHX during the six-month period preceding the 
billing date.
    The CHX believes that the proposed rule change constitutes an 
equitable means of recovering its often-substantial technology costs, 
while recognizing that in certain instances, business considerations 
warrant the Exchange's absorption of such costs. The Exchange 
recognizes the Commission's interest in making available information 
regarding the magnitude of the MAX connectivity charges that the 
Exchange would waive for firms meeting the requisite volume criteria. 
Accordingly, while the Exchange cannot provide one fixed number due to 
varying utility rates and connectivity needs for each order-sending 
firm, the Exchange notes that the approximate average charge per month 
for MAX connectivity charges (i.e. telecommunications utility charges) 
will be approximately $4,000. Additionally, one-time initial hardware, 
software and setup charges range by order-sending firm, up to 
$50,000.\5\
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    \5\ With regard to one-time initial hardware, software and setup 
charges, the decision not to seek reimbursement applies only to 
order-sending firms that are establishing new connectivity to the 
MAX System. For order-sending firms that were already connected with 
the MAX System at the time the CHX filed this proposed rule change, 
the initial hardware, software and setup charges are moot under this 
proposed rule change. For order-sending firms that establish new 
connectivity to the MAX System, the CHX will look back six months 
from the CHX billing date to determine whether an order-sending firm 
has routed an average of 100,000 trades per month to the CHX. If so, 
the CHX will not seek reimbursement for initial hardware, software 
and setup. Were an order-sending firm establishing new connectivity 
to the MAX System to fall below the 100,000-trade-routing threshhold 
within the six-month look-back period from the CHX billing date, the 
order-sending firm would be charged the costs of initial hardware, 
software and setup, as well as any monthly connectivity charges. 
Once six months have passed since the initial hardware, software and 
setup charges have been incurred, the only connectivity charges 
eligible for a waiver of reimbursement are the monthly connectivity 
charges. February 26, 2002 telephone conversation between Kathleen 
M. Boege, Associate General Counsel, CHX, and Florence Harmon, 
Senior Special Counsel, Division of Market Regulation 
(``Division''), Commission, and Joseph Morra, Special Counsel, 
Division, Commission.

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[[Page 10029]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act \6\ in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.
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    \6\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    No written comments were solicited or received.

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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \7\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\8\ because it involves a due, fee, or other charge. 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \8\ 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 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-2002-04, and should be 
submitted by March 26, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-5144 Filed 3-4-02; 8:45 am]
BILLING CODE 8010-01-P