[Federal Register Volume 67, Number 143 (Thursday, July 25, 2002)]
[Notices]
[Pages 48687-48688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18841]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46231; File No. SR-CHX-2002-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated to Reduce or Eliminate Certain Transaction Credit Programs 
for Specialists

July 19, 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 July 8, 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

[[Page 48688]]

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 CHX proposes to amend its membership dues and fees schedule 
(``Schedule''), effective July 1, 2002, to reduce or eliminate certain 
transaction credit programs for specialists. 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 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 by (1) eliminating the 
transaction credits paid to specialists with respect to trading in 
Nasdaq/NM securities; and (2) reducing the highest level of transaction 
credits and modifying the remaining credits paid to specialists with 
respect to trading in issues listed on the American Stock Exchange 
(``Tape B'' securities).
    The Exchange has proposed this change in direct response to the 
Commission's abrogation of certain proposed rule changes involving 
transaction credit rebate programs of other market centers.\4\ The 
CHX's specialist transaction credit program was put in place in 
February 1997 \5\ to provide specialists with credits based upon their 
market share in the issues that they traded.\6\ The Exchange does not 
believe that its program has resulted in widespread abuses such as 
those noted by the Commission in its recent press release.\7\ 
Nevertheless, the Exchange believes that the Commission's concerns 
about the potential impact of these programs on the national markets 
should be explored further. The Exchange, accordingly, has proposed the 
elimination and reduction of the credit programs described above, at 
the request of the Commission, to ensure that market participants are 
on similar footing with respect to these programs during the ongoing 
review of this issue. As further information is revealed about the 
actual impact of these types of programs on the national market system, 
the Exchange anticipates that it will examine the efficacy of its 
remaining credit programs as well.
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    \4\ See Securities Exchange Act Release No. 46159 (July 2, 
2002), 67 FR 45775 (SR-NASD-2002-61, SR-NASD-2002-68, SR-CSE-2002-
06, and SR-PCX-2002-37) (order of summary abrogation).
    \5\ See Securities Exchange Act Release Nos. 38237 (February 4, 
1987, 62 FR 5492 (February 12, 1997) (instituting the specialist 
credit); and 41947 (September 29, 1999), 64 FR 54703 (October 7, 
1999) (instituting a transaction credit for floor brokers).
    \6\ The program originally provided credits as follows: a 
specialist whose monthly market share was less than 7% received a 
credit equal to 18% of the market data revenue in that stock 
received by the Exchange; a specialist whose monthly market share 
was 7 to 12% received a 36% credit; and a specialist whose market 
share was greater than 12% received a 54% credit. These credit rates 
were marginal rates; in other words, a specialist whose market share 
was 9% received an 18% credit on the trades that made up its 7% 
market share and a 36% credit on all subsequent trading activity. 
The credit program was modified in March 2000 to slightly increase 
the credits available to specialists trading listed securities and 
to establish a credit program for specialists trading Nasdaq/NM 
securities. See Securities Exchange Act Release No. 42561 (March 22, 
2000), 65 FR 16443 (March 28, 2000) (SR-CHX-2000-06).
    \7\ In its press release, the Commission noted that it is 
concerned ``that the availability of large market data revenue 
rebates in certain markets may be creating incentives for traders to 
engage in transactions with no economic purpose other than to 
receive market data fees.'' The Commission also stated its concern 
that ``the structure and size of market data revenue rebates may be 
distorting the reporting of trades and that these rebate programs 
may reduce the regulatory resources of the markets and reallocate 
the funding of regulation among participants.''
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    The changes to the Schedule are effective as of July 1, 2002.
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 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 \9\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 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-2002-22, and should be 
submitted by August 15, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18841 Filed 7-24-02; 8:45 am]
BILLING CODE 8010-01-P