[Federal Register Volume 67, Number 158 (Thursday, August 15, 2002)]
[Notices]
[Pages 53369-53370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20683]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46321; File No. SR-CHX-2001-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 by the Chicago Stock Exchange, Inc., 
To Amend CHX Article XX, Rule 37 Governing Automatic Execution of 
Market and Marketable Limit Orders

August 7, 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 December 26, 2001, the Chicago Stock Exchange, Inc. (``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 June 
19, 2002, the CHX amended the proposal.\3\ The CHX again amended the 
proposed rule change on July 26, 2002.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See June 18, 2002 letter from Kathleen M. Boege, Associate 
General Counsel, CHX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation, Commission, and attachments 
(``Amendment No. 1''). Amendment No. 1 completely replaced and 
superseded the original filing.
    \4\ See July 25, 2002 letter from Kathleen M. Boege, Associate 
General Counsel, CHX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation, Commission, and attachments 
(``Amendment No. 2''). Amendment No. 2 completely replaced and 
superseded Amendment No. 1. Thus, the CHX is soliciting comment on 
Amendment No. 2.
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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 CHX Article XX, Rule 37, which 
governs, among other things, automatic execution of market and 
marketable limit orders. The text of the proposed rule change is 
available at the Commission and at the CHX.

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 Exchange proposes to amend CHX Article XX, Rule 37, which 
governs, among other things, automatic execution of market and 
marketable limit orders. The proposed rule change is intended to 
provide CHX order-sending firms with greater flexibility relating to 
automatic execution of orders by CHX specialists. The principal 
components of the proposed rule change are: (a) In the case of Dual 
Trading System issues, commonly referred to as listed issues, 
permitting immediate execution (or execution in 15 seconds or less) of 
orders if there is no expression of market interest by a person 
physically present at the specialist's post; and (b) refinement of 
existing CHX algorithms relating to automatic execution of partial 
orders and price improvement of such orders.
    Addition of Variable AutoEx to MAX Trading System for Dual Trading 
System Issues. The CHX proposes to amend CHX Article XX, Rule 37(b)(6), 
which governs automatic execution of orders for Dual Trading System 
issues. The CHX filed the proposed rule change to respond to the needs 
of order-sending firms that have guaranteed their

[[Page 53370]]

customers that customer orders will be filled within 10 seconds or 
less. These customers represent a significant portion of the orders 
that are routed to the CHX, and their respective business models 
dictate such execution time guarantees.
    Under the existing Rule, an order for a Dual Trading System issue 
generally is not eligible for immediate automatic execution given the 
requirement that 15 seconds elapse before execution, in order to permit 
exposure of the order to the market. Under the proposed rule, 
specialists trading Dual Trading System issues would be permitted to 
reduce this 15-second period to zero seconds (i.e., permit an immediate 
execution), so long as there was no person physically present at the 
specialist's post expressing market interest.
    It is anticipated that the proposed rule change would satisfy the 
concerns of order-sending firms that require immediate executions, 
while still preserving the fundamental protections of an auction market 
environment.
    Refinement of Automatic Execution Sequences and Price Improvement 
Algorithms for Partial Orders. Following implementation of a proposed 
rule change previously approved by the Commission relating to automatic 
execution of partial orders and price improvement of portions of 
orders,\5\ Exchange staff has worked extensively with specialist firm 
management and order-sending firm representatives to further refine 
applicable automatic execution sequences and price improvement 
algorithms.
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    \5\ See Securities Exchange Act Release No. 44778 (September 7, 
2001), 66 FR 48075 (September 17, 2001)(SR-CHX-2001-11).
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    Simply stated, the proposed refinements would continue to provide 
for automatic execution of partial orders if an order-sending firm 
elects partial executions, with potentially varying price improvement 
consequences based on the size of the order. An order-sending firm that 
declines partial executions would remain eligible for price improvement 
if its order is automatically executed, and the specialist would be 
precluded from providing multiple price improvement treatments for 
portions of the order.
    Finally, the proposed rule change corrects previous typographical 
errors and notations, and deletes rule provisions that have been 
rendered obsolete by subsequent rule changes and interpretations.
2. Statutory Basis
    The Exchange believes that the proposed rule is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and with the 
requirements of section 6(b).\6\ In particular, the Exchange believes 
the proposed rule is consistent with section 6(b)(5) of the Act \7\ in 
that it is designed to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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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 either solicited or received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the CHX consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Commission is considering granting accelerated approval of the 
proposed rule change at the end of a 15-day comment period.

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 20549-0609. 
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 
CHX. All submissions should refer to File No. SR-CHX-2001-32 and should 
be submitted by August 30, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-20683 Filed 8-14-02; 8:45 am]
BILLING CODE 8010-01-P