[Federal Register Volume 67, Number 208 (Monday, October 28, 2002)]
[Notices]
[Pages 65816-65818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27300]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46688; File No. SR-CSE-2002-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Cincinnati Stock Exchange, 
Inc. Relating to Changes in Transaction and Related Fees

October 18, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4\2\ thereunder, notice is hereby given that 
on September 30, 2002, the Cincinnati Stock Exchange, Inc. 
(``Exchange'' or ``CSE'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the CSE. The proposed rule change has been filed by the CSE under 
Rule 19b-4(f)(2)\3\ of the Act because it changes a due, fee, or other 
charge. 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\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CSE proposes to amend the Exchange's schedule of transaction 
fees and related fees.
    The text of the proposed rule change is below. Proposed additions 
are in italics and proposed deletions are in [brackets].
* * * * *
Proposed Rule Change
The Cincinnati Stock Exchange, Incorporated
Trading Rules
Rule 11.10 National Securities Trading System Fees
A. Trading Fees
    (a)-(d) (No Change to Text)
    (e) [(1) Crosses and Meets. Each member will be charged $0.0005 per 
share ($0.50/1000 shares), with a maximum charge of $37.50 per firm per 
side of the transaction. No agency, professional agency or proprietary 
charges are applied.
    (2) Tape ``C'' Transactions. Tape ``C'' Transactions are defined as 
transactions conducted in Nasdaq securities pursuant to unlisted 
trading privileges (``UTP''). Members will be charged a per share fee 
for Nasdaq securities based upon the following schedule:

------------------------------------------------------------------------
        Number of shares traded (in a single day)          Fee per share
------------------------------------------------------------------------
0-5 million.............................................      $0.001
5 million one +.........................................       0.000025]
------------------------------------------------------------------------

    (1) Users executing crosses and meets in Tape A securities shall be 
charged $0.0005 per share per side for average daily volume up to 5 
million shares per day and $0.000025 per share per side for average 
daily volume above 5 million shares, with a maximum charge of $37.50 
per firm per side of transaction.
    (2) Users, who are not registered as Qualified or Designated 
Dealers in the securities in which they are executing crosses and meets 
in Tape C securities (Nasdaq NMM and SmallCap securities), shall pay no 
transaction fees.
    (3) Dealers executing crosses in Tape C securities (Tape ``C'' 
Transactions are defined as transactions conducted in Nasdaq securities 
pursuant to unlisted trading privileges) in which they are registered 
shall be charged a per share fee as noted below:

------------------------------------------------------------------------
             Average daily number of shares                Fee per share
------------------------------------------------------------------------
Up to 5 million shares..................................       $0.001
5 million shares and above..............................        0.000025
------------------------------------------------------------------------

    [(f) ITS Transactions. These transactions are charged according to 
the capacity in which they are executed.]
    (f) ITS Transactions. All ITS transactions, whether inbound or 
outbound, will be charged $0.001 per share.
    (g) (No change to text)
    [(h) Preferenced Transactions. Designated dealers that are 
preferencing transactions are charged for one side of their preferenced 
transactions and are subject to the incremental rates as noted below:

------------------------------------------------------------------------
                                                            Charge per
           Avg. daily principal share* volume                  share
------------------------------------------------------------------------
1 to 250,000............................................         $0.0015
250,001 to 500,000......................................          0.0013
500,001 to 750,000......................................          0.0009
750,001 to 1,250,000....................................          0.0007
1,250,000 and higher....................................          0.0005
------------------------------------------------------------------------
*Odd-Lot Shares Excluded]

    (h)(1) Preferenced Transactions. Designated Dealers that are 
preferencing transactions in Tape A securities are charged for one side 
of their preferenced transactions and are subject to the incremental 
rates as noted below:

------------------------------------------------------------------------
                                                            Charge per
               Average daily share* volume                     share
------------------------------------------------------------------------
1 to 250,000............................................         $0.0015
250,001 to 500,000......................................          0.0013
500,001 to 750,000......................................          0.0009
750,001 to 1,250,000....................................          0.0007
1,250,000 and higher....................................          0.0005
------------------------------------------------------------------------
*Odd-Lot shares excluded

    (2) Dealers executing preferencing transactions in Tape C 
securities are charged for one side of their preferenced transactions 
and are subject to the following incremental rates:

------------------------------------------------------------------------
                                                            Charge per
              Average daily share** volume                     share
------------------------------------------------------------------------
Up to 5 million shares..................................       $0.001
5 million shares and above..............................        0.000025
------------------------------------------------------------------------
**Odd-Lot shares excluded

    [(i) Member Gross Fee Discount. Members will receive an incremental 
discount to their total gross fee** charged in any given month as 
follows:

------------------------------------------------------------------------
                       Gross fees                           Percentage
------------------------------------------------------------------------
$0.00 to $5,000.........................................               0
$5,000.01 to $20,000....................................               0
$20,000.01 to $50,000...................................              15
$50,000.01 to $90,000...................................              20
$90,000.01 to $125,000..................................              25
$125,000.01 and higher..................................              30
------------------------------------------------------------------------
*Excludes: Agency Transactions (a), Crosses & Meets (e), Dealer of the
  Day (g)(2) and Preferenced Transaction (h) Fees.]

    (i) Reserved.
    (j) Revenue Sharing Program. After the Exchange earns total 
operating revenue sufficient to offset actual expenses and working 
capital needs, a percentage of all specialist Operating Revenue 
(``SOR'') shall be eligible for sharing with Designated Dealers. SOR is 
defined as operating revenue, which is generated by specialist firms. 
SOR consists of transactions fees, book fees, technology fees, and 
market data revenue, which is attributable to specialist firm activity. 
SOR shall not include any investment income or regulatory monies. The 
sharing of SOR shall be based on each Designated Dealer's pro rata 
contribution to SOR. In no event shall the amount or revenue shared 
with Designated Dealers exceed SOR. To the extent market data revenue 
is subject to year-end adjustment, SOR revenue may be adjusted 
accordingly.
    (k) Tape ``B'' Transactions. The CSE will not impose a transaction 
fee on Consolidated Tape ``B'' securities. In addition, Members will 
receive a 50 percent pro rata transaction credit of net Tape ``B'' 
revenue. To the extent market

[[Page 65817]]

data revenue from Tape ``B'' transactions is subject to year-end 
adjustment, credits provided under this program may be adjusted 
accordingly.
    [(l) Tape ``C'' Transaction Credit. Members will receive a 75 
percent pro rata transaction credit of Tape ``C'' revenue.]
    (l) Reserved.
    (m) (No change to text)
    (n) (No change to text)
    (o) Technology Fee. Every member of the Exchange shall be assessed 
a fee of [$500.00] $750.00 per month to help offset technology expenses 
incurred by the Exchange.
    (p) (No change to text)
    (a) (No change to text)
    (r) Workstation Fee. Every member using the Exchange Workstation 
shall be charged $500.00 per device per month.
* * * * *

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 CSE 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 CSE 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 is proposing amendments to the Exchange Rules 
governing transaction and related fees. The first proposed rule change 
amends subsection (1) to Rule 11.10(A)(e), (``Crosses and Meets''). 
Subsection (1) currently provides that members will be charged $0.0005 
per share per side, with a cap of $37.50 per firm per side of any 
transaction. The amended rule will provide that Users executing agency 
crosses or meets in Tape A securities (securities listed on the New 
York Stock Exchange) shall be charged $0.0005 per share per side for 
average daily volume up to 5 million shares and $0.000025 per share per 
side for average daily volume above 5 million shares. The cap of $75.00 
per transaction remains.
    Subsection (2) of Rule 11.10(A)(e) is amended to change the current 
fee structure for crosses and meets in Tape C (Nasdaq securities) 
transactions. Currently, subsection (2) provides a fee structure of 
$0.001 for average daily volume up to 5 million shares traded and 
$0.000025 for average daily volume above 5 million shares. Subsection 
(2) is amended eliminate the current fee schedule and to charge Users 
who are not Dealers no transaction fees for crosses and meets in Tape C 
securities. The Exchange states that since it is unable to share the 
market data revenue generated through its volume, the Exchange believes 
it is equitable and reasonable to reduce other transaction fees such as 
the fee for non-Dealers to execute crosses and meets in Tape C 
securities.\4\
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    \4\ Telephone conference call among Jeffery T. Brown, Senior 
Vice President and General Counsel, CSE, Florence Harmon, Senior 
Special Counsel, Division, Commission, and Timothy Fox, Law Clerk, 
Division, Commission, October 16, 2002.
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    Subsection (3) of Rule 11.10(A)(e) is added to provide that Dealers 
executing crosses in Tape C securities are charged $0.001 for average 
daily volume up to 5 million shares traded and $0.000025 for average 
daily volume above 5 million shares. The Exchange believes that it is 
fair to continue to charge Dealers in Tape C securities transaction 
fees because they are eligible to share in the market data revenue 
generated by their trading activity.\5\ This is because, under Rule 
11.10A(j), Dealers share in Specialist Operating Revenue, which 
includes market data revenue, after the CSE retains sufficient income 
to offset actual expenses and working capital needs.\6\
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    \5\ Id.
    \6\ Id.
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    Rule 11.10(A)(f) is being amended to reflect changes in the billing 
of ITS transactions. Currently, ITS transactions are charged according 
to the capacity in which they are executed. The Exchange is amending 
Subsection (f) to provide that all ITS transactions will be billed 
$0.001 per share.
    The Exchange is also amending Rule 11.10(A)(h), ``Preferenced 
Transactions,'' by adding subsections to the rule. Subsection (1) 
specifies that the current fee schedule for preferenced transactions 
set forth in rule 11.10(A)(h) applies to Tape A securities only. 
Subsection (2) is added to provide that preferenced transactions in 
Tape C securities will be charged $.001 for average daily volume up to 
5 million shares and $0.000025 for average daily volume above 5 million 
shares.
    Rule 11.10(A)(i), ``Member Gross Fee Discounts,'' is deleted in 
light of the other fee reductions implemented in this filing.
    In addition, the Exchange is amending Rules 11.10(A)(j) and (k) by 
adding a provision to each clarifying that to the extent CSE market 
data revenue is subject to a year-end adjustment, revenues distributed 
to members is subject to adjustment accordingly. This Exchange believes 
that this provision will ensure that member receipts of market data 
revenue are consistent with the year-end true-up procedures applied by 
the Consolidated Tape Association and the Nasdaq-UTP Plan.
    The Exchange is eliminating Rule 11.10(A)(l) because of the 
Commission's abrogation of the Exchange's pilot Nasdaq securities 
market data revenue sharing program.\7\ However, the Exchange is 
reserving Rule 11.10(A)(l) should the Exchange refile its Nasdaq 
revenue sharing program. Finally, the Exchange is amending Rule 
11.10(A)(o) to increase the Exchange's technology fee from $500 per 
month to $750 per month and is adding Rule 11.10(A)(r) to establish a 
fee of $500 per month for access to the Exchange's workstation, which 
was recently introduced to members.
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    \7\ See Securities Exchange Act Release No. 46159 (July 2, 
2002), 67 FR 45775 (July 10, 2002) (Order of Summary Abrogation). 
The Commission notes that the proposed rule change will effectively 
remove transaction fees for non-Dealer members of CSE, including 
ECNs, who execute crosses or meets in Tape C securities.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \8\ in general, and with section 6(b)(5) of the 
Act \9\ specifically, in that it is designed to perfect the mechanism 
of a free and open market and a national market system, protect 
investors and the public interest and promote just and equitable 
principles of trade. The Exchange also believes that the proposal is 
consistent with section 6(b)(4) of the Act \10\ in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among Exchange members by charging on a pro rata basis.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CSE 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.

[[Page 65818]]

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

    Because the foregoing proposed rule change changes a member due, 
fee or other charge, it has become effective pursuant to section 
19(b)(3)(A) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4\12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
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    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.\13\
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    \13\ 15 U.S.C. 78s(b)(3)(C).
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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 20549-0609. 
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 
CSE. All submissions should refer to File No. SR-CSE-2002-14 and should 
be submitted by November 18, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-27300 Filed 10-25-02; 8:45 am]
BILLING CODE 8010-01-P