[Federal Register Volume 67, Number 228 (Tuesday, November 26, 2002)]
[Notices]
[Pages 70793-70794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46848; File No. SR-CSE-2002-16]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Cincinnati Stock Exchange, Inc., To Establish a Pilot Liquidity 
Provider Fee and Rebate for Intra-CSE Trading in Nasdaq Securities

November 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 October 22, 2002, The Cincinnati Stock Exchange, Inc. (``CSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change, as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
November 13, 2002 the CSE amended the proposed rule change.\3\ The 
Exchange filed this proposal pursuant to Section 19(b)(3)(A)(ii) of the 
Act \4\ and Rule 19b-4(f)(2)\5\ thereunder, which renders the proposal 
effective upon filing with the Commission. 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 November 12, 2002 letter from Jennifer M. Lamie, 
Esquire, CSE, to Katherine England, Assistant Director, Divison of 
Market Regulation, Commission (``Amendment No. 1''). In Amendment 
No. 1, the CSE changed the expiration date of the pilot program from 
October 31, 2003 to March 31, 2003. For purposes of calculating the 
60-day abrogation period, the Commission considers the period to 
have commenced on November 13, 2002, the date the CSE filed 
Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 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 its schedule of transaction fees to 
establish an incentive for providing liquidity on the CSE. The text of 
the proposed rule change is below. Proposed additions are in italics. 
Proposed deletions are in brackets.

Chapter XI

Trading Rules
Rule 11.10 National Securities Trading System Fees
    A. Trading Fees
    (a)-(f) No change to text
    (g) Proprietary (principal) Transactions
    (1)(A) All Designated Dealers in securities other than Nasdaq 
securities, except those acting as Preferencing Dealers or Contributing 
Dealers, will be charged $0.0025 per share ($0.25/100 shares) for 
principal transactions [including ITS transactions].
    (1)(B) For a pilot period commencing October 1, 2002 and lasting 
until March 31, 2003, CSE members that execute orders in Nasdaq 
securities against previously displayed quotes/orders of other CSE 
members shall pay $0.004 per share for such execution. The Exchange 
shall pass on to the CSE member displaying the quote/order executed 
against $0.003 per share and the Exchange shall retain $0.001 per 
share.
    (2)-(4) No change to text
    (h)-(r) No change to text
* * * * *

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 CSE proposes to establish a pilot transaction credit for 
liquidity providers that is paid by liquidity takers on each intra-CSE 
execution in Nasdaq securities. By ``intra-CSE execution'' the CSE 
means any transaction that is executed on the CSE for which the 
executing member on the buy-side of the transaction differs from the 
executing member on the sell-side of the transaction. The CSE believes 
that the proposed rule accomplishes two strategic objectives: (1) It 
resolves the issue of member-to-member access fees; and (2) it provides 
an incentive for members to display orders in the CSE, thereby 
increasing the liquidity available to investors.
    The CSE currently does not permit members to charge other members 
for intra-CSE trades executed through CSE systems. Unlike the Nasdaq

[[Page 70794]]

environment, the CSE does not permit some members to charge for access 
to their liquidity while restricting others from doing so. Recognizing, 
however, that new CSE members may wish to continue being compensated 
for providing liquidity, i.e., displaying orders on the CSE, the CSE 
proposes a mechanism whereby all CSE members active in the trading of 
Nasdaq securities, whether alternative trading systems or traditional 
market makers, will benefit by displaying orders on the CSE. In this 
manner, the CSE will provide equal regulation of its members, while 
promoting the growth of liquidity on the CSE.
    Specifically, the CSE proposes to amend CSE Rule 11.10(g)(1) to 
establish a Liquidity Provider Fee for intra-CSE executions of Nasdaq 
securities. Currently, CSE Rule 11.10(g)(1) provides that Designated 
Dealers, except those acting as Preferencing Dealers or Contributing 
Dealers, will be charged $0.0025 per share for principal transactions, 
including Intermarket Trading System transactions. The $0.0025 per 
share charge is applied to both sides of the Dealer-to-Dealer 
transaction, thereby generating $0.005 per share for the CSE. The 
Exchange is amending this provision by adding subparagraph (B) to 
charge the liquidity taker, i.e., the party executing through CSE 
systems against a previously displayed quote/order, $0.004 per share. 
The Exchange will then pass on to the liquidity provider, i.e., the 
party providing the displayed quote/order, $0.003 per share with the 
Exchange retaining $0.001 per share.
    By adding CSE Rule 11.10(g)(1)(B), the Exchange is limiting the 
Liquidity Provider Fee to Nasdaq securities traded on the CSE, i.e., 
Tape C securities, as defined under CSE Rules. While the Liquidity 
Provider Fee represents a reduction in the revenues received by the 
Exchange per intra-CSE transaction in Nasdaq securities, the CSE 
believes that the fee will provide an incentive for CSE members to 
provide liquidity, and therefore, will generate increased volume for 
the CSE. The pilot program commenced on October 1, 2002, and will 
expire on March 31, 2003, if not renewed.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general, and furthers the objectives of 
Section 6(b)(5) \7\ in particular, in that it is designed to promote 
just and equitable principles of trade and to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, generally, in that it protects investors and the public 
interest. The CSE believes the proposed rule change is also consistent 
with Section 6(b)(4) of the Act,\8\ in that it is designed to provide 
for the equitable allocation of reasonable, dues, fees, and other 
charges among CSE members by crediting members on a pro rata basis.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(6).
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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 in connection with 
the proposed rule change.

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 member 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 C.F.R. 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 20549-0609. 
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-CSE-2002-16 
and should be submitted by December 17, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29946 Filed 11-25-02; 8:45 am]
BILLING CODE 8010-01-P