[Federal Register Volume 68, Number 12 (Friday, January 17, 2003)]
[Notices]
[Pages 2597-2599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1053]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47163; File No. SR-CHX-2002-39]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc. Relating to Membership Dues and Fees

January 10, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice hereby is given that 
on December 30, 2002, the Chicago Stock Exchange, Inc. (``CHX'') filed 
with the Securities and Exchange Commission the proposed rule change as 
described in Items I, II and III below, which the CHX has prepared. 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.
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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 
effective through December 31, 2003, to provide for continued 
assessment of a marketing fee in instances where transactions in a 
subject issue meet certain criteria, described below. The text of the 
proposed rule change is available at the CHX and at the Commission.

[[Page 2598]]

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 CHX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received regarding the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The CHX 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

Purpose
    The proposed change to the CHX fee schedule would provide for 
continued assessment of a marketing fee, in an amount equal to $.01 per 
share, applicable to transactions occurring on or before December 31, 
2003. The marketing fee would apply only to ``Subject Transactions'' 
\3\ in ``Subject Issues'' \4\ and would not be assessed if the 
specialist trading the Subject Issue elected to forego collection of 
the marketing fee.
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    \3\ ``Subject Transaction'' means (a) any trade with a customer, 
whether the contra party is a specialist or a market maker, where 
the order is delivered to the CHX via the MAX system or where 
compensation is paid to induce the routing of the order to the CHX; 
or (b) any trade between a specialist and a market maker in which 
the market maker is exercising rights under the market maker 
entitlement rules.
    \4\ ``Subject Issue'' means any issue which constitutes an 
exchange-traded fund and meets the following two criteria: (a) 
average daily share volume in the issue exceeds 150,000 shares each 
month during a consecutive two month period; and (b) market maker 
share participation in the same issue exceeds 5% for each month 
during the same two-month period.
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    The CHX currently assesses a marketing fee under a provision of the 
CHX fee schedule that, by its terms, expires on December 31, 2002.\5\ 
Under the system currently in place, the CHX calculates, bills, and 
collects the marketing fee and remits the proceeds to the specialist 
firm trading the Subject Issue. The specialist firm then distributes 
the funds to order-sending firms in accordance with its payment-for-
order flow arrangements relating to the Subject Issue (and possibly 
also to market makers who contribute to market share growth in certain 
instances).\6\ The remaining undistributed funds in excess of $1000 are 
refunded, on a quarterly basis, to the paying parties pro rata, in 
proportion to the fees they have paid.
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    \5\ See Securities Exchange Act Release No. 44646 (August 2, 
2001), 66 FR 41641 (August 8, 2001) (SR-CHX-2001-10) (announcing 
immediate effectiveness of the new marketing fee provision to the 
CHX fee schedule through December 31, 2001); Securities Exchange Act 
Release No. 45282 (January 15, 2002), 67 FR 3517 (January 24, 2002) 
(SR-CHX-2001-30) (extending program through June 30, 2002); 
Securities Exchange Act Release No. 46233 (July 19, 2002), 67 FR 
48960 (July 26, 2002) (SR-CHX-2002-19) (extending program through 
July 31, 2002); and Securities Exchange Act Release No. 46297 
(August 1, 2002) 67 FR 51612 (August 8, 2002) (SR-CHX-2002-25) 
(extending program through December 31, 2002).
    \6\ See Securities Exchange Act Release No. 44646 (August 2, 
2001), 66 FR 41641 (August 8, 2001) (SR-CHX-2001-10) (describing 
potential arrangements between specialists and market makers). 
According to the CHX, no such arrangements are currently in place. 
Conversation between Kathleen M. Boege, Associate General Counsel, 
CHX, and Gail Fortson, Paralegal Specialist, Division of Market 
Regulation, Commission, on January 10, 2003.
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    The CHX notes that the proposed marketing fee provision does not 
differ from the previous versions, except that it would extend 
application of the marketing fee through December 31, 2003. The CHX 
intends that the continued imposition of the marketing fee will 
allocate equitably the financial burden of seeking order flow for 
Subject Issues. According to the CHX, in the absence of the marketing 
fee the CHX specialist trading a Subject Issue is the sole bearer of 
the often substantial costs associated with attracting order flow to 
the CHX, as well as the licensing fees that the licensor of the product 
imposes.\7\ CHX market makers participating in transactions in Subject 
Issues, conversely, do not currently share any of these costs. The 
proposed rule change would allow a specialist trading a Subject Issue 
to elect or decline imposition of the marketing fee depending on 
whether the specialist believes it is appropriate for a part of the 
financial burden of trading the Subject Issue to be allocated among 
those trading the Subject Issue. The CHX anticipates that the proposed 
rule change will continue to provide specialists trading Subject Issues 
with sufficient incentive to continue their efforts to attract 
additional order flow and increase market share.
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    \7\ The CHX's marketing fee program applies only to exchange-
traded fund products, which virtually always have an associated 
licensing fee. Currently, the marketing fee is assessed only against 
the Nasdaq-100 Index exchange-traded fund, commonly known as 
``QQQ.''
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Statutory Basis
    The CHX believes that 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 of Burden on Competition

    The CHX believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    The CHX has not received any written comments with respect to the 
proposed extension of the marketing fee program.

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

    The foregoing rule change establishes or changes a due, fee, or 
other CHX charge and therefore has become effective pursuant to section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(2) thereunder.\10\ At any 
time within 60 days after the filing of the rule change, the Commission 
may summarily abrogate the 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).
    \10\ 17 CFR 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 at the 
Commission's Public Reference Room. Copies of the filing will also be 
available for inspection and copying at the principal office of the 
CHX. All submissions should refer to File No.

[[Page 2599]]

SR-CHX-2002-39 and should be submitted by February 7, 2003.

    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. 03-1053 Filed 1-16-03; 8:45 am]
BILLING CODE 8010-01-P