[Federal Register Volume 68, Number 50 (Friday, March 14, 2003)]
[Notices]
[Pages 12396-12397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6130]



[[Page 12396]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47468; File No. SR-CHX-2003-03]


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

March 7, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and rule 19b-4 thereunder,\2\ notice hereby is given 
that on February 26, 2003, 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 March 1, 2003, to change the criteria under which its 
existing marketing fee would be assessed. 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 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

1. Purpose
    The CHX currently assesses a marketing fee under a provision of the 
CHX fee schedule that, by its terms, expires on December 31, 2003.\3\ 
The proposed change to the CHX fee schedule would modify, effective 
March 1, 2003, the criteria that govern the assessment of the CHX's 
marketing fee.
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    \3\ 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); 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); and Securities Exchange Act 
Release No. 47163 (January 10, 2003), 68 FR 2597 (January 17, 2003) 
(CHX-2002-39) (extending program through December 31, 2003).
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    The CHX's marketing fee currently is assessed, in an amount equal 
to $.01 per share, when ``Subject Transactions''\4\ in ``Subject 
Issues'' occur on the CHX's trading floor. A ``Subject Issue'' is any 
exchange-traded fund where (a) the 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 issue exceeds 5% 
for each month during the same two-month period.
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    \4\ ``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 Exchange via the MAX system or where 
compensation is paid to induce the routing of the order to the 
Exchange; 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.
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    The CHX proposes to change the definition of Subject Issue by 
reducing the required market maker share participation from 5% to 1% of 
the shares traded in an issue. According to the CHX, when the marketing 
fee was initially adopted, the 5% market-maker participation threshold 
was included to minimize the administrative burden on the CHX by 
reducing the likelihood of issues sporadically and temporarily 
qualifying for the program.\5\ The CHX now believes, however, that the 
5% threshold may soon have the unintended consequence of sporadically 
and temporarily excluding from the program an exchange-traded fund 
(``ETF'') that has qualified for the program every month since the 
program began. While the CHX continues to believe that some minimum 
thresholds are needed, it proposes to reduce the monthly market-maker 
participation threshold to 1%. The CHX believes that this change will 
reduce the possibility that an ETF that consistently qualifies for the 
program might on occasion become temporarily disqualified and thereby 
increase an administrative burden that the threshold was designed to 
mitigate.
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    \5\ In administering the program, the CHX must identify the 
issues and transactions covered by the fee, assess and collect the 
fee from CHX members, distribute the fee to the appropriate 
specialist firms and, where necessary, refund undistributed fees to 
the firms that have paid them. When issues move into and out of the 
program, the CHX is required to re-tool its systems that identify 
Subject Transactions and make other changes in its administrative 
procedures.
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    It is the CHX's intention that the marketing fee will equitably 
allocate the financial burden of seeking order flow for Subject Issues. 
According to the CHX, without the marketing fee, the CHX specialist 
trading a Subject Issue would be the sole bearer of the often-
substantial costs associated with attracting order flow to the CHX, as 
well as licensing fees assessed by the licensor of the product.\6\ 
Conversely, according to the CHX, market makers participating in 
transactions in Subject Issues do not currently share any of these 
costs. The proposed rule change would allow a specialist trading a 
Subject Issue to elect (or decline) assessment of the marketing fee in 
instances where the specialist believes that it is appropriate for at 
least a part of the financial burden of trading the Subject Issue to be 
allocated among those trading the Subject Issue. The CHX believes that 
the proposed rule change will 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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    \6\ The marketing fee is assessed only against ETF products, 
which often have an associated licensing fee.
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2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
Section 6(b)(4) of the Act \7\ because it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.
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    \7\ 15 U.S.C. 78(f)(b)(4).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The CHX does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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 this 
change to the marketing fee.

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

    The foregoing rule change has become effective pursuant to section 
19(B)(3)(A)

[[Page 12397]]

of the Act \8\ and rule 19b-4(f)(2) thereunder \9\ because it 
establishes or changes a due, fee or other charge imposed by the CHX. 
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 purpose of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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 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. SR-CHX-2003-03 and should 
be submitted by April 4, 2003.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6130 Filed 3-13-03; 8:45 am]
BILLING CODE 8010-01-P