[Federal Register Volume 68, Number 92 (Tuesday, May 13, 2003)]
[Notices]
[Pages 25667-25669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11881]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47800; File No. SR-CHX-2003-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to 
Execution of Resting Limit Orders Following a Primary Market Block 
Trade-Through

May 6, 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 March 24, 2003, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in items I, II and III below, which items have been prepared by the 
self-regulatory organization. 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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[[Page 25668]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Article XX, rule 37 of the CHX 
rules, which governs, among other things, execution of resting limit 
orders following a block trade-through in the primary market. The text 
of the proposed rule change is available at the Commission or 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 regarding 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 is proposing to amend Article XX, rule 37 of the CHX 
rules, which governs, among other things, execution of resting limit 
orders following a block trade-through in the primary market. Under 
existing Exchange rules relating to listed securities, whenever a block 
trade \3\ in the primary market trades through a CHX specialist's 
quote, the specialist must execute all limit orders in the book (that 
are priced at the block price or better) at the block price.\4\
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    \3\ A block trade is a trade that involves (a) a trade of 
``block size'' (10,000 shares or more, or with a market value of 
$200,000 or more); and (b) either (i) a cross of block size (where a 
single firm represents all of one side of the transaction and all or 
a portion of the other side) or (ii) any other transaction where a 
single firm represents an order of block size on only one side of 
the transaction, so long as the transaction does not occur at the 
Exchange's current bid or offer. At the time a transaction occurs on 
another market, the CHX can determine whether it is a block size 
trade; the CHX does not yet know, however, which firms were on which 
sides of the transaction and therefore cannot then determine whether 
it meets the other requirements of a block trade.
    \4\ See CHX Article XX, rule 37(a)(3).
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    The CHX believes that this requirement was likely instituted as a 
marketing tool to attract new customers when trading occurred in much 
larger variations and trading on regional exchanges was somewhat less 
common. Today, trading on regional exchanges is not a new phenomenon. 
Moreover, the CHX represents that because the vast majority of block 
trades are not identified as such when they occur, it is impossible for 
a specialist to know, at the time of a particular block-size trade-
through, whether or not limit orders must be filled at the block price. 
As a result, the specialist often fills the orders at the limit price 
and adjusts them to the better block price when it is confirmed that a 
block trade occurred. The Exchange represents that the practice of 
manually correcting execution prices is a large inconvenience to some 
key CHX order-sending firms, which must send out two trade 
confirmations to each customer `` one that is generated as soon as the 
trade occurs and a second to reflect the corrected execution price.
    The delays associated with confirming the appropriate execution 
price for orders subject to this requirement are not appropriate in the 
fast-paced, automated markets that exist today. Therefore, the CHX is 
proposing to eliminate the requirement that a CHX specialist fill 
resting limit orders at the block price following a block trade trade-
through in the primary market.\5\ Recognizing that many specialists may 
wish to continue filling such limit orders at the block price as a 
customer service accommodation, however, the proposed rule change would 
permit a CHX specialist to continue to have the option to engage an 
existing functionality of the Exchange's MAX automatic execution system 
that automatically executes designated limit orders at the block price 
when a block size trade-through occurs in the primary market.\6\
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    \5\ If, however, a specialist is representing an order in his or 
her quote that is traded through by a block trade from another 
market, and the specialist receives satisfaction from the other 
market, the specialist must give the higher price to the customer 
order.
    \6\ This functionality was approved by the Commission and 
implemented in early January of 2003. See Securities Exchange Act 
Release No. 47068 (December 20, 2002), 67 FR 79671 (December 30, 
2002).
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2. Statutory Basis
    The proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder that are applicable to a 
national securities exchange, and, in particular, with the requirements 
of section 6(b) of the Act.\7\ In particular, the proposed rule is 
consistent with section 6(b)(5) of the Act \8\ in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments and to 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of 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 Regarding 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 self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No.

[[Page 25669]]

SR-CHX-2003-08 and should be submitted by June 3, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 9 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11881 Filed 5-12-03; 8:45 am]
BILLING CODE 8010-01-P