[Federal Register Volume 68, Number 174 (Tuesday, September 9, 2003)]
[Notices]
[Pages 53206-53209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22856]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48428; File No. SR-CHX-2003-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Stock Exchange, Inc., Relating to Membership Dues and Fees

September 2, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 53207]]

(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 30, 2003, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which the CHX has prepared. On August 22, 2003, the CHX 
filed Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, has been filed by Phlx under Rule 19b-4(f)(2) under 
the Act.\4\ 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 letter from Ellen J. Neely, Senior Vice President and 
General Counsel, CHX to Nancy J. Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated August 20, 2003 (``Amendment 
No. 1''). In Amendment No. 1, the CHX submitted a new Form 19b-4, 
which replaced the original filing in its entirety.
    \4\ 17 CFR 240.19b-4(f)(2). For purposes of calculating the 
sixty-day period within which the Commission may summarily abrogate 
the proposed rule change under Section 19(b)(3)(C) of the Act, the 
Commission considers that period to commence on August 22, 2003, the 
date CHX filed Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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 
(the ``Fee Schedule''), effective August 1, 2003, to (1) modify the Fee 
Schedule by reducing transaction fees for executions through floor 
brokers (and market makers) that exceed specific thresholds, while 
eliminating the caps previously associated with those transaction fees; 
(2) re-bill fees associated with the use of the NYFIX system \5\ that 
exceed $15,000 each month to floor brokers, based on their use of the 
system; and (3) modify the floor broker earned credit program to permit 
floor brokers to receive additional earned credits if certain events 
occur.
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    \5\ NYFIX USA, LLC provides equipment, software and network 
services that route orders among subscribers to the system and that 
help subscribers manage the orders they receive.
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    The text of the proposed rule change is below. Proposed additions 
are in italics and proposed deletions are in [brackets].
MEMBERSHIP DUES AND FEES
* * * * *

 
F. Transaction and Order Processing Fees
1.-3.(No change to text)
4. Transaction Fees
    a.-d.(No change to text).
    e. In Nasdaq/NM securities, agency executions executed through a  $.0025 per share (up to a maximum of $100
     floor broker and market maker executions.                         per side), subject to the fee reduction
                                                                       described in (i), below.
    f. In Dual Trading System issues, agency executions executed      $.0035 per share (up to a maximum of $100
     through a floor broker and market maker executions.               per side), subject to the fee reduction
                                                                       described in (i), below.
    g. (No change to text)
    h. [Effective January 1, 2003,] The monthly maximum[s] for
     transaction fees for orders sent via MAX is $10,000 or, if
     less, $.40 per 100 average monthly gross round lot shares.
 


 
        [(1) Maximum monthly transaction fees for orders via MAX]                                      [$10,000]
        [(2) Maximum monthly transaction fee for transactions in NASDAQ/NMS Securities (other         [$110,000]
         than transactions included in (1) above)]
        [(3) Maximum monthly transaction fee for transactions in Dual Trading System Securities       [$110,000]
         (other than transactions included in (1) above)]
        [(4) Maximum monthly transaction fees shall not exceed the lesser of that specified in
         (1), (2) or (3) above, or $.40 per 100 average monthly gross round lot shares.]
    i. Effective August 1, 2003, the per-share fees described in (e) and (f) above will be
     reduced on shares traded above a total monthly charge of $150,000 (within each section) as
     follows:
        Fees are reduced by 25% on additional shares traded that would otherwise generate a
         total monthly charge above $150,000 and below $200,000;
        Fees are reduced by 50% on additional shares traded that would otherwise generate a
         total monthly charge at or above $200,000 and below $250,000; and
        Fees are reduced by 75% on additional shares traded that would otherwise generate a
         total monthly charge at or above $250,000.
                                                  * * * * * * *
 


                            H. Equipment, Information Services and Technology Charges
 
                                                  * * * * * * *
NYFIX Network and Connection Charges                         All NYFIX charges above $15,000 per month will be
                                                              re-billed monthly to member firms that access the
                                                              NYFIX network, based on the proportion of each
                                                              firm's use of the network during the month.
                                                  * * * * * * *
M. Credits
 
1. (No change to text)
2. Floor Broker Credits
    a. Earned Credits. Total monthly fees owed by a floor broker to the Exchange will be reduced by the
     application of the following Earned Credit (and floor brokers will be paid each month for any unused
     credits):
        Earned Credit--Average Daily Billable Shares x Average Rate per Billable Share x Credit Percentage x 8.
        In calculating the above Earned Credit, the following definitions shall apply:
            ``Average Daily Billable Shares'' means, for a given month, (i) Total Billable Shares in Month
             divided by (ii) Total Trading Days in Month.

[[Page 53208]]

 
            ``Total Billable Shares in Month'' means, for a given month, the total number of shares executed on
             the Exchange by the floor broker for which the Exchange received a transaction fee. Any share
             executed for which the Exchange did not receive a transaction fee shall not be considered a
             billable share.
            ``Total Trading Days in Month'' means, for a given month, the number of business days that the
             Exchange was open for business during the month. Days in which the Exchange closes early, due to a
             holiday or otherwise, shall nonetheless be considered a day that the Exchange is open for business.
            ``Average Rate per Billable Share'' means, for a given month, (i) the total dollar amount of
             transaction fees received by the Exchange for trades executed on the Exchange by the floor broker
             divided by (ii) Total Billable Shares in Month.
            ``Credit Percentage'' means the applicable percentage taken from the following table:
 


 
Average Daily Billable Shares.   0-49,999     50,000-99,999    100,000-499,999  500,000 shares or more.
 


 
Average Rate per Billable Share.........  Less than $.0040..............       20%       30%       40%       50%
                                          $.0040-$.0055.................       40%       45%       60%       75%
                                          Greater than $.0055...........       40%       60%       80%      100%
 

    In any month that the Exchange's Total Billable Shares in Month for 
all floor brokers exceeds the Exchange's monthly average billable 
shares for all floor brokers for the first quarter of 2003, the 
Exchange will distribute 50% of the incremental transaction fee revenue 
received by the Exchange resulting from that increase in the number of 
billable shares (the ``Additional Revenue''). The Additional Revenue 
will be distributed to each floor broker in proportion to the floor 
broker's share of that month's incremental increase in billable shares. 
(Effective August 1, 2003)
    The Earned Credit (together with any Additional Revenue) calculated 
above for each floor broker shall be decreased by an amount equal to 
that floor broker's ``Credit Reduction Charge,'' which shall be 
calculated as follows:

(Floor Broker's Monthly Earned Credit / Total CHX Monthly Earned 
Credits) x Exchange Baseline [$50,000] = Floor Broker's Credit 
Reduction Charge.

    The ``Exchange Baseline'' means, for a given month, $50,000 less 
any additional revenues (up to $50,000) realized by the Exchange as a 
result of the elimination of the monthly caps in August 2003 (SR-CHX-
2003-22).
* * * * *

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 on 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 proposed rule change amends the CHX Fee Schedule in several 
ways. First, the proposal revises the Exchange's fees for agency 
transactions executed through floor brokers in both over-the-counter 
(``OTC'') and listed securities by reducing transaction fees for 
executions that exceed specific thresholds and eliminating the caps 
associated with those fees.\6\ Specifically, the proposal reduces the 
per share fees on shares traded above a total monthly charge of 
$150,000 by the following percentages: (1) 25% on additional shares 
traded that would otherwise generate a total monthly charge above 
$150,000 and below $200,000; (2) 50% on additional shares traded that 
would otherwise generate a total monthly charge at or above $200,000 
and below $250,000; and (3) 75% on additional shares traded that would 
otherwise generate a total monthly charge at or above $250,000. At the 
same time, the Exchange is eliminating the caps that were previously 
associated with these transaction fees.\7\
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    \6\ This proposed rule change also affects the fees charged to 
market makers for their executions on the Exchange.
    \7\ The Exchange previously had separate $110,000 per month caps 
on transaction fees generated through orders executed, other than 
through the Midwest Automated Execution System (``MAX'') in OTC and 
listed securities.
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    Another change to the Fee Schedule allows the Exchange to re-bill 
its floor brokers a portion of the network and connection costs 
associated with providing access to the NYFIX system, which can be used 
to deliver orders to the trading floor for handling by CHX floor 
brokers. The Exchange will pay the first $15,000 each month associated 
with the use of this system. The Exchange's floor brokers will be 
assessed any remaining costs, based on the proportion of each firm's 
use of the network during the month.
    Finally, the proposal modifies the floor broker earned credit 
program to permit floor brokers to receive additional earned credits if 
either (a) the number of overall billable shares executed by floor 
brokers at the Exchange increases in a month over the average number of 
billable shares executed in a month by floor brokers at the Exchange in 
the first quarter of 2003 or (b) the Exchange recognizes additional 
revenues from the changes it has made to its transaction fee schedule 
as part of this submission. If the number of overall billable shares 
executed by floor brokers reaches the threshold described above (i.e., 
it exceeds the average number of billable shares executed by floor 
brokers during a month in the first quarter of 2003), the Exchange will 
distribute 50% of the incremental transaction fee revenue that results 
from that increase in the number of billable shares.\8\ In addition, if 
the Exchange recognizes additional transaction fee revenues in a 
particular month as the result of the transaction fee changes it has 
made in this submission, those revenues will be used to reduce the 
``credit reduction charge'' that now serves to decrease the earned 
credits available to floor brokers.\9\
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    \8\ This additional revenue will be distributed to each floor 
broker in proportion to the floor broker's share of that month's 
incremental increase in billable shares.
    \9\ The Exchange implemented the credit reduction charge in 
September 2002. See Securities Exchange Act Release No. 46592 
(October 2, 2002), 67 FR 62999 (October 9, 2002) (SR-CHX-2002-28).
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    All of these fee changes took effect August 1, 2003. Among other 
things, the fee changes are designed ultimately to increase the 
Exchange's trading volume in securities traded by its floor brokers and 
to increase the Exchange's revenues. The Exchange believes that these 
changes reflect a reasonable allocation of dues, fees and other

[[Page 53209]]

charges among its members and that they permit the Exchange's floor 
brokers to participate in an earned credit program that provides 
increased, but not unlimited, opportunities to share in certain of the 
Exchange's revenues that arise from their trading activities.
2. Statutory Basis
    The CHX believes that its proposal is consistent with Section 6(b) 
of the Act \10\ in general, and furthers the objectives of Section 
6(b)(4) of the Act \11\ in particular, in that it provides for the 
equitable allocation of reasonable fees among its members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CHX does not believe that the proposed rule change, as amended, 
will 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 on the Proposed 
Rule Change Received From Members, Participants, or Others

    The CHX neither solicited nor received written comments concerning 
the proposed rule change, as amended.

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the CHX, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(2) 
\13\ thereunder. At any time within 60 days after the submission of the 
proposed 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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, as amended, 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 
filings will also be available for inspection and copying at the 
principal office of the CHX. All submissions should refer to File No. 
SR-CHX-2003-22 and should be submitted by September 30, 2003.

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-22856 Filed 9-8-03; 8:45 am]
BILLING CODE 8010-01-P