[Federal Register Volume 68, Number 176 (Thursday, September 11, 2003)]
[Notices]
[Page 53625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23154]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48447; File No. SR-CHX-2003-15]


Self-Regulatory Organizations; The Chicago Stock Exchange, 
Incorporated; Order Granting Approval to Proposed Rule Change to Amend 
the CHX Membership Dues and Fees Schedule to Increase the Specialist 
Tape Credits for Certain Trades in Tape A and Tape B Securities

September 4, 2003.

I. Introduction

    On June 2, 2003, The Chicago Stock Exchange, Incorporated (``CHX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to increase the specialist tape credits for 
certain trades in Tape A and Tape B securities. The proposed rule 
change was published for comment in the Federal Register on June 30, 
2003.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 48076 (June 23, 
2003), 68 FR 38732.
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    The Commission received one comment on the proposal.\4\ On August 
11, 2003, the CHX responded to the comment letter.\5\ This order grants 
approval to the proposed rule change.
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    \4\ See July 22, 2003 letter from Darla C. Stuckey, Corporate 
Secretary, New York Stock Exchange, Inc. (``NYSE''), to Jonathan G. 
Katz, Secretary, Commission (``NYSE Letter'').
    \5\ See August 11, 2003 letter from Ellen J. Neely, Senior Vice 
President and General Counsel, CHX, to John S. Polise, Senior 
Special Counsel, and Joseph P. Morra, Special Counsel, Division of 
Market Regulation, Commission (``CHX Letter'').
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II. Summary of Comments

    The NYSE expressed its opposition to ``all market data rebates and 
other forms of payment for order flow'' as being inconsistent with the 
Act and the protection of investors.\6\ The NYSE stated that the CHX 
``currently rebates nothing for trades in Nasdaq securities, rebates as 
much as 50 percent of market data revenues for trades in Tape B 
securities, and rebates more than 50 percent of market data revenues 
for certain trades in Tape A securities.'' The proposed rule change, 
according to the NYSE, ``would exacerbate this disparity, permitting 
CHX to provide greater economic incentives to specialist firms to 
purchase Tape A order flow than to purchase Nasdaq and Tape B order 
flow.'' \7\ Because the CHX offers ``no rationale for different rebate 
levels based on the market on which a security is listed'' the NYSE 
asks the Commission to institute disapproval proceedings with respect 
to the proposed rule change.\8\
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    \6\ NYSE Letter at 2.
    \7\ Id.
    \8\ Id.
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    In its response to the NYSE Letter, the CHX states that its rules 
with regard to market data revenue sharing programs are consistent with 
Commission staff guidance.\9\ Additionally, the CHX explains that its 
Tape A credit program ``provides only the possibility of a 70% tape 
credit'' and that the rates delineated in the CHX's fee schedule ``are 
marginal rates and thus apply only to those transactions that exceed 
identified thresholds.'' \10\ Furthermore, the CHX states its market 
share in Tape A issues has declined, and that it shared ``less than 20% 
of its overall Tape A market data revenues with Exchange specialists'' 
in June 2003.\11\
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    \9\ CHX Letter at 2.
    \10\ Id.
    \11\ Id.
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III. Discussion and Commission Findings

    As set forth in its July 2, 2002 Order of Summary Abrogation 
(``Abrogation Order''),\12\ the Commission will continue to examine the 
issues surrounding market data fees, the distribution of market data 
rebates, and the impact of market data revenue sharing programs on both 
the accuracy of market data and on the regulatory functions of self-
regulatory organizations. In the interim, the Commission believes it is 
reasonable to allow the CHX to modify the tape credits available to CHX 
specialists for trades in Tape A and Tape B securities as described in 
the instant proposed rule change.
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    \12\ Securities Exchange Act Release No. 46159 (July 2, 2002), 
67 FR 45775 (July 10, 2002) (File Nos. SR-NASD-2002-61, SR-NASD-
2002-68, SR-CSE-2002-06, and SR-PCX-2002-37) (Order of Summary 
Abrogation).
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    Thus, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
\13\ and, in particular, the requirements of section 6 of the Act \14\ 
and the rules and regulations thereunder. The Commission finds 
specifically that the proposed rule change is consistent with section 
6(b)(5) of the Act,\15\ in that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating securities transactions, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5)
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    The decision to allow the CHX to increase the tape credits for 
trades in Tape A and Tape B securities, however, is narrowly drawn, and 
should not be construed as resolving the issues raised in the 
Abrogation Order, and does not suggest what, if any, future actions the 
Commission may take with regard to market data revenue sharing 
programs.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\16\, that the proposed rule change (SR-CHX-2003-15) be, and it hereby 
is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-23154 Filed 9-10-03; 8:45 am]
BILLING CODE 8010-01-P