[Federal Register Volume 68, Number 210 (Thursday, October 30, 2003)]
[Notices]
[Pages 61843-61844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27344]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48680; File No. SR-CHX-2003-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Interpretation by the Chicago Stock 
Exchange, Incorporated Relating to Execution of Limit Orders for OTC 
Securities

October 22, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 6, 2003, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule interpretation as 
described in Items I, II and III below, which Items have been prepared 
by the Exchange. 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 Exchange is submitting an interpretation of existing CHX 
Article XX, Rule 37(a)(3), which provides for execution of resting CHX 
customer limit orders for Nasdaq/NM (``OTC'') securities, when the 
quotation of a Designated Market (as defined below) locks or crosses 
the limit price.

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 
interpretation and discussed any comments it received regarding the 
proposal. 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 Exchange is proposing an interpretation of existing CHX Article 
XX, Rule 37(a)(3), which provides for execution of resting CHX customer 
limit orders for OTC securities, when the quotation of a Designated 
Market locks or crosses the limit price.
    In June of 2003, the Commission noticed a proposal submitted for 
immediate effectiveness, which amended CHX Article XX, Rule 37(a)(3), 
to add a provision that would permit a CHX specialist to enable a 
functionality that would automatically execute designated limit orders 
for OTC securities when the quotation of a Designated Market locked or 
crossed the limit price.\3\ The rule change defined ``Designated 
Market'' as ``the market center designated by the CHX specialist, and 
approved by the Exchange.''
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    \3\ See Securities Exchange Act Release No. 48014 (June 11, 
2003), 68 FR 35923 (June 17, 2003) (File No. SR-CHX-2003-05).
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    The rule change was intended by the Exchange to provide OTC 
specialists with a long-standing functionality available to limit 
orders for listed securities; such limit orders generally are entitled 
to a fill at the limit price if a price penetration (i.e., trade-
through) or certain other conditions occur in the primary market. 
Because there is no primary market for OTC securities, however, the CHX 
proposed a rule change that would permit designation of particular OTC 
market center(s) as the basis for the CHX specialist's limit order 
protection.
    As set forth in submission SR-CHX-2003-05, initially, all CHX 
specialists designated the NASDAQ Stock Market as the ``Designated 
Market'' for purposes of amended CHX Article XX, Rule 37(a)(3). After 
initial implementation of the OTC limit order protection functionality, 
the Exchange's OTC specialist community has elected to designate 
additional OTC markets as Designated Markets. Specifically, the 
Exchange's OTC specialists wish to expand their designation to include 
all current UTP Plan Participants \4\ and the Alternative Display 
Facility operated by the National Association of Securities Dealers. 
These OTC markets would be considered Designated Markets, along with 
the NASDAQ Stock Market. The Exchange believes that identification of 
additional OTC markets as ``Designated Markets'' is appropriate, 
because it will result in the automatic execution of more limit orders 
on the CHX, to the benefit of the investing public.
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    \4\ The ``Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis'' (the ``UTP 
Plan'') defines its Participants to include the American Stock 
Exchange, Boston Stock Exchange, Chicago Stock Exchange, Cincinnati 
Stock Exchange, National Association of Securities Dealers, Pacific 
Exchange and Philadelphia Stock Exchange. Not all of these 
Participants currently trade OTC securities or disseminate 
quotations for OTC securities. To the extent that they commence 
trading OTC securities in the future, the CHX plans to include such 
market centers as Designated Markets.
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    In the Notice of Filing and Immediate Effectiveness for SR-CHX-
2003-05,\5\ the CHX represented that if all CHX specialists made a 
different or additional designation for all securities traded on the 
Exchange, the Exchange would file those changes with the Commission. 
The Exchange submitted this rule interpretation in accordance with that 
representation.\6\
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    \5\ See note 3, supra.
    \6\ Telephone conversation between Kate Boege, Associate General 
Counsel, CHX, and Katherine A. England, Assistant Director, Division 
of Market Regulation, Commission, on October 21, 2003.
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2. Statutory Basis
    The CHX believes the proposal 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).\7\ The CHX believes the proposal 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 to and 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. 78(f)(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 interpretation 
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.

[[Page 61844]]

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(1) thereunder \10\ 
because it constitutes a stated policy, practice or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule. At any time within 60 days of the filing of the proposed rule 
interpretation, the Commission may summarily abrogate such rule 
interpretation 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 240.19b-4(f)(1).
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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 proposal 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 interpretation that are filed with the 
Commission, and all written communications relating to the proposed 
rule interpretation 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 
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-2003-30 and should be submitted by November 20, 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. 03-27344 Filed 10-29-03; 8:45 am]
BILLING CODE 8010-01-P