[Federal Register Volume 68, Number 250 (Wednesday, December 31, 2003)]
[Notices]
[Pages 75675-75677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32178]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48985; File No. SR-CHX-2003-37]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Chicago Stock Exchange, 
Inc. Relating to ITS Trade-Throughs

December 23, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 26, 2003, the Chicago Stock Exchange, Inc. (``CHX'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposal pursuant to section 19(b)(3)(A) of the Act,\3\ and Rule 19b-
4(f)(1) \4\ thereunder, which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-1 4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain provisions of CHX Article 
XX, Rule 40, which incorporates certain provisions of the Intermarket 
Trading System (``ITS'') Plan (``ITS Plan''). Specifically, the CHX 
seeks to add Interpretation and Policy .06 to expressly recognize that 
certain executions will not be considered ``trade-throughs'' if an ITS 
commitment is sent contemporaneously with the execution of a trade 
through the bid or offer of another market center.
    The text of the proposed rule change is below. Proposed new 
language is in italics.\5\
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    \5\ The Commission made a technical change to the rule text to 
address a minor error in the proposed rule change. Telephone 
conversation between Kathleen M. Boege, Vice President and Associate 
General Counsel, CHX, and Ian K. Patel, Attorney, Division of Market 
Regulation, Commission, dated December 23, 2003.
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* * * * *

[[Page 75676]]

ITS ``Trade-Throughs'' and ``Locked Markets''

RULE 40. (a) Definitions
    (1) An ``Exchange trade-through,'' as that term is used in this 
Rule, occurs whenever a member on the Exchange initiates the purchase 
on the Exchange of a security traded through ITS (an ``ITS Security'') 
at a price which is higher than the price at which the security is 
being offered (or initiates the sale on the Exchange of such a security 
at a price which is lower than the price at which the security is being 
bid for) at the time of the purchase (or sale) in another ITS 
participating market center as reflected by the offer (bid) then being 
displayed on the Exchange from such other market center. The member 
described in the foregoing sentence is referred to in this Rule as the 
``member who initiated an Exchange trade-through.''
    (2) A ``third participating market center trade-through,'' as that 
term is used in this Rule, occurs whenever a member on the Exchange 
initiates the purchase of an ITS Security by sending a commitment to 
trade through the System and such commitment results in an execution at 
a price which is higher than the price at which the security is being 
offered (or initiates the sale of such a security by sending a 
commitment to trade through the System and such commitment results in 
an execution at a price which is lower than the price at which the 
security is being bid for) at the time of the purchase (or sale) in 
another ITS participating market center as reflected by the offer (bid) 
then being displayed on the Exchange from such other market center. The 
member described in the foregoing sentence is referred to in this Rule 
as the ``member who initiated a third participating market center 
trade-through.''
* * * * *
Interpretations and Policies:
* * * * *

.06 Contemporaneous Commitments

    The terms ``Exchange trade-through'' and ``third market 
participating market center trade-through'' do not include the 
situation where a member who initiates the purchase (sale) of an ITS 
security at a price which is higher (lower) than the price at which the 
security is being offered (bid) is another ITS participating market, 
sends contemporaneously through ITS to such ITS participating market a 
commitment to trade at such offer (bid) price or better and for at 
least the number of shares displayed with that market center's better-
priced offer (bid). A trade-through complaint sent in these 
circumstances is not valid, even if the commitment sent in satisfaction 
cancels or expires, and even if there is more stock behind the quote in 
the other market.
* * * * *

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 on 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is a participant in the ITS Plan.\6\ Exhibit B to the 
ITS Plan is a model ITS Trade-Through Rule (the ``Trade-Through 
Rule''), which provides that a member in one market should avoid 
initiating a trade if the trade would be executed at a price inferior 
to a price quoted by another ITS market center.\7\
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    \6\ The ITS Plan was approved on a permanent basis on January 
27, 1983. See Securities Exchange Act Release No. 19456 (January 27, 
1983), 48 FR 4938. Signatories to the ITS Plan include the American 
Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago 
Board Options Exchange, Inc., the CHX, the Cincinnati Stock 
Exchange, Inc. (now known as the National Securities Exchange), the 
NASD, the New York Stock Exchange, Inc. (``NYSE''), the Pacific 
Exchange, Inc., and the Philadelphia Stock Exchange, Inc.
    \7\ Section 8(d)(ii) of the ITS Plan requires each Participant 
to adopt a rule substantially the same as the Trade-Through Rule. 
CHX Article XX, Rule 40 is the Exchange's version of the Trade-
Through Rule.
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    As a remedy following a trade-through, the ITS Plan provides that 
(upon receipt of a valid trade-through complaint) the party that 
initiated the trade-through must send a commitment to trade, at the 
price and for the number of shares in the disseminated quotation, to 
satisfy the market that was traded through.
    The ITS Operating Committee believes that a member should be able 
to avoid any trade-through liability when a member sends a commitment 
at the same time that it trades through the bid or offer in another 
market. Accordingly, based on the Commission's request for express 
clarification, the ITS Operating Committee has encouraged each ITS 
Participant, including the CHX, to expressly recognize that a trade 
will not be considered an inappropriate trade-through if an ITS 
commitment is sent contemporaneously with the execution of a trade 
through the bid or offer of another market center. Accordingly, the CHX 
is submitting proposed CHX Article XX, Rule 40, Interpretation and 
Policy .06.
    As stated above, the Exchange believes that each ITS participant 
will propose a similar interpretation. As of the date of submission of 
this proposed rule change, the Exchange is only aware of a submission 
by the NYSE, containing proposed rule language identical to that 
proposed in this submission.
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) of the Act.\8\ The CHX believes the 
proposal is consistent with section 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78(f)(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change constitutes a stated 
policy,

[[Page 75677]]

practice or interpretation with respect to the meaning, administration, 
or enforcement of an existing rule, it has become effective pursuant to 
section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(1) 
thereunder.\11\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-CHX-2003-37. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review comments more efficiently, comments should be sent in hardcopy 
or by e-mail but not by both methods. 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 CHX. All 
submissions should refer to the File No. SR-CHX-2003-37 and should be 
submitted by January 21, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-32178 Filed 12-30-03; 8:45 am]
BILLING CODE 8010-01-P