[Federal Register Volume 69, Number 3 (Tuesday, January 6, 2004)]
[Notices]
[Pages 709-711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-221]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49004; File No. SR-CHX-2002-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 by the Chicago Stock Exchange, 
Incorporated To Amend Its Minor Rule Violation Plan

December 29, 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 April 11, 2002, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') 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 CHX amended the proposed rule change on December 22, 
2003,\3\ and again on December 23, 2003.\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 December 17, 2003 letter from Ellen J. Neely, Senior 
Vice President (``SVP'') and General Counsel (``GC''), CHX, to 
Joseph P. Morra, Special Counsel, Division of Market Regulation 
(``Division''), Commission, and attachments (``Amendment No. 1''). 
Amendment No. 1 completely replaced and superseded the original 
filing.
    \4\ See December 22, 2003 letter from Ellen J. Neely, SVP and 
GC, CHX, to Joseph P. Morra, Special Counsel, Division, Commission, 
and attachments (``Amendment No. 2''). Amendment No. 2 completely 
replaced and superseded Amendment No. 1.

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[[Page 710]]

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

    The CHX proposes to add to its Minor Rule Violation Plan (``Plan'') 
certain violations of Rule 11Ac1-1 under the Act \5\ (``Firm Quote 
Rule''), as well as violations of CHX Article XX, Rule 37(a) (``BEST 
Rule'') and CHX Article XX, Rule 37, Interpretation and Policy .04 
(``Ability to Switch MAX to Manual Execution'' procedures). The text of 
the proposed rule change is available at the Commission and at the CHX.
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    \5\ 17 CFR 240.11Ac1-1.
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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 its proposal 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 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 Plan provides a method for the Exchange to prosecute minor 
violations of rules contained in the Plan and to deter violations of 
those rules. Under the Plan, the Exchange may impose a monetary fine, 
instead of instituting a formal disciplinary proceeding, for a rule 
violation that the Exchange has found is minor in nature, but which the 
Exchange believes warrants a sanction more serious than a warning 
letter.\6\ Fines under the Plan can be up to $2,500 per violation.
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    \6\ Fines under the Plan can provide an appropriate situations.
    For example, where member conduct is not intentional or of such 
magnitude that it can be considered reckless, a fine under the Plan 
might be an appropriate response to a first, second or third 
violation by an Exchange member. The Exchange is mindful, however, 
that more egregious violations should not be handled through the 
summary proceedings authorized by the Plan.
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    The Exchange proposes to add to the Plan:
    [sbull] Violations of the Firm Quote Rule that are not related to 
commitments sent through the Intermarket Trading System (``ITS''); \7\
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    \7\ ITS-related violations of the Firm Quote Rule will be 
addressed in another filing, which the CHX will soon submit to the 
Commission for consideration.
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    [sbull] Violations of the Exchange's BEST Rule; and
    [sbull] Violations of the Ability to Switch MAX to Manual Execution 
procedures.\8\
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    \8\ One additional change to the current rule text deletes the 
reference to CHX Article XX, Rule 43(d), which has been merged with 
the BEST Rule provision of the Exchange's rulebook. See Securities 
Exchange Act Release No. 47811 (May 7, 2003), 68 FR 25916 (May 14, 
2003)(SR-CHX-2002-20).
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    The CHX believes that the addition of these rule violations to the 
Plan would enhance the enforcement efforts of the Exchange's Market 
Regulation Department (``Department'') by providing it with a broader 
range of enforcement options. Specifically, for these violations, the 
Department would be able to seek, in summary fashion, a disciplinary 
sanction that is more severe than a warning letter, but not as severe 
as the penalties that could result from the often time-consuming 
process of a formal disciplinary hearing.\9\
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    \9\ The Commission notes that certain of the rules that the CHX 
proposes to add to the Plan relate to market making obligations, and 
further notes that the Commission has indicated previously that 
``only the most technical and non-substantive violations'' of a 
market maker's obligations should be handled pursuant to a minor 
rule plan. Securities Exchange Act Release No. 27878, 55 FR 13345 
(April 10, 1990)(SR-NYSE-89-44).
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    Under the Exchange's proposal, eligible violations of the Firm 
Quote Rule would face recommended fines of $500 for the first 
violation, $1,000 for the second violation, and $2,500 for the third 
and subsequent violations. Violations of the Exchange's BEST Rule and 
the Ability to Switch MAX to Manual Execution procedures would face 
recommended fines of $100 for the first violation, $500 for the second 
violation, and $1,000 for the third and subsequent violations.
2. Statutory Basis
    The Exchange believes that 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).\10\ In 
particular, the CHX believes the proposed rule change is consistent 
with section 6(b)(5) of the Act \11\ in that it is designed to promote 
just and equitable principles of trade, to remove impediments to, 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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    \10\ 15 U.S.C. 78(f)(b).
    \11\ 15 U.S.C. 78(f)(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 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on 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 CHX 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 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. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
CHX-2002-09. This file number should be included on the subject line if 
e-mail is used. To help us 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 
filings will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to File 
No.

[[Page 711]]

SR-CHX-2002-09 and should be submitted by January 27, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-221 Filed 1-5-04; 8:45 am]
BILLING CODE 8010-01-P