[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Notices]
[Pages 9660-9662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4509]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49298; File No. SR-CHX-2004-01]


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

February 23, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given that 
on January 21, 2004, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On February 19, 2004, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ 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 facsimile from Ellen J. Neely, Senior Vice President & 
General Counsel, CHX, to A. Michael Pierson, Attorney, and Marisol 
Rubecindo, Law Clerk, Division of Market Regulation (``Division''), 
Commission, dated February 19, 2004 (``Amendment No. 1''). Amendment 
No. 1 replaced the proposed rule change in its entirety.
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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 its membership dues and fees 
schedule (the ``Fee Schedule''), effective retroactively as of November 
1, 2003,\4\ to clarify the applicability of certain Fee Schedule 
provisions relating to transaction fees, and establish a schedule of 
maximum monthly transaction fees for certain agency orders executed 
through a CHX floor broker.
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    \4\ On December 31, 2003, the Exchange filed an identical 
amendment to the Fee Schedule, as immediately effective. See SR-CHX-
2003-39. Because the Exchange also seeks to apply the Fee Schedule 
amendments on a retroactive basis (i.e., to the months of November 
and December, 2003), the Exchange is submitting this proposal for 
notice and comment.
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    Below is the text of the proposed rule change. Proposed new 
language is italicized; 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. Market orders sent via MAX,        No charge.
     except agency orders executed
     through floor brokers.
    b. All orders sent via MAX in Tape B  No charge.
     eligible issues or in the stocks
     comprising the Standard & Poor's
     500 Stock Price Index, except
     agency orders executed through
     floor brokers.

[[Page 9661]]

 
    c. No change to text.
    d. [Through June 30, 2001, all        [No charge.]
     orders that are executed during the
     E-Session] Reserved for future use.
    e. In Nasdaq/NM securities, agency    $.0025 per share (up to a maximum of $100 per side), subject to the
     executions executed through a floor   fee reduction described in (i), below[.] and the fee cap described in
     broker and market maker executions.   (j) below.
    f. In Dual Trading System issues,     $.0035 per share (up to a maximum of $100 per side), subject to the
     agency executions executed through    fee reduction described in (i), below[. (Effective January 1, 2001)]
     a floor Broker and market maker       and the fee cap described in (j) below.
     Executions.
    g. All other MAX orders, except
     agency orders executed through
     floor brokers.
 
                                                 * * * * * * *
    h. The monthly maximum for transaction fees for orders sent via MAX, except agency orders executed through
     floor brokers, is $10,000 or, if less, $.40 per 100 average monthly gross round lot shares..
    i. No change to text
    j. The transaction fees set forth in Sections F.4(e) and (f) shall be subject to the following monthly
     maximums:
        (i) If the order-sending firm has routed an average of 7,000-9,999 executed round lot orders per day in
         a given month to the Exchange via the MAX system, a maximum of $40,000 for that month;
        (ii) If the order-sending firm has routed an average of 10,000-12,499 executed round lot orders per day
         in a given month to the Exchange via the MAX system, a maximum of $35,000 for that month;
        (iii) If the order-sending firm has routed an average of 12,500-15,000 executed round lot orders per day
         in a given month to the Exchange via the MAX system, a maximum of $30,000 for that month;
        (iv) If the order-sending firm has routed an average of more than 15,000 executed round lot orders per
         day in a given month to the Exchange via the MAX system, a maximum of $25,000 for that month.
    k. An order-sending firm will not be eligible for any of the transaction fee caps or reductions set forth in
     Section F.4 if the number of orders cancelled during the subject month by the member firm exceeds 50% of
     the member firm's total CHX executions for the month.
                                                  * * * * * * *
 

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Section F (``Transactions and Order 
Processing Fees'') of the Fee Schedule, effective November 1, 2003, by 
clarifying the applicability of certain Fee Schedule provisions 
relating to transaction fees, and establishing a schedule of maximum 
monthly transaction fees for certain agency orders executed through a 
CHX floor broker.
    Order-sending firms, which are members of the Exchange,\5\ 
generally route agency orders to the CHX via the Exchange's Midwest 
Automated Execution system, commonly referred to as the MAX[reg] 
system.\6\ The Exchange currently does not assess its order-sending 
firms a transaction fee for most orders sent through MAX and executed 
by specialists.\7\ If an agency order is routed by MAX to a CHX floor 
broker for execution, however, such order is assessed a transaction fee 
in accordance with Section F.4(e) and (f). The Exchange is proposing 
changes to Sections F.4(a), (b), (g) and (h) of the Fee Schedule to 
clarify the applicability of a transaction fee to MAX agency orders 
executed through a CHX floor broker.\8\

[[Page 9662]]

Thus, the proposed rule change does not impose any new transaction 
fees.
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    \5\ Telephone conversation between Kathleen M. Boege, Vice 
President and Associate General Counsel, CHX, and Lisa N. Jones, 
Special Counsel, Division, Commission (February 17, 2004).
    \6\ At the order-sending firm's request, however, an agency 
order routed through the MAX system may be sent directly to a CHX 
floor broker for handling.
    \7\ CHX Schedule of Membership Dues and Fees at Section F.4(a)-
(c). Sections (b) and (c) of Section F.4 were added to clarify that 
orders in Tape B eligible issues, in the stock of the Standard & 
Poor's 500 Stock Price Index, and in Nasdaq/NMS securities are not 
assessed a transaction fee when sent through MAX and executed by a 
specialist. Telephone conversation between Ellen J. Neely, CHX, A. 
Michael Pierson, and Marisol Rubecindo, Division, Commission 
(February 23, 2004).
    \8\ To summarize the interplay between the provisions of Section 
F.4, as a general rule, the Exchange notes that most orders sent via 
MAX and executed by the MAX system are not subject to a transaction 
fee. See Sections F.4(a), (b), (c) and (g). Telephone conversation 
between Ellen J. Neely, CHX, A. Michael Pierson, and Marisol 
Rubecindo, Division, Commission (February 23, 2004). Orders that are 
sent via MAX and require the assistance of a CHX floor broker, 
however, are assessed a transaction fee, to compensate for the costs 
associated with the floor broker's services. See Sections F.4(e), 
(f) and proposed amendments to Section F.4(a), (b) and (g). Section 
F.4 also establishes monthly maximum aggregate transaction fees. 
According to the Exchange, Section F.4(h) has always been 
interpreted as a cap on MAX order transaction fees other than the 
fees for MAX-delivered, floor broker-assisted orders. Section F.4(i) 
provides for fee reductions applicable to floor broker-assisted 
orders, but is based on total shares traded, thus rendering the fee 
reductions largely unavailable to order-sending firms that route 
smaller orders to floor brokers via MAX. The Exchange is proposing 
to add Section F.4(j) to establish new transaction fee maximums for 
MAX-delivered, floor broker-assisted orders, based on the number of 
MAX orders routed to the CHX by the order-sending firm. This change 
will permit order-sending firms that route a large number of small 
orders to qualify for a transaction fee cap. The CHX believes that 
the clarifying provisions of the amendment are necessary to avoid 
disputes as to the applicability of existing provisions imposing 
transaction fees and providing for caps. The Exchange notes that no 
order-sending firm would qualify for both the fee cap in F.4(j) and 
the fee reduction in F.4(i) because, if an order-sending firm had 
sufficient numbers of MAX-delivered orders to qualify for the fee 
cap in (j), the proposed cap would prevent it from generating 
monthly charges sufficient to qualify for the fee reduction in (i).
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    To preserve the CHX's competitive position with respect to MAX 
agency orders executed through a CHX floor broker, the Fee Schedule is 
also being amended to incorporate a monthly maximum transaction fee 
schedule for order-sending firms that meet certain monthly volume 
thresholds. The CHX believes that the proposed transaction fee schedule 
represents a reasonable balance between the need to maintain a 
competitive pricing structure and the need to assess a reasonable 
transaction fee when the assistance of a floor broker is required.\9\ 
In addition, the CHX believes that the transaction fee maximums 
represent a reasonable allocation of transaction fees, chiefly because 
the maximums apply to benefit the order-sending firms that route 
significant levels of order flow to the CHX, which generates increased 
revenues for the CHX. The CHX also believes that the maximums are fair 
to all members because they are available to any order-sending firm 
that chooses to meet the volume thresholds.
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    \9\ The Exchange is also proposing Section F.4(k) to the Fee 
Schedule to provide that the monthly transaction fee caps are not 
available to an order-sending firm that cancels a number of orders 
that exceeds 50% of the firm's CHX executions during the month. The 
CHX believes that this limitation is an appropriate means of 
deterring abusive cancellation practices; repetitive cancellations 
are extremely disruptive to floor members and to the CHX's automated 
systems.
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    As noted above, the Exchange is proposing to apply the Fee Schedule 
changes on a retroactive basis, to November 1, 2003. The Exchange 
believes that this relief is appropriate because during the months of 
November and December, the Exchange had noted a need for additional 
clarity regarding transaction fees for MAX agency orders executed 
through a CHX floor broker, and was engaged in an effort to draft 
appropriate Fee Schedule provisions for approval by the Exchange's 
Finance Committee and Board of Governors.\10\ According to the 
Exchange, if the Fee Schedule amendments are applied, retroactively, to 
the months of November and December, 2003, there are Exchange order-
sending member firms that would be eligible for a transaction fee 
credit. In addition, according to the Exchange the retroactive 
application of the Fee Schedule amendments would not result in the 
assessment of any additional fees against any CHX member.
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    \10\ These provisions included the maximum transaction fee 
schedule for order-sending firms that meet certain monthly volume 
thresholds.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 6(b) of the Act,\11\ in 
general, and Section 6(b)(4) of the Act,\12\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its members.
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    \11\ 15 U.S.C. 78(f)(b).
    \12\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose any 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 with respect 
to the proposed rule change, as amended.

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 other 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 Exchange 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.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal, 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-CHX-2004-01. The file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your 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, as 
amended, 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 
Exchange. All submissions should refer to the File No. SR-CHX-2004-01 
and should be submitted by March 22, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR.200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4509 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P