[Federal Register Volume 69, Number 52 (Wednesday, March 17, 2004)]
[Notices]
[Page 12724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5948]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49387; File No. SR-CHX-2003-27]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment No. 1 by The Chicago Stock Exchange, Incorporated 
Relating to Execution of Limit Orders Following an Exempted ITS Trade-
Through

March 10, 2004.
    On August 7, 2003, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to render voluntary a CHX 
specialist's obligation to fill limit orders for the Nasdaq-100 Index, 
the Dow Jones Industrial Average Index and the Standard & Poor's 500 
Index (collectively ``Exempt ETFs'') \3\ resting in the specialist's 
book when the primary market is trading at the limit price, or when the 
bid or offering at the limit price has been exhausted in the primary 
market. On January 20, 2004, the Exchange filed Amendment No. 1 to the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that the Exchange has represented that 
to the extent the CHX Board of Governors designates subject issues 
other than or in addition to the Exempt ETFs identified in this 
proposed rule change, the Exchange will file those changes with the 
Commission as an interpretation of an existing rule pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4 thereunder.
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on February 3, 2004.\4\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as amended.
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    \4\ See Securities Exchange Act Release No. 49130 (January 27, 
2004), 69 FR 5227.
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    The CHX has represented that the proposed rule change is warranted 
because the Exchange believes that it is difficult, if not impossible, 
for a CHX specialist to obtain liquidity on behalf of his customers via 
the Intermarket Trading System in the case of Exempt ETFs given the 
dynamic and rapidly changing nature of the exchange-traded fund market.
    The Commission finds 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.\5\ 
Specifically, the Commission finds that the proposal is consistent with 
the requirements of section 6(b) of the Act,\6\ in general, and section 
6(b)(5) of the Act,\7\ in particular, which requires that the rules of 
an Exchange be 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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    \5\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. See 
15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the obligations on specialists to 
execute limit orders resting on the specialist book when the primary 
market is trading at the limit price, or when the bid or offer at the 
limit price has been exhausted in the primary market were obligations 
that the CHX assumed voluntarily in order to make its market more 
attractive to sources of order flow. The Commission believes that the 
business decision to potentially forego order flow by no longer 
requiring specialist to provide such protections to certain limit 
orders is a judgment the Act allows the CHX to make.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change, as amended, (File No. SR-CHX-
2003-27) be, and hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-5948 Filed 3-16-04; 8:45 am]
BILLING CODE 8010-01-P