[Federal Register Volume 69, Number 106 (Wednesday, June 2, 2004)]
[Notices]
[Pages 31147-31148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12429]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49772; File No. SR-CHX-2004-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Stock Exchange, Incorporated 
To Amend the CHX Membership Dues and Fees Schedule To Provide a Tape 
Credit of 50% to Specialists Trading Tape A and Tape B Securities

May 26, 2004.
    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 January 30, 2004, 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. On May 18, 2004, the CHX 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    \3\ Amendment No. 1 completely replaced and superseded the 
original proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its membership dues and fees schedule 
(the ``Fee Schedule''), effective February 1, 2004, to provide a tape 
credit of 50% to specialists trading Tape A and Tape B securities. The 
text of the proposed rule change is available at the CHX and at the 
Commission.

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

[[Page 31148]]

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
    Under the Exchange's current Fee Schedule, the Exchange provides 
tape credits to specialists trading Tape A and Tape B securities.\4\ 
Specifically, under the Tape A credit program, the Exchange provides 
credits of 18% (for market share less than 7%), 45% (for market share 
between 7 and 12%) and 70% (for market share above 12%). A similar 
structure applies to the Tape B credit program, where the Exchange 
provides credits of 18% (for market share less than or equal to 5.75%) 
and 50% (for market share greater than 5.75%). These credits are 
expressed in marginal rates, however, so that no specialist receives 
the top level of credit for all trading in a particular security.\5\ 
Specialists may also receive additional transaction credits under the 
Fee Schedule.\6\
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    \4\ ``Tape A Securities'' are securities reported on Tape A of 
the Consolidated Tape Association. ``Tape B Securities'' are 
securities reported on Tape B of the Consolidated Tape Association.
    \5\ For example, if a specialist trades a Tape A security and 
had a 15% market share in that security, the Exchange would provide 
a credit of 18% on the trades that make up the first 7% of that 
market share, a credit of 45% on the trades that make up between 7 
and 12% of that market share and a credit of 70% only on those 
trades that exceed 12% of market share.
    \6\ The Exchange implemented a program, effective May 1, 2003, 
to provide additional tape revenue to specialists from certain 
incremental increases in the Exchange's share of Tape A and Tape B 
volume. See Securities Exchange Act Release No. 48477 (September 4, 
2003), 68 FR 53625 (September 11, 2003)(SR-CHX-2003-15).
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    The Exchange now proposes to amend the Fee Schedule, effective 
February 1, 2004, by providing a flat, not marginal, 50% tape credit to 
specialists trading Tape A and Tape B securities.\7\ This tape credit 
program is designed to provide credits to specialist firms that trade 
Tape A and Tape B securities in a manner that rewards them for their 
trading on the Exchange.
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    \7\ In the instant filing, the Exchange also (a) confirms that 
the specialist tape credits do not include any tape credits that 
might be paid to the Exchange's floor brokers under a separate tape 
program; and (b) deletes the provision currently in the Fee Schedule 
that relates to specialist credits available for trading that occurs 
during the E-Session, a trading session that no longer is held.
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    The Exchange's proposal is substantially similar to tape credit or 
rebate programs that have been approved for other market centers.\8\ As 
a result, the Exchange believes that the Commission would not be 
breaking new ground in approving this proposal; instead, it would only 
be allowing the Exchange to operate a market data revenue-sharing 
program that could compete on substantially similar footing with 
programs of other markets.
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    \8\ See e.g., Securities Exchange Act Release Nos. 46911 
(November 26, 2002), 67 FR 72251 (December 4, 2002)(SR-BSE-2002-
10)(approving proposal to (a) share 50% of Tape A revenues, in 
excess of a threshold amount, with eligible member firms; and (b) 
share 50% of net Tape B revenue per trade with member firms that 
route business to the BSE); 48106 (June 27, 2003), 68 FR 40318 (July 
7, 2003)(SR-PCX-2002-62)(approving an ArcaEx revenue sharing program 
that shared 50% of gross Tape A revenues with eligible users of the 
ArcaEx facility); and 46938 (December 3, 2002), 67 FR 72993 
(December 9, 2002)(SR-NASD-2002-149)(approving a transaction credit 
program for the Nasdaq InterMarket that shared 50% of Tape A and 
Tape B revenues with eligible members, based on the members' pro 
rata share of transactions in those securities).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(4) of the Act \9\ in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
its members.
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    \9\ 15 U.S.C. 78(f)(b)(4).
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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 proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CHX-2004-08 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CHX-2004-08. This 
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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/ 
rules/sro.shtml). 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 in the Commission's Public Reference Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
CHX. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-CHX-
2004-08 and should be submitted on or before June 23, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-12429 Filed 6-1-04; 8:45 am]
BILLING CODE 8010-01-P