[Federal Register Volume 69, Number 135 (Thursday, July 15, 2004)]
[Notices]
[Pages 42486-42488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16048]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49994; File No. SR-CHX-2004-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The Chicago Stock Exchange, 
Incorporated to Reinstate and Extend a Pilot Rule Interpretation 
Relating To Trading of Nasdaq/National Market Securities in Subpenny 
Increments

July 9, 2004.
    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 July 6, 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 and 
II, below, which Items have been prepared by the Exchange. The Exchange 
has filed this proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comment 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-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to immediately reinstate and extend through 
June 30, 2005, the pilot rule interpretation relating to the trading of 
Nasdaq/National market securities in subpenny increments. The CHX 
represents that it does not propose to make any substantive or 
typographical changes to the pilot; the only change is to immediately 
reinstate the pilot and extend its expiration date through June 30, 
2005. The text of the proposed rule change is available at the 
Commission and at the CHX.

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 regarding the proposal. The text of 
these statements

[[Page 42487]]

may be examined at the places specified in Item IV below. The CHX 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
    On April 6, 2001, the Commission approved, on a pilot basis through 
July 9, 2001, a pilot rule interpretation (CHX Article XXX, Rule 2, 
Interpretation and Policy .06 ``Trading in Nasdaq/NM Securities in 
Subpenny Increments'') \5\ that requires a CHX specialist (including a 
market maker who holds customer limit orders) to better the price of a 
customer limit order in his book which is priced at the national best 
bid or offer (``NBBO'') by at least one penny if the specialist 
determines to trade with an incoming market or marketable limit order. 
The pilot, which was approved in conjunction with exemptive relief 
granted by the Commission to allow for trading in Nasdaq/NM securities 
in subpenny increments,\6\ has been extended eight times and expired on 
June 30, 2004.\7\ The CHX now proposes to immediately reinstate and 
extend the pilot through June 30, 2005. The CHX proposes no other 
changes to the pilot, other than immediately reinstating and extending 
it through June 30, 2005.
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    \5\ See Securities Exchange Act Release No. 44164 (April 6, 
2001), 66 FR 19263 (April 11, 2001) (SR-CHX-2001-07).
    \6\ In proposed Regulation NMS, the Commission proposed rules 
that would prohibit national securities exchanges, national 
securities associations, alternative trading systems, vendors, 
brokers and dealers from displaying, ranking, or accepting bids, 
offers or orders in subpenny increments in most covered securities. 
See Proposed Rule 612 under the Act. The CHX represents that nothing 
in proposed Regulation NMS, however, would prohibit trading in 
subpenny increments. As a result, the Exchange believes that its 
pilot rule would remain in place, through its proposed new date of 
effectiveness, if Regulation NMS were adopted in its current form. 
The Exchange recognizes, however, that the exemptive relief it has 
been granted--to allow the Exchange's members to display their 
quotes in penny increments while trading in subpenny increments--
would be superseded if Regulation NMS's currently proposed 
provisions are adopted. The Exchange has stated that it will 
undertake to work with the Commission to ensure that the pilot 
program would be consistent with the rules and regulations contained 
in Regulation NMS, when it is adopted. Telephone conversation 
between Kathleen Boege, Vice President and Associate General 
Counsel, CHX, and Gordon Fuller, Counsel to the Assistant Director, 
Division of Market Regulation, Commission, on July 9, 2004.
    \7\ See Securities Exchange Act Release Nos. 44535 (July 10, 
2001), 66 FR 37251 (July 17, 2001) (extending pilot through November 
5, 2001); 45062 (November 15, 2001), 66 FR 58768 (November 23, 2001) 
(extending pilot through January 14, 2002); Securities Exchange Act 
Release No. 45386 (February 1, 2002), 67 FR 6062 (February 8, 2002) 
(extending pilot through April 15, 2002); 45755 (April 15, 2002), 67 
FR 19607 (April 22, 2002) (extending pilot through September 30, 
2002); 46587 (October 2, 2002), 67 FR 63180 (October 10, 2002) 
(extending pilot through January 31, 2003); 47372 (February 14, 
2003), 68 FR 8955 (February 26, 2003) (extending pilot through May 
31, 2003); 47951 (May 30, 2003), 68 FR 34448 (June 9, 2003) 
(extending pilot through December 1, 2003); 48871 (December 3, 
2003), 68 FR 69097 (December 11, 2003) (extending pilot through June 
30, 2004).
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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).\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 to and 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. 78f(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 
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

    The Exchange asserts that the proposed rule change is immediately 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder \11\ because it (1) Does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with 
protection of investors and the public interest.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested the Commission to waive the 30-day 
operative delay and the five-day pre-filing notice requirement. The 
Commission believes waiving the 30-day operative delay is consistent 
with the protection of investors and the public interest because it 
will allow the pilot to be reinstated and continue uninterrupted 
through June 30, 2005.\12\ The Commission has also determined to waive 
the five-day pre-filing notice requirement. At any time within 60 days 
of the filing of the proposed rule change, the Commission may summarily 
abrogate such proposed 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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    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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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. 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 
SR-CHX-2004-20 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 SR-CHX-2004-20. 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

[[Page 42488]]

inspection and copying at the principal office of the Exchange. 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 SR-CHX-2004-20 and should be submitted on 
or before August 5, 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. 04-16048 Filed 7-14-04; 8:45 am]
BILLING CODE 8010-01-M