[Federal Register Volume 69, Number 214 (Friday, November 5, 2004)]
[Notices]
[Pages 64608-64609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3015]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50616; File No. SR-CHX-2004-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The Chicago Stock Exchange, 
Incorporated to Modify Certain Charges that are Payable by CHX 
Specialists That Trade NASDAQ/NM Securities

November 1, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given 
that on September 27, 2004, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II and III below, which Items have been prepared by the 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments 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.
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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''), to modify certain charges that are payable by 
CHX specialists that trade NASDAQ/NM securities. The text of the 
proposed rule change is available at the Office of the Secretary, the 
Commission and 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 CHX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received regarding the proposed rule change. 
The text of these statements 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
    The CHX proposes to amend its Fee Schedule to modify certain 
charges that are payable by CHX specialists that trade NASDAQ/NM 
(``Over-the-Counter'' or ``OTC'') securities. Specifically, the changes 
to the Fee Schedule would (a) modify the formula for calculating the 
monthly fixed fee that is payable by OTC specialists; (b) establish a 
flat monthly CUSIP fee of $2,000 per OTC specialist firm, regardless of 
the number of issues traded; and (c) eliminate application and 
assignment fees for OTC issues that are assigned without competition.
    Fixed fees. The current monthly fixed fee payable by specialists 
trading OTC securities is calculated for each firm by subtracting, from 
the fixed fee charged to the firm in December 2003, a firm's pro rata 
share of a specific dollar amount. Additional reductions of the fixed 
fee are available to firms that meet specific share volume targets.
    Under the proposed new fee calculation, the CHX would increase the 
basic amount paid by its OTC specialist firms to help the CHX better 
cover its costs of supporting the OTC specialist program, but would 
provide incentives, through fixed fee reductions, to specialist firms 
that trade additional Nasdaq/NM securities and thus increase the number 
of issues traded on the CHX. Specifically, the CHX would calculate the 
basic fixed fee by charging OTC specialist firms the greater of $20,000 
or each firm's pro rata share of $60,000. A firm's pro rata share would 
be based on the number of firms trading OTC securities in a particular 
month.\3\ The CHX would also automatically increase the basic monthly 
fixed fee by $.0024 per share for all MAX-executed shares above 20 
million shares, up to $30,000 per firm, to recognize the fact that the 
CHX's costs of supporting the OTC specialist program would increase 
with substantial increases in its specialists' trading volume. As a 
final component of its fixed fee proposal, however, the CHX would 
reduce the fixed fee by $100 for each additional Nasdaq/NM issue 
assigned to an OTC specialist firm, subject to a maximum monthly 
reduction of $10,000 per firm. As noted above, this fee reduction 
provides an incentive to OTC specialist firms to trade additional 
Nasdaq/NM securities.
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    \3\ For example, if two specialist firms were trading OTC 
securities, each firm would pay $30,000. If three specialist firms 
were trading OTC securities, each firm would pay $20,000.
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    CUSIP, application and assignment fees. As noted above, the CHX 
also proposes to replace its current per-issue CUSIP fee with a flat 
fee and to eliminate the application and assignment fees that otherwise 
would be assessed when Nasdaq/NM issues are assigned without 
competition.\4\ These two proposals--like the proposed modification in 
the fixed fee--are designed to encourage specialist firms to trade 
additional Nasdaq/NM securities by allowing them to do so without 
absorbing additional costs.\5\
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    \4\ The CHX would continue to charge specialist assignment fees 
with respect to securities that are assigned to a specialist firm in 
competition with other firms, reflecting the increased 
administrative costs associated with allocating stocks in 
competition.
    \5\ The proposed elimination of the application and assignment 
fees would reduce fees for any OTC specialist firm that seeks to 
trade additional securities. The proposed changes to the CUSIP fee 
would reduce the CUSIP fees currently charged to two of the CHX's 
OTC specialist firms and would increase, slightly, the CUSIP fees 
currently charged one of the CHX's OTC specialist firms.
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    The CHX believes that these changes to the Fee Schedule represent a 
fair allocation of the costs associated with the OTC specialist 
program.\6\ As noted above, the changes are also intended to provide 
OTC specialists with an appropriate incentive to increase the number of 
OTC issues traded by an OTC specialist (consistent with the OTC 
specialist's duties as a specialist), which could allow the CHX's 
members to offer their customers access to a wider array of specialist-
traded OTC securities.
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    \6\ At a basic level, many of the CHX's costs of supporting the 
OTC specialist program do not vary based on the number of OTC 
specialist firms or the number of issues traded. These costs, 
however, can increase with substantial increases in trading volume. 
The CHX's proposed changes to the fixed fee are consistent with 
these principles.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(4) of the 
Act \7\ in that it provides for the equitable allocation of reasonable 
dues, fees and

[[Page 64609]]

other charges among the CHX's members.
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    \7\ 15 U.S.C. 78(f)(b)(4).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The CHX does not believe that the proposed rule change will impose 
any inappropriate 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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \8\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \9\ because it establishes or changes a due, fee or other 
charge imposed by the CHX. At any time within 60 days of the filing of 
such rule change, the Commission may summarily abrogate such 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 purpose of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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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 email to [email protected]. Please include 
File Number SR-CHX-2004-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathon G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CHX-2004-22. 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 Room, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing will also 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 No. SR-CHX-
2004-22 and should be submitted on or before November 26, 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. E4-3015 Filed 11-4-04; 8:45 am]
BILLING CODE 8010-01-P