[Federal Register Volume 69, Number 216 (Tuesday, November 9, 2004)]
[Notices]
[Pages 65002-65003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3081]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50619; File No. SR-CHX-2003-07]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change and Amendments No. 1 
and No. 2 Thereto Relating to Out-of-Range Execution Rules

November 2, 2004.
    On March 20, 2003, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ to amend CHX Article XX, Rule 37, which governs, 
among other things, ``out-of-range'' executions.\3\ The Exchange 
amended the proposal on March 10, 2004,\4\ and September 15, 2004.\5\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on September 29, 2004.\6\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ An ``out-of-range'' execution is an execution that would 
create a new high or new low for the day when compared to the 
primary market range.
    \4\ See letter from Kathleen M. Boege, Vice President & 
Associate General Counsel, CHX, to Nancy J. Sanow, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated March 10, 2004 (``Amendment No. 1''). Amendment No. 1 
clarified the purpose and effects of the proposal.
    \5\ See letter from Kathleen M. Boege, Vice President & 
Associate General Counsel, CHX, to Nancy J. Sanow, Assistant 
Director, Division, Commission, dated September 13, 2004 
(``Amendment No. 2''). Amendment No. 2 replaced the original 
proposal and Amendment No. 1 in their entirety.
    \6\ See Securities Exchange Act Release No. 50417 (September 21, 
2004), 69 FR 58208.
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    After careful review, the Commission finds that the proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act \8\ because 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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    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    CHX Article XX, Rule 37, governs the Exchange's Midwest Automated 
Execution (``MAX'') system and its SuperMAX 2000 system. Currently, 
Rule 37 contains provisions stating that neither system shall 
automatically execute an order if the execution would set a new high or 
new low for the day compared to the primary market price. If an out-of-
range execution would result, the order is deemed to have been 
submitted with a request for a stop and will be sent to a CHX 
specialist for manual handling. This proposal would eliminate these 
provisions, thereby allowing MAX and SuperMAX 2000 to effect automatic 
executions that may establish new highs or new lows for the day. CHX 
believes that these provisions are no longer necessary because, with 
the advent of decimal pricing and the increase in trading volume at 
regional exchanges such as CHX, an out-of-range execution is more 
readily seen by customers as reflecting the current market for the 
security.
    The out-of-range provisions in Rule 37 were designed to assist 
specialists in providing customers primary market price protection and 
to provide those customers an opportunity for price improvement by 
offering a stop. Although the Commission found these provisions to be 
consistent with the Act,\9\ it does not believe that the Act compels 
CHX to offer this particular form of investor protection. Therefore, 
the Commission believes that it is consistent with the Act for CHX to 
delete these provisions, thereby allowing its automatic execution 
systems to establish new highs and new lows for a security.
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    \9\ See Securities Exchange Act Release No. 36401 (October 20, 
1995), 60 FR 54893 (October 26, 1995).
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    Although deleting the provisions that treat orders that would 
result in out-of-range executions as if they had a request for a stop, 
certain of CHX's other rules contain references to the practice of 
stopping stock.\10\ CHX has represented that it is appropriate to 
clarify whether the practice of stopping stock should be permitted on 
the Exchange. If the Exchange's management, member committees, and 
Board of Governors determine that the practice of stopping stock on the 
Exchange should be prohibited, the Exchange would propose a separate 
rule change to the Commission. On the other hand, if the Exchange 
determines that it remains appropriate for CHX specialists to stop 
stock in certain limited circumstances, CHX has represented that it 
would

[[Page 65003]]

propose a rule change to the Commission defining the circumstances 
under which stock may be stopped on the Exchange and specifying 
appropriate conduct by CHX specialists.
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    \10\ See CHX Article XX, Rules 28 and 37(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CHX-2003-07), as amended, 
be, and it hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3081 Filed 11-8-04; 8:45 am]
BILLING CODE 8010-01-P